Priority debt is a legal concept that is often used in bankruptcy proceedings, debt negotiations, and divorce settlements. Simply put, the legal term “priority debt” refers to the financial obligations of a debtor that must be given priority over many other types of debt. Priority debt is established under federal bankruptcy law and can usually include child support payments, income taxes, and certain types of unsecured debts.
Types of Priority Debts
Priority debts are generally divided into two categories; non-dischargeable debts and those that are entitled to special provisions. Non-dischargeable debts are those that will not be eliminated even after bankruptcy is declared. This includes past due child support and certain types of taxes. Priority debts that are entitled to special provisions are those that must be paid first before other unsecured debts during bankruptcy proceedings. This may include certain types of wages or debts related to secured property, such as security deposits placed for leases or mortgages.
How Priority Debts Can Impact Your Finances
The status of priority debt can have a major impact on your finances, especially when filing for bankruptcy. Depending on how much priority debts you have and how much of it you’re able to pay off, it can make a notable difference in the amount of debt you’re declared to have. It’s important to understand the difference between priority and non-priority debts before moving forward with any bankruptcy proceedings.
Knowing what priority debts are and how they may affect your finances is key. It is important to understand the legal definition of priority debt as well as how it can impact your financial situation. With the guidance of a qualified legal professional, you can make well-informed decisions that are in your best interest.