The way your bankruptcy case works out will be greatly affected by the types of debts you have, and bankruptcy uses two main classifications for debts. These are priority debts and nonpriority debts, and understanding how these work can help you choose the right branch of bankruptcy to file.
What Are Priority Debts?
Bankruptcy courts view debts as either priority debts or nonpriority debts, and the whole purpose of this is to determine which debts you must repay. Priority debts are the types of debts you will most likely have to repay in full if you file Chapter 7 or Chapter 13 bankruptcy. The court views these debts as very important, and these are viewed as a priority.
Child support and alimony are always classified as priority debts, but there are other debts that are usually classified in this way, and these include tax debt and any type of court-ordered debt. If you owe money for any of these things, you can most likely assume the court will classify them as priority debts. This means you will have to pay them in full if you file for bankruptcy.
What Are Nonpriority Debts?
Nonpriority debts are the opposite of priority debts, which means that bankruptcy courts do not place a high priority on these types of debts. In most cases, any type of unsecured debt will be classified as a nonpriority debt. These debts may be paid off partially or in full during a bankruptcy case, but this will depend on the type of bankruptcy you file and your current financial situation.
How Do You Use These Classifications To Choose The Right Branch?
If you talk to a bankruptcy attorney, he or she will first try to determine which branch of bankruptcy you would qualify for. Choosing Chapter 7 can be advantageous in some situations, but Chapter 13 is better in others. If you qualify for either type, your lawyer will help you choose the best option based on the types of debts you have.
Chapter 7 would be a better choice if your debt is primarily nonpriority debts. This is because Chapter 7 will allow you to have all your nonpriority debts discharged, and this could leave you with a clean slate. The only factor you should consider if you are in this situation is the assets you own. If you own assets that could be sold for a significant amount of money, such as a car that you own outright, you could lose them. The trustee can seize your property to repay debts that are discharged through Chapter 7. If this happens and you have any priority debts, the money the trustee obtains from selling your goods will be paid to your priority debt creditors before any money is issued to creditors of nonpriority debts.
If your debts primarily fall into the classification of priority debts, Chapter 7 would not be very helpful; however, Chapter 13 could be good for you. The benefit of choosing Chapter 13 in this situation is that it would allow you to repay these debts over time, and this would eliminate the risk of losing assets you own. With Chapter 13, you may also have to repay any nonpriority debts you have too, but the court places precedence on the priority debts first.
Filing for bankruptcy can help a lot if you are trapped in a pile of debt, but the types of debt you have can help you choose the right branch of bankruptcy. If you would like to find out how bankruptcy could help you, don't hesitate. Contact a bankruptcy lawyer today or visit websites like http://timgeorgelaw.com to schedule a consultation visit.