If you find yourself in a position where filing for bankruptcy is the most logical course of action for you and your family or for your business, you will also find that you have creditors to who will fall into different categories and that creditors in the different categories have different rights. When you think of creditors in bankruptcy, you should think of them being listed in their different categories as on a totem pole. Behm Law Group, Ltd. provides legal assistance to help you throughout the process of filing for bankruptcy in Mankato, MN, and to protect and direct you in the face of your creditors.
When you file for bankruptcy, your creditors must file proofs of claim with the bankruptcy court to show, as a matter of public record, the type or category of debt that you have with each of them and how much you owe to each of them. These claims can fall into the following three categories.
Secured Claims: These claims should be viewed at the top of the totem pole. When your creditor has a lien on your property (or a security interest), they can file a secured claim. Mortgages and car loans are common examples of debts with security interests attached. If you default on these types of debts, your creditors can enforce their liens and reclaim the property (i.e. house, vehicle, washer/dryer) securing their liens. Chapter 7 filers must specify in a bankruptcy form called the “Statement of Intention” whether they want to surrender property/collateral to a creditor or continue making debt payments and retain the property/collateral. Chapter 13 filers can continue paying off the debt secured by the property/collateral with their established repayment plan and in some cases even eliminate the lien their creditors have on that property/collateral.
Priority Claims: These claims should be viewed in the middle of the totem pole. Where unsecured claims are on dischargeable debts with no secured collateral, priority claims are non-dischargeable debts with no secured collateral. “Non-dischargeble” means that they are not subject to being wiped away or discharged. These debts are unsecured debts but they are debts that Congress, for certain public policy reasons, determined should not be subject to discharge. For example, child support debts, some tax debts, and criminal fines are generally not subject to discharge in a Chapter 7 case. Creditors to whom you owe these types of debts file priority claims when you file for bankruptcy relief. Because these debts are not discharged, you must keep paying them even if you file for Chapter 7, and they must be completely repaid with your chapter 13 repayment plan if you file for Chapter 13. Creditors with priority claims will be repaid before those holding unsecured claims, but after those with secured claims.
Unsecured Claims: These claims should be viewed at the bottom of the totem pole as they have a lower priority than secured claims and priority claims. These claims are only applicable to debts with no secured collateral. Most frequently, these debts include medical bills, personal loans, and credit card debt and are almost always discharged with a Chapter 7 case. With Chapter 13 cases, your non-exempt assets and your disposable income determine the repayment plans for these debts. Creditors with unsecured claims are often paid last and paid least.
If you are considering filing for bankruptcy in Mankato, MN, and you would like to learn more about how Behm Law Group, Ltd. can help you throughout the process, contact us today at (507) 387-7200.