Your bankruptcy attorney uses this language quite often, and we do too. It is some a special lingua franca, in describing bankruptcy either other than the common definitions and the kinds of claims in describing the bankruptcy process. Now, let us see what are these claims:
Secured, Priority and Unsecured Claims – what’s the difference?Before we use it more than once, you might be curious to know what basically is the difference in all three of them. Well, first thing you have to know is that not all creditors are created equally. Because they are in inequal, therefore their claims also needs different priorities.
There are three types of creditors in bankruptcy:
Secured creditors are those who have a lien or security interest in collateral. Examples of this include:
– Mortgage lenders
– Automobile finance companies
– Certain furniture dealers
– Certain jewelry dealers
– Car title lenders
Priority creditors get paid first from whatever is left in your estate after exemptions and secured creditors. Priority creditors include:
– Domestic support claimants (usually ex-spouses for alimony or support)
– Wage claims
– Tax claims within 3 years (it’s more complicated than that but this is what you need to know to start)
– Non-dischargeable tax claims – for example sales or withholding tax claims.
– All other creditors are unsecured.
An unsecured debts can be wiped out in a chapter 7 bankruptcy, while it may go toward reorganization in a chapter 13 reorganization. They are generally the following:
– All credit card transaction
– All personal transactions.
– All medical bills
– Any financial transactions which is not a security interest.
The best thing is that you are entitled to an automatic stay which you definitely need to have a shelter from your demanding creditors.
For secured creditors, you need to show your intention as “surrender” “reaffirm” or “others”, In case you want to surrender, there is no liability, and the credit claims can be wiped out. However, reaffirmation is risky, and you are telling the judge that you are willing to continue as long as you keep on making the payments. Surrender is a good option, if you have been involved in unhappy and expensive transaction. Of course anything you surrender, there should be no recurring liability. All liabilities associated with surrender should disappear and be wiped out via bankruptcy. There should not be any deficiency judgments after you surrender.