The next letter in the Bankruptcy alphabet is P, and that represents Priority Tax debt. What is priority? That it is better than every other debt? No, priority is a term of art in Bankruptcy, which refers to the order which creditors get paid.
What is a Priority Tax debt? It is a debt for income taxes that are less than 3 years old, and for other Federal and State taxes, such as corporate withholding taxes. Priority debt is important because it generally is debt that cannot be discharged (eliminated) in either Chapter 7 or Chapter 13 Bankruptcy. Other types of priority debt are child support arrears, business taxes, and criminal restitution.
If you are in a Chapter 13 bankruptcy, these debts must be paid in full during the 5- year maximum term. If you are in a Chapter 7 bankruptcy, and the trustee is selling an asset, the trustee uses the money to pay your debts. It is important to have the priority debts paid because they can’t be eliminated. So, priority debts are generally paid before other unsecured debts such as credit cards. If you are in a Chapter 13, payment plan, type of bankruptcy case, the priority debts will get paid after secured debts such as mortgage arrears and car loans, but before other loans, credit cards, and medical debts.
It is not always easy to tell which tax debts will be Priority and non-dischargeable, and which are non-priority, dischargeable debt. When you consult with an attorney, you should bring in all of your Federal and State income tax returns for the last 4 years, and any correspondence from the IRS and any State taxing authority. Then, you should consult with an experienced Bankruptcy attorney to help explain your options, and what the attorney recommends.
The attorneys at the Law Offices of Daniel J Winter are experienced in dealing with tax and priority debt issues in Bankruptcy. Call us for more information. We have offices in Chicago,Skokie,Waukegan, and Oak Lawn.
Daniel J. Winter
LAW OFFICES OF DANIEL J. WINTER
53W. Jackson Boulevard
Suite725
Chicago,IL60604
312-789-9999
BankruptcyLawChicago.com
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