bankruptcy creditor claims
In which section does the U.S. Bankruptcy Code discuss the priority (in payout) of secured claims to be paid?
I’ve read that secured claims have priority over unsecured claims in the priority of payout to creditors. Section 507 of the code addresses priority of unsecured claims, but where can I find the priority of secured claims in the Code?
“Secured” debt is secured by the property itself.
In a bankruptcy, all unsecured creditors are treated equally. Either they all get nothing (as in a Chapter 7) or they all get the same percent of repayment (as in a Chapter 13). You can not, for example, decide to repay Macy’s all you owe them on your credit card because you like Macy’s and not pay anyone else. All unsecured creditors are treated equally.
Secured debt is secured by property which can be repossessed if the loan defaults. Houses and cars are the most common secured debts. In bankruptcy, you are given the option of defaulting on those debts and letting the lender take back the property or to keep paying on the loans and keep the property. There is no priority on who you want to continue paying and who you want to stop paying. You make that decision yourself. Many people who have two cars let one go back & keep the one that is paid off but continue paying on their homes.
Unsecured debt, under section 507 (which, I understand has been updated) is prioritized by things like support payments (child support) and back taxes owed to the federal government and/or the state government and federally-backed student loans. Those items are generally not dismissed in a bankruptcy filing and must be paid in full. Those kinds of debts take priority over unsecured claims like credit cards and personal unsecured lines of credit.
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