Creditor Claims in Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, all creditor claims are put into one of three classes: Secured, priority, or unsecured. Read on for a quick lesson on how to know which type of claim is which.

Secured Claims are held by creditors who hold a lien on collateral, such as a car or furniture, to secure payment of their loan. Even the IRS can be secured if they have recorded a lien. Secured claims get paid 100% on a dollar plus 10% interest on an amount equal to the fair value of equity in the collateral. If the creditor is undersecured (i.e., their claim exceeds the fair value of the collateral), part of their claim is paid as unsecured.

Priority Claims are usually taxes where: (1) the returns were due less than three years ago; (2) the returns were filed less than two years ago; or (3) the taxes were assessed less than 240 days ago. Trust fund taxes are also priority. Priority Creditors are paid dollar for dollar under the “plan”.

Unsecured Claims are those claims that do not qualify as Secured or Priority claims (taxes included). They are paid only the amount which the Petitioner can afford to pay within the 3-5 year “plan” period. Some plans pay as little as 0% to unsecured creditors (but in no case can the “plan” pay less than would be paid under a Chapter 7 liquidation).

Still confused? Read more about Chapter 13 bankruptcy here on our website and contact us here to set up your free consultation with San Diego bankruptcy expert Gary Quackenbush and his team. They can help get a plan set up with the IRS and you back on your feet financially.

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This article gives basic information on California Bankruptcy Law and is not legal advise. Laws are complex and change frequently. Please contact our office or that of another experienced bankruptcy attorney to get information on your particular case.