Question

Briefly explain the three classes of creditors specified in the Bankruptcy Code.

Answer 1

When you file for bankruptcy, how the court will treat your debts depends on the type of claim the creditor has. In general, the court will classify each of your debts as:

A. There are three main types of creditors:

(1)     Unsecured creditor

(2)     Secured creditor

(3)     Preferred creditor

• a secured claim
• an unsecured claim, or
• a priority claim.​

What Is a Secured Claim?

• If a creditor has a secured claim in bankruptcy, it means that creditor has a lien (also called a security interest) on a piece of property you own. Secured claims can be voluntary or involuntary. If you pledge an asset as collateral when you incur a debt, you voluntarily give the creditor a security interest in your property. But creditors can also obtain liens against your property without your consent through a court judgment or by operation of law.

  The most common examples of secured claims in bankruptcy include:

• mortgages
• car loans
• unpaid real property taxes, and
• other types of liens on your property.

What Happens to Secured Claims in Bankruptcy?

Simply receiving a bankruptcy discharge will not automatically get rid of liens on your property (your discharge will usually only eliminate your personal liability for the debt). If you default on a secured obligation, your lender can still enforce the lien by foreclosing on or repossessing your property after bankruptcy. This means that if you want to keep that asset, you will normally have to continue making payments to the lender until you pay off the debt.

But there are ways to eliminate certain types of liens from your property in bankruptcy. Most commonly, you may be able to get rid of judgment liens that impair your bankruptcy exemptions or wipe out wholly unsecured junior liens from your property.

What Is an Unsecured Claim?

If a creditor doesn’t have a lien against your property, it will have an unsecured claim in your bankruptcy case. In general, your bankruptcy discharge will eliminate most types of unsecured claims. But keep in mind that certain unsecured debts (called priority claims) are not dischargeable in bankruptcy (discussed below).

Some of the most common unsecured claims you can discharge in bankruptcy include:

• credit card debt
• medical bills, and
• personal loans.

What Is a Priority Claim?

Certain unsecured debts are not dischargeable and receive special treatment in bankruptcy. These are called priority claims. Priority creditors get paid before other creditors in bankruptcy and their claims survive your bankruptcy discharge.

The following are some of the most common types of priority claims in bankruptcy:

• alimony
• child support
• certain tax obligations, and
• debts for personal injury or death caused by drunk driving.