When completing Bankruptcy Schedules, we are asked to identify three categories of creditors: 1) Secured Creditors (Schedule D), 2) Unsecured Creditors (Schedule F) and 3) Priority Creditors (Schedule E). When creditors file a Proof of Claim, they have to state which category into which their claim falls. Here is a brief description of each of these categories:
- Secured Claims. A creditor has a secured claim if they hold a security interest (or “lien”) in property owned by the debtor (their “collateral”). Most secured creditors in Bankruptcy cases are home and vehicle lenders, but a creditor may have a security interest in boats, RV’s, jewelry, furniture and other property. A secured creditor generally has a secured claim to the extent of the value of its collateral, and an unsecured claim for the remaining debt. Secured creditors are typically allowed to retrieve their collateral or continue getting paid on their debt, and their liens generally remain after the Bankruptcy case is over even if the personal liability is discharged.
- Unsecured Claims. General unsecured claims are debts for which the creditor has no collateral. This includes most credit card debt, personal loans, student loans, guaranteed business debts, medical bills, utility bills, deficiency claims, and the like. Note that an unsecured claim can become a secured claim if a creditor gets a judgment and judgment lien.
- Priority Claims. Congress has decided that some types of debts should get priority over others. This generally means that if there are funds available to pay creditors in a case, these claims get paid before general unsecured creditors. Priority claims in personal Bankruptcy cases include domestic support obligations (alimony, child support), certain taxes, and the administrative expenses of the case. Priority claims are usually unsecured claims, but can be secured claims (for example, the IRS may have a tax lien on property for a priority tax claim). A debtor should usually keep a close watch on priority claims in a case, because priority claims are often non-dischargeable claims. It is in the debtor’s best interest that as much of these debts as possible gets paid in the case, leaving less to pay later.