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Simple English definitions for legal terms
priority debt
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A quick definition of priority debt:
Priority debt is the most important debt that needs to be paid off first when someone declares bankruptcy. This includes things like child support, alimony, and court fines. Some debts are more important than others, and they need to be paid off before other debts. In California, there are laws that say which debts need to be paid first. Sometimes, if a creditor is treating other creditors unfairly, the order of when debts need to be paid can change.
A more thorough explanation:
Priority debt refers to the most important debts that must be paid off first in bankruptcy. These debts are listed in order of priority, with some creditors having the right to collect their debts before others.
- Alimony and child support payments
- Trustee fees and bankruptcy attorney fees
- Court fines and employee wage debt
In California, funeral expenses, last illness expenses, family allowances, and wage claims are also considered priority debt and must be paid promptly after setting aside enough funds to pay fees for administering an estate or trust.
When a company goes bankrupt, the doctrine of equitable subordination may be applied to determine the timeline for repaying priority debt to creditors. This can happen if a creditor or claimant unfairly treats other claimants, and the court orders a shift in claim priority.
Overall, priority debt is important because it ensures that certain debts are paid off before others, based on their level of importance and urgency.