How Creditors are Treated in Georgia Bankruptcy Cases
In Georgia, bankruptcy creditors are ranked according to the type of debt. The most common types of creditors are:
- Secured creditors, such as mortgage companies and car creditors;
- priority creditors, such as tax entities and recipients of child support or alimony;
- lessors, such as landlords; and,
- unsecured creditors.
Although creditor statutes are important in Chapter 7 cases where there are assets that can be liquidated to pay back creditors, such statuses are more often utilized in Chapter 13 cases. In Chapter 13 cases,the monthly payment is usually not high enough to pay money to every creditor off the bat, and, depending on the debtor’s financial situation, some creditors will not be paid in full. That means that some creditors will get paid off first before others will.
A creditor’s rank determines when the creditor will get paid. For example, a typical Chapter 13 plan pays car creditors first, then other secured creditors, priority creditors, and, finally, unsecured creditors. Car creditors are normally given such prime treatment under the theory of “adequate protection.” That is, because a car creditor’s loan is connected to the vehicle, the creditor has an interest in receiving payment in order to protect its interest. However, all creditors have an opportunity to object to the confirmation of a plan, so there are situations where the payment structure may be different. Say, for example, a mortgage creditor objects to being paid later on in the plan (ie. 25 months into the case after the car is fully paid), then an amendment to the plan must be made to pay the mortgage company more. Still, normally, a mortgage company is considered to be “adequately protected” because a debtor who keeps his home in Chapter 13 continues to make post-petition mortgage payments.
Tax authorities, such as the IRS or the Georgia Department of Revenue, receive “priority” status for tax debt that is not dischargeable (tax debt that is more than three years old may be discharged under certain circumstances). Priority creditors are typically paid after secured claims have been paid.
Lessors, such as landlords or rent-to-own creditors, are not typically paid through a Chapter 13 plan. Normally, debtors pay their leases directly.
Finally, unsecured creditors are last in line for payment after secured and priority creditors are paid in Chapter 13 bankruptcy cases. Depending on the income and/or assets of a debtor, unsecured creditors receive 0% to 100% repayment in Chapter 13 cases. I often come across clients in my Atlanta bankruptcy practice who can benefit greatly from Chapter 13 bankruptcy where their income allows them to repay only a small percentage of their unsecured creditors while still allowing them to keep and repay their cars and homes.
If you have any questions regarding how your creditors will be paid in bankruptcy, please call us at 404-593-2620 to meet with a Georgia bankruptcy attorney.