Student loans and priority debts get special treatment in bankruptcy, which makes them easy to put in the wrong place. Priority debts are paid ahead of other unsecured debts, and student loans are generally harder to discharge than credit cards. For a bankruptcy petition preparer or virtual bankruptcy assistant (VBA), the safest approach is to gather complete, accurate facts about each of these debts and flag the classification questions for the attorney. This guide explains the basics, what information to collect, and where things go on priority debts on bankruptcy schedules and the student loan listings.
What are priority debts?
The Bankruptcy Code puts certain unsecured claims in a priority category. The law pays them ahead of ordinary unsecured debts, and in Chapter 13, the plan generally has to pay them in full. The most common priority debts in consumer cases are:
- Domestic support obligations: past-due child support and alimony
- Certain recent taxes: typically income taxes that meet timing and filing rules
- Some unpaid employee wages and benefits, in cases involving a business
Priority claims appear in Part 1 of Schedule E/F. Everything else unsecured goes in Part 2. See Bankruptcy Schedules A Through J Explained. For taxes, read Discharging Taxes in Your Bankruptcy and How to Report Debtor's Income Tax Due When Not Withheld.
Why the classification matters
Whether a debt is priority affects how much the debtor has to pay in Chapter 13, and whether the debt survives the case. A mistake can derail a plan. But deciding whether a given tax debt qualifies for priority, or whether child support is current, is a legal judgment. You collect the facts; the attorney classifies the debt.
Domestic support obligations: what to collect
- Whether the debtor owes support, receives it, or both
- The order or agreement that sets it, and the court that issued it
- Who is owed (the other parent, a state agency) and where payments are sent
- The monthly amount and the payment history, including any arrears
Trustees ask whether the debtor is current on support, so find out early. If there are arrears, flag them. Support received also belongs on Schedule I.
Tax debts: what to collect
- The type of tax (federal income tax, state tax, payroll tax, property tax) and the tax years involved
- The filing dates of the returns, or whether they were never filed
- The assessment dates and any notices, liens, or installment agreements
- Tax transcripts and notices from the taxing authority
The timing of the return, the due date, and the assessment can all affect whether a tax debt has priority or can be discharged, so the dates matter. Gather every notice and flag the facts for the attorney.
Student loans: what to collect
Student loans are generally listed on Schedule E/F, Part 2 (nonpriority unsecured claims), unless something about the debt puts it elsewhere. Don't try to decide whether a particular loan can be discharged. Under the Bankruptcy Code, student loans are generally not discharged unless the debtor goes through a separate process to show undue hardship, and how that process works has changed over the years. The attorney will advise. Your job is to list every loan completely:
- Every loan, federal and private, including loans for the debtor's own education and any the debtor co-signed for someone else
- The lender, the servicer, and the collector, if different, with addresses for notices
- The balance and the status (in repayment, deferment, forbearance, default, or in collection)
- The monthly payment and whether it is based on income
- Whether anyone else is on the loan (a co-signer goes on Schedule H)
- Any wage garnishment or tax-refund offset on the loan
Our post Chapter 7: Student Loan Debts gives more background, and the federal student loan data site can help a debtor find the loans in their name.
Where each type of debt goes
| Debt | Usually listed on | Note for the attorney |
|---|---|---|
| Past-due child support or alimony | Schedule E/F, Part 1 | Is the debtor current? Who is the payee? |
| Recent income taxes | Schedule E/F, Part 1 or Part 2, depending on the facts | Return dates, due dates, assessment dates |
| Student loans | Schedule E/F, Part 2 | Federal or private; status; co-signers |
| Co-signed debts | The proper creditor schedule, plus Schedule H | Who the codebtor is |
| Credit cards, medical bills, collections | Schedule E/F, Part 2 | Recent charges, if any |
A flag-for-attorney note you can copy
Debt classification questions: (1) [Taxing authority] shows a balance for tax year [year]; the return was filed on [date] and the assessment date is [date]. Notices attached. (2) Student loans: [number] loans, [federal/private], status [status], combined balance about [$]. (3) Debtor reports child support arrears of about [$] owed to [payee]. Order attached.
How to answer a debtor's questions
Debtors almost always ask whether their student loans or taxes will be wiped out. The answer is for the attorney:
“Whether a debt like that can be discharged depends on the law and the details. Your attorney will go through it with you. I'm collecting the paperwork they need to answer you accurately.”
See Unauthorized Practice of Law and the cheat sheet.
Get the schedules right the first time. Our Chapter 7 & 13 certification course covers every schedule, including priority and nonpriority claims. A bankruptcy petition review checks how your finished draft lists secured, priority, and unsecured debts.
Frequently asked questions
Are all student loans nonpriority?
Generally they are listed as nonpriority unsecured debts, but how they are treated in the case is the attorney's decision.
What if the debtor doesn't know who services the loan?
Use the credit report and the federal student aid data to identify federal loans, and ask the debtor for the latest statements for private loans.
What if a debtor owes taxes but hasn't filed the returns?
Flag it immediately. Unfiled returns can be a serious problem in both chapters.
This article is general education for bankruptcy professionals, not legal advice. The classification and dischargeability of debts depend on current law and the specific facts. Confirm with the supervising attorney. Questions about our courses? See the FAQ.