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Archive for the ‘personal injury debt’ tag

Priority Debt for Intoxicated Driving

March 16th, 2020 at 7:00 am

If you injured someone by unlawfully driving while intoxicated, the resulting personal injury debt would be a priority debt in bankruptcy.   

Priority Debts

For many weeks our blog posts have been considering how bankruptcy deals with “priority” debts. Examples of these special debts that we’ve covered include child/spousal support, income taxes, and wages owed employees. Sections 507(a)(1),(4), and (8) of the U.S. Bankruptcy Code.

There’s one more kind of priority debt. It does not come up often but if it affects you, you need to know about it.

Priority Debts vs. Non-Dischargeable Debts

But first we need to clear up something that could be quite confusing.

Some debts cannot be discharged (legally written off) in bankruptcy, or can’t in certain circumstances. For example, bankruptcy never discharges child/spousal support debt, and discharges income taxes only under certain conditions. So the issue is whether or not you will owe the debt after the bankruptcy case is over. See Sections 523 and 524 of the Bankruptcy Code.

Whether or not a debt is a priority debt is a different consideration. Those are debts that the law treats with greater priority during the bankruptcy case itself.  For example, in an asset Chapter 7 case—one in which the bankruptcy trustee has assets to distribute to creditors—priority debts receive payment in full before general unsecured debts receive anything. Similarly, in a Chapter 13 case, the debtor must pay priority debts in full during the payment plan. General unsecured debts usually receive payment only to the extent you can afford to pay them after the priority debts.

The confusion comes from the fact that most, but not all, priority debts also cannot be discharged in bankruptcy. But that’s not absolutely always true. The considerations are sometimes different. In any event, priority and dischargeability are different considerations that have different consequences in different situations. You and your bankruptcy lawyer need to consider them separately.

Specifically with debts related to driving while intoxicated, the law makes those debts nondischargeable in many situations. See Bankruptcy Code Section 523(a)(9). But those situations are not exactly the same ones as the ones determining priority. The rules are a bit different. And again, the discharge of drunk driving debts vs. whether they qualify as priority are separate considerations with different consequences. We’re focusing today on the priority question.

Debts from Unlawful Operation of a Vehicle because Intoxicated

The Bankruptcy Code says that a debt is a priority debt if it is

for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.

Section 507(a)(10).

Under this language there are three key issues:

  1. It covers debts related to death or personal injury. The statutory language doesn’t cover property damage. Those would not be priority debts. However, in most accidents the personal injury side of the accident debts is much larger than the property damage side.
  2. The debt must come from your unlawful operation of a vehicle. So, the issue is whether you met your state’s standards of unlawful intoxication.
  3. Debts arising from other forms of unlawful operation of vehicle not involving intoxication are not priority debts. For example injuries resulting from speeding or reckless driving would not qualify as a priority debt.

The Consequences of Being Priority Debt

The consequences of having a personal injury debt being priority are different under Chapter 7 and Chapter 13.

Under a Chapter 7 “straight bankruptcy” case it only matters if it’s an asset case. As mentioned above, those are ones in which your trustee has assets with which to pay some of your debts. In that case he or she would pay your priority debts before paying other debts. So if you had a priority personal injury debt, it would receive payment before all non-priority debts. There’s a good chance the assets the trustee is distributing would not be enough to pay off the personal injury debt. Then you may or may not owe the balance depending on the discharge considerations mentioned above.

Most Chapter 7 cases are no-asset ones. All of your assets are “exempt,” protected from bankruptcy trustee liquidation. So the trustee has no assets to pay any creditors, including the priority personal injury debt. So there’s no practical effect from that debt being a priority debt. Again, whether or not you continue to owe the debt after the case is over turns on the separate discharge issue.

Under a Chapter 13 “adjustment of debts” case, your court-approved payment plan must “provide for the full payment” of all debts “entitled to priority.”  Bankruptcy Code Section 1322(a)(2).  Therefore you must budget enough to pay off a priority personal injury debt during the payment plan. You’d have 3 to 5 years to do so. You’d pay that in full before paying anything on non-priority unsecured debts. However, if that priority debt is huge, you may not have enough money to pay it off within that time. If so, a Chapter 13 case would likely not be a feasible solution. Therefore, determining whether the personal injury debt is or is not a priority debt would likely be very important.

 

“Priority” Debts for Injuries from Driving while Intoxicated

September 16th, 2016 at 7:00 am

If you injured someone by unlawfully driving while intoxicated, the resulting obligation can’t be discharged in bankruptcy.  

 

Our last 5 blog posts have been about how bankruptcy deals with “priority” debts. The specific types of priority debts we’ve focused on so far are child/spousal support, wages owed employees, and income taxes. See Sections 507(a)(1),(4), and (8) of the U.S. Bankruptcy Code.

Today we look at another type of priority debt, one that many people don’t realize is a priority one. It is the newest priority debt, described as such by Congress in the last major overhaul of the Bankruptcy Code in 2005.

Unlawful Operation of a Vehicle while Intoxicated

The Code’s definition for this type of debt is a claim “for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”

So, if you drive while legally intoxicated, causing injury or death, that party’s claim against you is a priority debt.

So What? What Does It Matter?

There are two main legal consequences, one under Chapter 7 and one under Chapter 13.

First, under a Chapter 7 “straight bankruptcy” case your trustee pays your priority debts in full before paying other debts. But usually all of your assets are “exempt,” protected from bankruptcy trustee liquidation. So there’s no money for the trustee to pay any creditors, including the priority debts. So there’s no practical benefit to the driving-while-intoxicated debt being a priority debt in that situation.

Second, under a Chapter 13 “adjustment of debts” your court-approved payment plan must “provide for the full payment” of all debts “entitled to priority.”  So you have to budget enough to pay off the driving-while-intoxicated debt during the case’s 3 to 5 years. You can and must pay that in full before paying anything on non-priority unsecured debts. But if that debt is very large, you may not have enough disposable income to pay it off in time. As a result a Chapter 13 case may not be feasible.

“Priority” vs. “Nondischargeable” Debts

But there’s another angle to this that’s probably even more important. One big theme of these last few blog posts has been whether a debt that is a priority debt also cannot be discharged (forever written off).

For example, all unpaid child/spousal support is priority debt, with the Chapter 7 and Chapter 13 consequences outlined above. And support also can never be discharged.

But some priority debts CAN be discharged. To use the example of our most recent blog post, if you owed unpaid wages to a former employee, that could be a priority debt. But most likely that type of debt would be dischargeable. If you filed a Chapter 7 case, the debt would likely be discharged.

How about debts for driving while intoxicated?

They’re like support obligations: they are both priority debts and nondischargeable.

The language from the Bankruptcy Code quoted above making these debts priority ones is very similar to language elsewhere in the Code making them nondischargeable. So, you can’t discharge a debt “for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.” Section 523(a)(9).

The Bottom Line

Debts from driving while intoxicated can’t be discharged under either a Chapter 7 or 13. They must be paid in full within a Chapter 13 plan. These are a highly favored type of debts under the law.

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