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If you prefer NOT to pay back wages to a present or prior employee, bankruptcy can help you use the law to prevent it being a priority debt.


Imagine that in the near future you’re closing down a business and filing bankruptcy. You owe an employee or independent contractor back wages or commissions. But you’d rather not pay that debt because you believe that employee had a major role in the business failing. You’d much rather have your scarce money go towards, for example, paying your income taxes. How do you use the law to your advantage to accomplish this?

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Posted on in Chapter 7

Your Chapter 7 trustee may pay your priority debts—in full or in part—through the proceeds of the sale of your unprotected, not exempt assets.


Our last blog post was about what happens to priority debts in a no-asset Chapter 7 case. Most consumer “straight bankruptcy” Chapter 7 cases are no-asset ones. This means that the bankruptcy trustee does not take anything from the debtor because everything is protected, “exempt.” The trustee does not take and liquidate any assets, and has nothing—no assets—to distribute to the debtor’s creditors. That’s a no-asset Chapter 7 case.

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Priority debts are largely unaffected by a Chapter 7 case—it does not discharge them, so you need to pay them after finishing your case.

Most Chapter 7 Cases Are No-Asset Cases

Chapter 7—“straight bankruptcy”—is the most common type of consumer bankruptcy case. They are generally the most straightforward, lasting about 4 months start to finish. Usually everything you own is protected by property exemptions. You discharge, or legally write off all or most of your debts. Secured debts like a home mortgage or vehicle loan are either retained or discharged. You either keep the collateral and pay for it, or surrender it and discharge any remaining debt. Bankruptcy does not discharge certain special debts like child/spousal support and recent income taxes.

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Chapter 7 provides no mechanism to cure your mortgage. But Chapter 13 does provide a powerful, realistic, and practical way to do so.

Chapter 7 “Straight Bankruptcy” and Chapter 13 “Adjustment of Debts”

Chapter 7 and Chapter 13 are the two main consumer bankruptcy options.

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You can protect the equity in your home if the amount of equity is no more than the homestead exemption applicable to residents of your state.


Our last two blog posts outlined 15 separate ways that bankruptcy can protect your home now and/or in the future. We’ll be explaining each one of these ways in 15 separate blog posts. Here is the first one—protecting present and future equity in your home through Chapter 7 “straight bankruptcy.”

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