§ 87.5 — Priority Claims after BAPCPA

Revised: July 13, 2007

[1]

Unless the holder agrees otherwise, a priority claim must be paid in full to accomplish confirmation of a Chapter 13 plan.1 It is common in Chapter 13 cases to separately classify priority claims for payment in full to satisfy the confirmation requirement.2 Without separate classification (or consent), it would be impossible to confirm a Chapter 13 plan that contains priority debts unless the debtor is able to pay all allowed unsecured claims in full. It is generally held that the mandatory provision in § 1322(a)(2) that a Chapter 13 plan provide for full payment of all claims entitled to priority trumps the “unfair discrimination” test for separate classification of unsecured claims in § 1322(b)(1).3

[2]

BAPCPA enlarged the class of claims that are entitled to priority under § 507(a) and in the process increased the debt load that must be paid in full to accomplish confirmation of a Chapter 13 plan under § 1322(a)(2). In particular, BAPCPA expanded the former seventh priority for alimony, maintenance and support into a new first priority for domestic support obligations (DSOs).4 DSOs are debts in the nature of alimony, maintenance or support whether incurred before or after the petition and include interest that accrues during the Chapter 13 case. Absent consent from the claim holder, all DSOs must be paid in full—with postpetition interest under applicable nonbankruptcy law—to satisfy § 1322(a)(2). There is a statutory exception to the full-payment requirement in new § 1322(a)(4) for a DSO assigned to or payable to a governmental unit (other than for collection).5

[3]

There is a new subsection (10) in § 507(a) that creates a new priority for allowed claims for death or personal injury resulting from the operation of a motor vehicle or vessel if that operation was unlawful because the debtor was intoxicated.6 DWI claims within the description in § 507(a)(10) are entitled to tenth priority after BAPCPA and to full payment in a Chapter 13 case under § 1322(a)(2). For no obvious reason, the DWI claims that are entitled to priority under new § 507(a)(10) aren’t exactly the same as the DWI claims that are nondischargeable at the completion of payments in a Chapter 13 case under §§ 1328(a)(2) and 523(a)(9).7

[4]

Because DSO claims and most DWI claims are both priority and nondischargeable in Chapter 13 cases, in addition to full payment, both may be eligible for postpetition interest. The new definition of DSO in § 101(14A) includes interest accruing after the petition under nonbankruptcy law.8 The full-payment requirement in § 1322(a)(2) would seem to capture also the full payment of postpetition interest with respect to DSOs.

[5]

Under new § 1322(b)(10), a DWI claim that is nondischargeable in a Chapter 13 case may also be paid interest accruing after the petition if the debtor has disposable income available after providing for full payment of all allowed claims.9 The separate classification of a nondischargeable DWI claim for payment in full escapes the unfair discrimination test because of § 1322(a)(2), but adding postpetition interests triggers both the new conditions in § 1322(b)(10) and the unfair discrimination test in § 1322(b)(1).10

[6]

There are other priorities that were enlarged by BAPCPA that could impact Chapter 13 debtors. Wage claims entitled to priority were increased in amount to $10,000 by BAPCPA and have since adjusted to $10,950 for each individual.11 Chapter 13 debtors engaged in business with unpaid employees will have larger potential priority wage claims that must be paid in full to confirm a plan. The tax priority in § 507(a)(8) was modified by BAPCPA to ease the calculation of the 240-day assessment period when there has been a prior bankruptcy case or offer in compromise.12 These expansions of existing priorities will increase the amount of priority debt that must be paid in full by Chapter 13 debtors to confirm Chapter 13 plans.


 

1  See 11 U.S.C. § 1322(a)(2), discussed in § 98.1 [ Plan Must Provide Full Payment ] § 73.1  Plan Must Provide Full Payment. There is an exception to this rule for a domestic support obligation assigned or payable to a governmental unit (other than for collection) in new § 1322(a)(4). See § 458.1 [ Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) ] § 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA.

 

2  See § 151.1 [ Priority Claims ] § 87.4  Priority Claims.

 

3  See §§ 149.1 [ Power to Classify Unsecured Claims: Tests for Unfair Discrimination ] § 87.1  Power to Classify Unsecured Claims: Tests for Unfair Discrimination and 151.1 [ Priority Claims ] § 87.4  Priority Claims.

 

4  See 11 U.S.C. § 101(14A), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA, 519.1 [ Domestic Support Obligations ] § 136.21  Domestic Support Obligations after BAPCPA and 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5  Domestic Support Obligations: § 523(a)(5).

 

5  11 U.S.C. § 1322(a)(4), discussed in § 458.1 [ Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) ] § 88.5  Domestic Support Obligations Assigned or Payable to Government: § 1322(a)(4) after BAPCPA.

 

6  11 U.S.C. § 507(a)(10), discussed in §§ 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA and 522.1 [ The New DWI Priority ] § 136.22  The Driving or Boating while Intoxicated Priority after BAPCPA.

 

7  The differences are that a claim for death or personal injury caused by the debtor’s operation of an aircraft when the debtor was intoxicated is nondischargeable under 11 U.S.C. §§ 523(a)(9) and 1328(a)(2) but is not entitled to priority under 11 U.S.C. § 507(a)(10) and only death or personal injury resulting from unlawful operation of a motor vehicle or vessel while intoxicated fits the tenth priority in § 507(a)(10). See §§ 522.1 [ The New DWI Priority ] § 136.22  The Driving or Boating while Intoxicated Priority after BAPCPA and 555.1 [ Boating or Flying while Intoxicated: § 523(a)(9) ] § 159.8  Boating or Flying while Intoxicated: § 523(a)(9).

 

8  See also § 459.1 [ Postpetition Interest on Nondischargeable Claims: § 1322(b)(10) ] § 88.3  Postpetition Interest on Nondischargeable Claims after BAPCPA: § 1322(b)(10).

 

9  11 U.S.C. § 1322(b)(10), discussed in § 459.1 [ Postpetition Interest on Nondischargeable Claims: § 1322(b)(10) ] § 88.3  Postpetition Interest on Nondischargeable Claims after BAPCPA: § 1322(b)(10).

 

10  See §§ 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6  Treatment of Priority Claims Changed by BAPCPA and 459.1 [ Postpetition Interest on Nondischargeable Claims: § 1322(b)(10) ] § 88.3  Postpetition Interest on Nondischargeable Claims after BAPCPA: § 1322(b)(10).

 

11  11 U.S.C. § 507(a)(4), discussed in § 440.1 [ New and Changed Priority Claims ] § 73.3  Priority Claims Added or Changed by BAPCPA.

 

12  11 U.S.C. § 507(a)(8), discussed in § 513.1 [ Taxes ] § 136.3  Taxes after BAPCPA.