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Priority Debts: Deposits by Individuals

by Adam Mack, J.D.

Hillary Stirling, research assistant

Another business-related priority debt relates to deposits customers have paid, whether that deposit was related to property or to services that werenotperformed. It exists to protect consumers who, in essence, extend credit to a business without being able to independently negotiate the terms of that extension of credit. (See In re Palmas del Mar Country Club, Inc., 443 B.R. 569 (Bkrtcy.D.Puerto Rico 2010).) The property or services being purchased must be for the claimant’s own personal, family, or household use. Business-to-business claims are not permitted. Such claimsare considered priorityand are not dischargeable, though the priority portion of the claim is capped at $1800.

The first type of deposit is the kind related to property (both real estate and personal property). Such deposits could be for the purchase, lease, or rental of any kind ofproperty. Perhaps the most common example of such deposits would be security deposits for rental properties. Other examples include layaway plansat retail stores and down-payments on property.

This second type of deposit is a bit more complicated. In the case cited above, deposits for memberships at a resort were not considered priorityclaims while deposits for gym memberships are clearly stated in the legislative intent to be covered under this type of priority debt. (The key difference in that case was whether or not the funds were reasonably expected to be held in trust.) Other examples of service deposits include appointment deposits and partial payment for services.

The Most Important Part
Bankruptcy is a complex area of law and anytime businesses are involved – even small businesses – the level of complexity increases dramatically. You deserve a qualified Kansas bankruptcy attorney as a legal ally to help you through the process. Call us today to find out how we can help you get debt free!


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