I’m Filing for Chapter 7 Bankruptcy: What is the Priority of Distribution?

If you are filing for Chapter 7 bankruptcy, you might have questions about how the creditors will get paid. Many people are not familiar with the role that creditors play in your bankruptcy case. Creditors are one of the main aspects at the center of a bankruptcy case and have a right to receive payment from a debtor who is filing for bankruptcy so that they can ensure that they are paid for the money that is owed to them.

However, many people who endure a Chapter 7 bankruptcy do not know that an aspect known as the priority of distribution exists. The priority is established among creditors who are owed money so that each one is paid in order, as some creditors must be paid before others. Creditors are, therefore, divided by classes and each class is paid in full before it goes to the next one in the chain.

Does Priority of Distribution Apply to All Bankruptcy Cases?  

You have chosen to move forward with Chapter 7 bankruptcy because you believe that it is best for your specific circumstances. However, you might wonder if the priority of the distribution clause applies to Chapter 7 bankruptcy cases. The answer is: Yes. It applies to all bankruptcy cases that a person brings on behalf of their business.

Even though the priority of distribution applies to all of the different types of bankruptcies, the order varies according to the type. For instance, in Chapter 7 cases, where the non-exempt property is sold, the creditors will be paid from the profits of these pieces of property in the order that creditors were chosen. In Chapter 11 and 13 cases, creditors will be repaid according to the specific repayment plans.

Certain creditors are paid before others because society believes that creditors should be offered certain protections based on the circumstances and what they are collecting the money for. For instance, aspects like domestic support are widely paid first since the laws agree that families must be protected financially.

However, you should always remember that the United States Bankruptcy Court where the bankruptcy was filed is the first creditor that will be paid, as the courts charge fees when you file. Your attorney will walk you through how this works. After that, secured creditors will be paid, as they hold a lien on some property that owns the debtor. After that comes unsecured creditors, which stands for aspects like domestic support and alimony.

After this, certain creditors will stand in line including attorney’s fees, employees, and more. Until all of the debtors are paid, the money just goes down the line.

How a Chapter 7 Bankruptcy Attorney Can Help 

If you would like to get started on the Chapter 7 bankruptcy process but you are unsure of how this works, you need the experienced and dedicated help of a bankruptcy attorney in Texas to assist you every step of the way. Our attorneys at MJ Watson & Associates are here to assist you in your time of need with the knowledge of the many laws that apply to these cases. Please reach out to us at (214) 965-8240 for more information on how we can assist you.