What Happens To The Money Paid To A Chapter 7 Bankruptcy Estate?

19 May What Happens To The Money Paid To A Chapter 7 Bankruptcy Estate?

In many bankruptcies, there are some nonexempt assets that the trustee gets to sell, or some cash that the trustee gets to use to pay to unsecured creditors. What happens to the money?

The trustee has to pay debts in a specific order. The new law, BAPCPA that went into effect in October of 2005 changed the order of payments slightly but the basic principles are the same.

If you owe any domestic support obligations (alimony, child support, that sort of thing) to your spouse, former spouse or child the trustee will pay that first. Next she’ll pay any domestic support obligation owed to a governmental unit. Third, she will pay any administrative expenses. These can include fees for professionals she has hired such as attorneys, realtors, etc.

Next, the trustee will pay priority debts. These can be taxes, employees, or that sort of thing. Only after that does the trustee get around to paying your other debts. Those, too, are paid in a specific order so that the money is reasonably divided among your credit cards, bills, etc.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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