Unless you have filed a Chapter 7 Bankruptcy and had non-exempt assets trustee sells and uses to pay creditors, you may never have wondered about this question. Why would you? I mean you have a life and you don’t worry about these things- but now it is happening and the question is relevant. Who gets paid first if a Chapter 7 trustee has money to disburse to creditors? Do all creditors share in the distribution regardless of who they are? What if debtor owes 50k in child support and 50k in credit card debt, do they share the distribution equally?
No- they do not. As a society we hold certain debts more socially important than others. For example, we believe child support should take “priority” over a credit card debt. Heck, child support gets paid before taxes if you can believe that! Section 507 of the Bankruptcy Code lays out a series of priorities should there be money available for distribution in a Chapter 7 Bankruptcy.
So child support and alimony owed to a person come first. Then, child support or alimony assigned to a different entity comes second, then wages, employee benefits, and taxes. Of course, there are also claims for administrative expenses too. It’s not unusual to see the Chapter 7 trustee fees and expenses eat up a major portion of the estate and leave little for distribution to unsecured creditors. The list of priority debts is extensive and can be found in Section 507 of the Bankruptcy Code.
If you are a debtor and have non-exempt assets, you will want to know where these funds are going especially if you owe back child support, alimony, or back taxes.
CONCLUSION
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