How does the bankruptcy court decide which creditors will get paid?

The court in the District of Columbia generally follows the same process as other bankruptcy courts across the United States. The court’s decision on which creditors will get paid is based on the Bankruptcy Code, a federal law. The Bankruptcy Code sets out a specific hierarchy regarding which creditors and claims will get paid first. Generally, the order of creditors paid is: administrative expenses, secured creditors, priority unsecured creditors (these are types of creditors like child support and alimony), and then general unsecured creditors. Administrative expenses, such as bankruptcy attorney fees and court costs, must be paid first. These costs are paid in full before any other creditors can be paid. Next, secured creditors will be paid. These creditors have a lien or security interest in the debtor’s assets, meaning their claim is prioritized over other debtors. These creditors must receive their full claim before any other creditors are paid. After secured creditors, the payment priority shifts to priority unsecured creditors, who hold priority claims such as child support, alimony, and tax debt. Priority unsecured creditors have precedence over general unsecured creditors and must receive all of their money before general unsecured creditors can be paid. Finally, general unsecured creditors will be paid after all other creditors have received their money. However, these creditors often times receive less than they are owed due to the limited amount of assets available.

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How does the bankruptcy court decide which creditors will get paid?

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