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

In Massachusetts, the court determines who will be paid in a bankruptcy case by following the priority of unsecured creditors and the provisions outlined in Chapter 7 of the United States Bankruptcy Code. First, the bankruptcy court will review the debts owed and ensure that all creditors have been properly notified of the bankruptcy filing. Once this is done, the court will divide the available assets into categories. The most important type of debt is secured debt. This is debt that is backed up by collateral, such as a car loan or a mortgage. The bankruptcy court must ensure that secured debts are paid first. After secured debt is paid, the court will then prioritize the remaining debts. Priority debts, such as child support and alimony, must be paid next. After priority debts are taken care of, remaining unsecured debts will be paid according to the types of debt. For example, debts for medical expenses, credit cards, and other personal loans with no collateral will be paid from any remaining assets. If there are still funds available, the court will then begin to pay unsecured creditors other than the ones listed above. Any funds left over after all debts are paid will be distributed to the debtor. Ultimately, it is up to the bankruptcy court to decide which creditors will be paid and how much each will be paid.

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

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