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

When a person files for bankruptcy in North Carolina, the bankruptcy court is tasked with deciding which creditors will get paid and how much money they will receive. This decision-making process is different depending on the type of bankruptcy filing. In a Chapter 7 bankruptcy filing, the court will approve a trustee who will then use state and federal laws to prioritize which creditors are to be paid first. Generally, secured creditors are paid first, which includes mortgages and vehicle loans. They are granted preference over unsecured creditors, such as credit card debt. The trustee will then attempt to pay as much as possible to the remaining creditors, based on their priority. In a Chapter 13 filing, debtors come up with a repayment plan that the court will then approve or deny. This plan is required to prioritize debt payments with certain debts, such as secured debt, being paid first. The court must approve this plan before any creditors receive money. The remaining unsecured creditors are then paid according to their priority set by the court. In either situation, the bankruptcy court will make the ultimate decision as to which creditors are paid and how much they receive.

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

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