How are debts paid in bankruptcy?
A chapter 7 bankruptcy filing will typically discharge (wipe out) most unsecured debt without payment to creditors; secured creditors (house, car, furniture, etc) will continue to be paid by the debtor. If there is money to be disbursed to creditors, the court will send a notice advising each creditor to file a proof of claim. If a creditor fails to file a claim with the court, it will not be paid. Most Chapter 7 cases are “no asset” cases which means the unsecured creditors get nothing and the dischargeable debts are discharged. However, in cases where there are unprotected assets, the Chapter 7 trustee may require the asset to be turned over to him/her to liquidate. The proceeds from the liquidated assets will be disbursed to the unsecured creditors on a pro-rata basis, each creditor that has filed a claim will receive a portion of the proceeds and, if dischargeable, the balance of the debt is wiped out. In a Chapter 12 or Chapter 13 bankruptcy the trustee will distribute funds under
