Who Gets Paid First in Bankruptcy?

Morris County Bankruptcy Attorney Describes the Process

People who file bankruptcy often owe money to different entities as creditors. When many creditors are involved, how do they decide who gets reimbursed first as the debtor begins to pay off his or her debts?

This question is at the heart of recent legal entanglements for Sonja Morgan, star of the reality show Real Housewives of New York. Currently, many of her creditors are attempting to take possession of her home as she fights to keep it. One of her creditors, Hannibal Inc., wants to liquidate all her assets, repossess her home and take its share of her debts before her other creditors do. Morgan says that she has her own plan in place to relieve her debts.

A judge is currently reviewing her proposal, which argues that funds from selling her French home, and an expected payment from her ex-husband, can effectively absolve her debts without liquidating her assets.

When Do Creditors Receive Funds from Bankruptcy Claims?

When it comes to bankruptcy, there are different levels of creditors vying for payment, and different types of debts. As a debtor, you might owe for priority unsecured debt, general unsecured debt and secured debt.

Unsecured priority debts are often paid off first. These are not dischargeable, and they have high priority since another party is likely depending on these payments to support their livelihood. Some examples include:

  • Family support, such as court-ordered alimony and child support
  • Wages owed from an employer to an employee
  • Money owed from a personal injury lawsuit

After these, debtors begin to pay off general unsecured debts, such as:

  • Credit card payments
  • Student loans
  • Utility bills
  • Medical bills

Secured debts are treated differently than unsecured debt. In these cases, you can likely get some of the debt discharged if you surrender the property connected with the loan. If you want to keep the property, then you will likely have to pay the outstanding amount owed. This applies when you owe money for:

  • Car loans
  • Home mortgages
  • Personal property bought on consignment, such as appliances or furniture

New Jersey Attorney for Bankruptcy Claims

The best way to find out who receives payment when is to speak with an experienced bankruptcy attorney. Every person is in a different situation, and state and federal laws control how you move through the process. An attorney who focuses on bankruptcy law can explain the best options available to you.



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