When you file for a Chapter 7 bankruptcy, you may encounter a number of unfamiliar terms. One of these is an unsecured creditor.
An unsecured creditor is a creditor without a valid lien or mortgage against property of the person filing. Credit cards are the most common type of unsecured debt, while mortgages and auto loans are the most common forms of secured debt.
Paying Unsecured Creditors in a Chapter 7 Bankruptcy
If the person filing for bankruptcy protection has nonexempt assets, unsecured creditors may file claims with the court within 90 days after the first date set for the meeting of creditors. The trustee will examine these claims and file objections to those deemed improper.
When the trustee has collected all of the person’s nonexempt property and converted it to cash, and when the court has ruled on the trustee’s objections to improper claims, the trustee will distribute the funds in the form of dividends to the unsecured creditors according to the priorities outlined in the Bankruptcy Code.
Domestic support obligations; administrative expenses; claims for wages, salaries, and contributions to employee benefit plans; claims for the refund of certain deposits; and tax claims are given priority, in that order, in the payment of dividends by the trustee. If there are funds remaining after the payment of these priority claims, they are distributed pro rata to the remaining unsecured creditors.
In Chapter 7 cases filed by consumers, unsecured creditors usually get nothing. Typically, the state's property exemptions are high enough to protect all of the assets a filer wishes to keep.
How We Can Help
If you're drowning in debt, we're here to help. At Steffens Law Office, our experienced bankruptcy attorneys can prepare your case in a way that maximizes your exempt assets. This will allow you to eliminate unsecured debt while protecting as much of your property as possible. Call our office today to schedule a free, no-obligation initial consultation.