Priority debts are always given first preference when repaying the debts. These include Employee Wages, domestic support obligations, child support etc. these must be paid off before the non-priority debts like medical bills and credit card balances.
Disbursement of the funds by the trustee
The onus lies with the trustee to use your assets to pay off our debts. But most debtors who file for bankruptcy under chapter 7 have no assets which the trustee can sell off to pay the creditor. So, with whatever money that is available, the trustee will review the funds and disburse the funds accordingly.
However, preference will be given to priority unsecured debts.
Repaying priority debts first is a boon for the debtor
This is because priority debts cannot be discharged in bankruptcy. So, if you have to foreclose your property to pay off your debtors, the value from your property will be used to clear your debts and you will not need to pay them again separately. Moreover, debts like credit card bills and other non-priority debts will get discharged
Common Priority Debts under Chapter 7 include-
· $13,650 per employee wages, salary, and/or commissions earned within 180 days of filing for bankruptcy
· An amount up to $13,650 contribution to Employee benefit plans due within 180 days of bankruptcy
· $6,725 debts owed to farmers and fishermen
· Alimony, support, and maintenance
· Income Tax due within 3 years of filing
· Claims for deaths or injury because of drunk driving