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Distribution of property
Order of payments under Chapter 7
Claimants in a Chapter 7 case receive distribution according to the order prescribed by Bankruptcy Code sections 725 and 726.Secured creditors: Claims that have been allowed as secured are paid first. They are paid from the collateral securing their claims. Bankruptcy Code §725. Remember that in bankruptcy a claim is deemed secured only to the extent of the value of the creditor's collateral. Bankruptcy Code §506(a)
Over secured creditors: Recall that, to the extent that the value of a secured parties collateral exceeds his allowed secured claim, any post-petition interest, and any fees, costs, or charges that are allowed generally accrue until the time of distribution in a Chapter 7 bankruptcy case.
Bankruptcy Code §506(h).
Priority Claims
Priority claims: Next, unsecured claims entitled to priority under section 507 are paid in the following order: Bankruptcy Code §726(a)(l):Administrative expenses: Bankruptcy Code §507(a)( 1 );
(2) Involuntary case gap claims: Bankruptcy Code §507(a)(2);
(3) Wages, salaries, or commissions: Bankruptcy Code §507(a)(3);
(4) Contributions to employee benefit plans: Bankruptcy Code §507(a)(4);
(5) Claims of grain farmers and United States fishermen: Bankruptcy Code §507(a)(5);
(6) Consumer lay away claims: Bankruptcy Code §507(a)(6);
(7) Unsecured pro-petition taxes: Bankruptcy Code §507(a)(7); and
(8) Capital requirements of an insured depository institution: Bankruptcy Code §507(a)(8).
Unsecured Claims
General unsecured claims: After the priority claims have been satisfied, the general unsecured claims that have been filed timely and have been allowed are paid: Bankruptcy Code §726:Justifiably tardy claims: Also included in this category are claims that have been filed late due to the creditor's lack of notice or actual knowledge of the case—as long as the claims were filed in time for distribution. [Bankruptcy Code §726(a)(2)(C); In re Columbia Ribbon & Carbon Manufacturing Co., 13 Bankruptcy. Ct. Dec. 962 (Bankruptcy. S.D.N.Y. 1985)]
Unexcused tardy claims: Unsecured claims that were filed late, without legal justification (see above), are paid after the other general unsecured claims: Bankruptcy Code §726(a)(3);
Penalty claims: Next in the order of distribution are unsecured or secured claims for punitive, exemplary, or multiple damages, or for lines, penalties, or forfeitures that do not constitute compensation for actual pecuniary loss: Bankruptcy Code §726(a)(4);
Interest: If the estate is solvent, after all of the claims above have been satisfied, post-petition interest at the legal rate is paid on claims under section 726(a)(l)-(4) from the date that the bankruptcy petition was filed: Bankruptcy Code §726(a)(5);
Payment to debtor: If there is any properly of the estate left after payment of post-petition interest on the unsecured claims, it is distributed to the debtor: Bankruptcy Code §726(a)(6);
Pro Rata Payment
Claims within any type of priority under bankruptcy
code section
507(a), or within any level of distribution under section 726(a), share
pro rata in the properly distributed to that particular category of
claims.
a. Example: Debtor Corporation files a voluntary Chapter 7 bankruptcy petition.
There are no secured creditors, and the general unsecured claims total
$30,000. Administrative expenses are $5,000, and each of ten employees
of Debtor Corporation holds a third priority wage claim in the amount of
$1,000. Unsecured pre-petition tax claims, with seventh priority status,
total $20,000. If the amount available for distribution is $10,000, the
administrative expenses will be paid in full ($5,000), and the ten
employees will receive $500 each. The holders of the priority tax claims
and the general unsecured claims will receive nothing: Bankruptcy Code
§726(b);
Exception—converted case: In a case that has been converted to Chapter 7
from Chapter 11, 12, or 13, the administrative expenses allowed in the
Chapter 7 case after
conversion have priority over any administrative expenses incurred prior
to
conversion: Bankruptcy Code §726(b);
Community Property
If any property of the estate constitutes community
property, Bankruptcy Code §541(a)(2), it must be segregated from other properly of
the estate. Special rules for distribution apply, including the payment
of administrative expenses, either from the community property or from
the other properly ot me estate, as justice requires.
Exception-Subordination of Claims: While the claims in a Chapter 7
bankruptcy case
ordinarily are paid in the order described above, some claims could be
subordinated to a lower rank in the distribution, such as when there is
a subordination agreement, there are claims of defrauded security
holders, or the principles of equitable subordination apply: Bankruptcy
Code §726(a);
El Cajon, California
El Cajon is a city in San Diego County, California, United States. The population was 94,869 at the 2000 census. El Cajon is Spanish for "The Box", relating to it being a parcel of land granted out of the vast Mission San Diego de Alcala tract and used for farming by Spanish missionaries
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