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The estate includes all his or her assets or all their assets (in the case of a married couple) broadly defined. From the estate, the debtor removes property claimed exempt; the trustee may recapture some assets improperly removed from the estate (preferential and fraudulent transfers), and what’s left is the distributable estate. It is important to note that the vast majority of Chapter 7 bankruptcies are no-asset cases—90–95 percent of them, according to one longtime bankruptcy trustee. 1 That means creditors get nothing. But in those cases where there are assets, the trustee must distribute the estate to the remaining classes of claimants in this order:
- Secured creditors, paid on their security interests
- Claims with priority
- Unsecured creditors who filed their claims on time
- Unsecured creditors who were tardy in filing, if they had no notice of the bankruptcy
- Unsecured creditors who were tardy and had notice, real or constructive
- Claims by creditors for fines, penalties, and exemplary or punitive damages
- Interest for all creditors at the legal rate
- The debtor
Figure 35.2 Distribution of the Estate
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