At the time of dissolution of a firm, when the amount realised from the sale of assets is insufficient to pay off the creditors in full, a deficiency of creditors arises. This deficiency is settled through the following process as per Section 48 of the Partnership Act 1932.

First, the amount realised from assets is utilised to pay off the outside liabilities of the firm such as creditors, loans, bank overdraft, bill payables, etc. If this amount is inadequate, the partners are required to contribute towards the deficiency.

Second, losses including deficiencies of capital are paid first out of profits, next out of capital of partners, and lastly by the partners individually in their profit sharing ratio. This means partners bring in additional funds from their private estates to settle the deficiency of creditors.

Third, if a partner is unable to contribute towards the deficiency due to insolvency, the sum not recoverable is treated as capital loss for the firm. Such loss is borne by the remaining solvent partners in accordance with the Garner vs. Murray case, which states that solvent partners bear such loss in the ratio of their capitals as on the date of dissolution.

Thus, the deficiency of creditors is ultimately paid by the partners through their personal contributions, ensuring that outside liabilities are fully discharged before closing the firm's books.