The performing loans and other good assets are auctioned off, with proceeds going to the bad bank. The non-performing loans stay in the bad bank. The bad bank is taken over by its creditors and deposit insurers (FDIC). The good assets can either be pieced out, or auctioned off as a new going concern, called the 'good bank.'
"Fully half the quotations found on the internet are either mis-attributed, or outright fabrications." - Abraham Lincoln