We were all afraid thinking what might happen to us.
since your sentence is placed in the past, it would be better to use
We were all afraid thinking what might have happened to us.
placing both your "fear" and the hypothetical consequences at the same time as the killing.
how it had been in the paper yesterday
how it had been in the paper the day before
are equivalent, however
the previous day
might be a clearer choice since "the day before" is usually part of a construction like
"the day before yesterday".
what it said in the paper yesterday
is more idiomatic.
people that were at the party
people that had been at the party
are equivalent and can be interchanged without loss of understanding in your example.
We were all afraid thinking what might have happened to us. What increased our fear was how it had been reported in the paper the day before... that the killer had killed all the people that were at the party.
is a correct sentence.