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The Best Interest Of Creditors Test And Chapter 7 Cases

The best interest of creditors test is applied in a Chapter 13 bankruptcy case to determine the minimum amount a debtor must pay to nonpriority unsecured creditors in a Chapter 13 plan. This analysis is based on the debtor's liquidation of assets in a hypothetical Chapter 7 bankruptcy case.  

In Chapter 7 bankruptcy cases, a bankruptcy trustee may sell or liquidate any of a debtor's nonexempt property to generally repay general unsecured creditors for credit card and other unsecured debts. All of a debtor's property becomes part of his or her bankruptcy estate upon the filing of a bankruptcy case.

However, certain exemptions in property may be taken by a debtor to exclude it from the bankruptcy estate. It is not inconceivable that a Chapter 7 debtor has nothing in his or her bankruptcy estate because exemptions cover any and all property owned by the debtor. It is essential that anyone considering bankruptcy determine how much and what property would be nonexempt in a bankruptcy case. The attorneys at Loan Lawyers may help any potential debtor accurately make this analysis.   

Thus, after a review of a debtor's nonexempt property, the aggregate value of this property is established. Debtors are then obligated to pay an amount at least equal to the value of this nonexempt property to receive a Chapter 7 discharge.

The best interest of creditors test examines the amount of money creditors would have, in fact, received if a Chapter 7 debtor's assets were liquidated. Bankruptcy trustees don't always seize a debtor's nonexempt assets for sale or liquidation. They generally prefer that the debtor pays an amount equal to the value of nonexempt property into their bankruptcy estate for distribution to creditors. Otherwise, the trustee has to expend time and other resources to sell the asset in question. Thus, costs associated with a sale or liquidation of a Chapter 7 debtor's assets further reduce the amount of money creditors would have, in fact, received if a Chapter 7 debtor's assets were sold or liquidated.   

The experienced South Florida defense attorneys at Loan Lawyers are here to help you if you are considering bankruptcy. To schedule a free consultation at any of our three conveniently located offices, contact Loan Lawyers today by calling (888) FIGHT-13 (344-4813).