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Chapter 13 payment plan to unsecured creditors

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    Chapter 13 payment plan to unsecured creditors

    Hi! Is there anyone out there that can tell me how the "Best Interest" calculation works? We have non-exempt assets of about $30K and I am wondering if our payment to unsecured creditors will have to be $30K over the life of the plan, or if that amount would be reduced by the amount we owe on unsecured priority debt (ie. 2009-2011 federal income tax debt of $23K). We aren't filing C13 until August (we've retained a lawyer, but I don't want to ask him a bunch of questions via e-mail) so our intake meeting won't be until June or so. Any thoughts? Thanks!

    #2
    Unsecured creditors are the last to be paid with what is left over from the other payments in your plan. If and when the other assets are paid off during the course of the plan, that amount will go toward the unsecured debt. Your payment will not change just the amounts distributed.
    Filed July 2009. Discharged 08/08/2014. Awaiting closing. We made it !!!! Woo-hoo!

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      #3
      Thanks, and here's my situation. When I calculate the B22C means test, it comes out negative. We are an above median household, so I guess technically, this means we pay zero to unsecured creditors. When I look at my schedule i & j, there isn't really anything left over here either after secured debts and priority debts (taxes). But we do have some assets (about $30K which is made up of some jewelry (primarily wedding ring), household stuff and a few cars - none of which are worth a heck of a lot, but combine it all and it's about $30K) When I try to figure out the best interest test, it's based on how much the unsecured creditors would get in a hypothetical Chapter 7 liquidation, so I guess my question is whether the taxes that we owe the IRS get factored into that calculation. I just know from completing schedule i and J plus the B22C schedule that I don't have $30K to spread over 60 months to pay unsecured creditors, plus have to pay the IRS in full ($23K) and the other secured debts that would be a part of the plan. Does that make sense?

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        #4
        Originally posted by ld2366eh View Post
        Thanks, and here's my situation. When I calculate the B22C means test, it comes out negative. We are an above median household, so I guess technically, this means we pay zero to unsecured creditors. When I look at my schedule i & j, there isn't really anything left over here either after secured debts and priority debts (taxes). But we do have some assets (about $30K which is made up of some jewelry (primarily wedding ring), household stuff and a few cars - none of which are worth a heck of a lot, but combine it all and it's about $30K) When I try to figure out the best interest test, it's based on how much the unsecured creditors would get in a hypothetical Chapter 7 liquidation, so I guess my question is whether the taxes that we owe the IRS get factored into that calculation. I just know from completing schedule i and J plus the B22C schedule that I don't have $30K to spread over 60 months to pay unsecured creditors, plus have to pay the IRS in full ($23K) and the other secured debts that would be a part of the plan. Does that make sense?
        From what you're describing, you would have to pay a minimum of $53k ($23k taxes + $30k to unsecureds due to non-exempt assets) PLUS attorney fees and trustee fees over the 60 months if you want to retain all of your non-exempt items. That is a payment of around $1000 a month.

        The real question here is how accurate your valuations are. For things like your wedding ring, the appraised value for insurance purposes isn't the same as the liquidation value. Same thing for household property (furniture, electronics, etc.). You use yard sale values. The $4000 wildcard should more than cover your household supplies. You can also do some bk planning, such as financing a newer car, which will lower your non-exempt assets. Think about it, would you rather pay a car payment on a newer car, or pay a larger amount to unsecureds so that you can keep your older car? It's a no-brainer.

        As always, speak with an attorney.

        And, supposing your valuations are correct and you have some super high-end items that will interest the tt, you may want to consider just surrendering them and getting your fresh start with a ch.7. You can always save up and replace them when you're in a better financial situation.
        Filed Chapter 13 on 2-28-10. 341 completed 4/14/10. Confirmed 5/14/10. Lien strip granted 2/2/11
        0% payback to unsecured creditors, 56 payments down, 4 to go....

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          #5
          Thanks for your advice! Our house is currently worth about $425K and we owe $488K on our first mortgage. Our 2nd (98K) and 3rd (36K) are underwater, so we want to do the C13 to get the liens stripped. We also have mortgage arrearages, and IRS taxes, so C7 wouldn't work for us. Hopefully the $30K is high on the assets. We can afford to stay in the house we are in if we can eliminate most of our other debt. I am going to a jewelry store in our area next week that gives cash on spot to redeem jewelry, so I'll see what they would "give" me for my rings then. As far as household goods, we have a lot of stuff, but no "one" thing that is going to catch the eye of the trustee. Just a bunch of stuff. It just might be the cars that hurt us. I have a 2009 Town & Country that's worth about $16K (we owe $9K), a 2012 (yes, we already traded our 2005 Jeep Grand Cherokee in on a 2012 model) Jeep that's financed to the hilt and underwater, a 2006 Mustang that's worth about $9K (we owe $2K), a 1966 Mustang (body only) worth about $750 and a 1967 Ford Galaxy (probably worth about $6K) that my husband inherited from his Dad a few years ago. My husband refuses to give up the cars. He'd rather lose the house. Hopefully it doesn't come to that!

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            #6
            Based on your #s - I added up with $20,750 vehicle equity. Some would be covered by state exemptions but I don't think IL's auto exemption is very much. How many adult drivers do you have in the household? You may have trouble with 3 car loans if there are only 2 drivers. Depending on the time frame for filing - see if you can avoid making car payments. Such as ask for a deferment. The more you pay now, the more equity you have.
            ~Staci
            Not an attorney, and never played one on tv. My responses are based on my own experiences & personal opinions.)

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              #7
              Illinois auto exemption is $2,400 x 2 because we have 2 drivers. We aren't filing until August and one of the car loans will be paid in full in October, my attorney said we'll try to leave that one alone, and step up the plan payments when it's paid in full. I like your idea of the deferment. We did that once on the T&C last summer. They might let us again - it's worth a shot! We aren't filing until August. Equity might come down a little as well due to increased mileage put on the vehicles...

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                #8
                You could check your values on your vehicles at AutoMax, they may be lower than Kelley Blue Book since they actually see the vehicle itself. Just a thought...
                ~~ Filed Over Median Income Chapter 7: 12/17/2010 ~~ 341 Held: 1/12/2011 ~~ Discharged: 03/16/2011 ~~
                Not an attorney - just an opinionated woman.

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                  #9
                  That's a great idea! We will definately do that!

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                    #10
                    Tell the trustee he can have the 3 extra cars to liquidate for creditors, then negotiate a buyback price with him. Ask your lawyer if this will work.
                    filed chapter 13..confirmed...converted to chapter 7...DISCHARGED!

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                      #11
                      Would I have to do that in a chapter 13? I thought we instead would have to pay at least that value to unsecured creditors but we would be allowed to keep our things...

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                        #12
                        Originally posted by momofthree View Post
                        From what you're describing, you would have to pay a minimum of $53k ($23k taxes + $30k to unsecureds due to non-exempt assets)
                        I don't think that is true assuming the tax debt is not secured and there are no other priority claims. I think the minimum would be $30k.

                        11 USC 1326(a) provides that one of the criteria for confirmation of the plan is:

                        (4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date;
                        It doesn't say "each allowed non-priority unsecured claim". In a hypothetical Chap 7 based on the OPs description, $30k in assets would get liquidated, the trustee would get his/her fee, then the IRS would get paid. If there was anything left after that, it would go to the other unsecured creditors. If there is not enough to cover the IRS debt, the Chap 7 would be discharged, the debtor would still owe the IRS if the taxes were not dischargeable and the other unsecured creditors would get nothing. Still, only $30k would get distributed to the trusee and creditors. 1326(a) does not require that a Chap 13 plan provides any more than that.

                        If the IRS debt and all other priority debt (like child support, trustee fees, attorney fees) was more than $30k, then the minimum plan minimum would be higher because allowed prioirty claims must be paid in full unless the holder of the claim agrees otherwise. (11 USC 1322(a)(2)).

                        I hope somebody will correct me if I am wrong about this.
                        LadyInTheRed is in the black!
                        Filed Chap 13 April 2010. Discharged May 2015.
                        $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

                        Comment


                          #13
                          What you are saying, is exactly what fueled my question to begin with. It's all very confusing. I placed the question with my paralegal, but haven't heard back yet. It seems that if the priority debt must be paid with the liquidated assets, then the balance (if any) would be what goes to the unsecured creditors, not the full amount. Does anyone else know what the answer might be to this? Thanks!

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                            #14
                            I tend to agree with Lady In The Red, simply put yourself in the shoes of a chapter 7 debtor for a moment (as-if it were allowed, no means test or non-consumer bk). Very rough rough not counting things like assets with secured debt, student loans, etc, the process is roughly as follows.

                            You would list your assets, separate out your exemptions, liquidate non exempt property, and pay out the proceeds to creditors. The IRS would step to the front of the line, and the remainder would go to whoever is left. If there is not enough to satisfy the IRS you will owe them, everyone else just gets discharged.

                            So it seems clear to me that the liquidation preference "best interest" calculation would just be the 30k.

                            Hopefully you can find some tactics to reduce that 30k.
                            filed chapter 13..confirmed...converted to chapter 7...DISCHARGED!

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