Chapter 13 Bankruptcy: Liquidation Analysis

In a Chapter 13 Bankruptcy, if you are unable to exempt all of your assets, you will need to perform a liquidation analysis (LA).  The purpose of a liquidation analysis is to ensure the general unsecured creditors are receiving at least the amount they would be receiving if the unexempted assets were liquidated in a Chapter 7 bankruptcy. As such, cost of sale, trustee’s compensation, and priority debts are to be taken into consideration.

For example, let’s say that a client has $5,000 in unexempted assets and owes $1,500 to the IRS. Under this scenario, the Chapter 7 trustee’s fee would be 25%, reducing the amount to be actually distributed to $3,750. Of that, the first $1,500 will go to the priority class of creditors (IRS), leaving the remaining amount of $2,250 available for the general unsecured creditors. Therefore, $2,250 would be the result from the LA.

If we were dealing with a home where some of the equity is not able to be exempted, you may also deduct the cost of sale, typically 6% of the FMV.

For more questions about Bankruptcy or the Liquidation Analysis, please give us a call at (616) 920-0555.

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