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.

In consumer chapter 7 bankruptcies, although the trustee pretty clearly has a right to take possession of totally nonexempt property prior to the 341 meeting of creditors, this rarely occurs. These non-exempt issues can be resolved in one of three fashions.: (1) Turn the property over to the trustee; (2) Buy the non-exempt property back from the trustee; (3) file a Chapter 13, perform a liquidation analysis and account for that L.A. in your plan.

In the second option, the client would only need to buy back the non-exempt portion. For example, the debtor’s automobile may be worth $1,000 more than the amount which can be exempted. In these circumstances, terms can be arranged for a payment to the trustee in lieu of turning over the car. As long as the case will not be delayed, the trustee should be willing to accept payment in installments.

Give us a call at (616) 920-0555 for information on our $999.00 Flat-Fee Bankruptcy Service where you can get started with only $500.00 down.