Is it the case that the debtor's total plan payments (disposable income) will equal the value of the debtor's non-exempt property, is the debtor planning on paying more than his disposable income into the plan, or something else?
That was going to be the next question - if the best interest payments come from the Chapter 13 Plan payments, or if the best interest payments must be in addition to the Plan payments.
To answer your question - the total plan payments could be enough to cover the non-exempt property if some of the unsecured creditors get less. The debtor would only pay his disposable income into the plan.
I see the other expert is offline...
The debtor has to have enough disposable income to satisfy the Best Interest of Creditors Test ("BIT") or the trustee can still object to confirmation. So, ideally, when a debtor has to satisfy BIT, hopefully you can show enough disposable income to do so. If not, you may be looking at a Chapter 7 and liquidation of the unexempt asset.However, BIT does not require the debtor to pay in an amount equal to the value of the unexempt asset(s); rather, it requires the debtor to pay to unsecured creditors, through the Plan, at least as much as they would have gotten had the debtor filed Chapter 7. These are similar, but not the same thing; and, after doing some math, they can turn out to be quite different.For example, say the debtor has an asset worth $100,000, and $75,000 of that asset is exempt. Therefore, $25,000 of the asset is not exempt. BIT does not require the debtor to pay in at least $25,000 to unsecured creditors in the Plan; instead, only about $13,275 would satisfy BIT. The reason for this is that if a Chapter 7 trustee were going to liquidate the $100,000 asset to get to the $25,000 unexempt portion, you can assume that the trustee would face about 10% of the value of the asset in costs to liquidate (realtor fees, auction fees, storage fees, etc). Then, Chapter 7 fees are $1,250 on the first $10,000 and roughly 10% on an amount above that (see the Code for the formula). So, $100,000 value minus $75,000 exemption leaves $25,000 in unexempt equity, minus $10,000 costs to sell, minus $2,625 Chapter 7 trustee fees, leaves $13,275.So, if I were filing a Plan under that hypothetical situation, let's say the attorneys fees to be paid through the Plan are $3,000, and the trustee fee in your district is 5%. Let's also say debtor has a car they want to pay through the Plan, and they owe $4,000 on it and it is worth $4,000, and the contract interest rate on the car is 21%. I would plug in the attorneys fees of $3,000, $4,447.20 for the car ($4,000 value/claim at 4.25% crammed down interest rate over 60 months), $13,275 for unsecured creditors to satisfy BIT, and multiply all this by 5% for the Ch 13 trustee fee, for a Plan base of $21,758.31. Then divide by 60 and you have $362.64/mo for 60 months as a Plan payment. As long as you have at least $362.64/mo in disposable income (or more) you are okay. If not, you need to look at your client's budget to see if you can help them trim it or tighten their belt. If not, depending on how bad they want to protect the $100,000 asset, they may need to surrender the car to lower the Plan payment, etc. If this doesn't work, their only choice may be Chapter 7 and lose the asset to the trustee for liquidation.
Of course, different jurisdictions may have a different way of calculating BIT, but that is how it is done in my jurisdiction.
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Thank you for the quick response. What, if anything, must the debtor do to indicate that best interest payments are to be paid from the Chapter 13 Plan? Also, what must the debtor do to indicate that he wants to retain the partially exempt property in exchange for making best interests payments? Is a motion necessary for either of these, or can it all be taken care of in the Chapter 13 Plan/Schedules?
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