What is the Liquidation Analysis?
In a Chapter 13 bankruptcy, you cannot pay less money to your unsecured creditors than would be available in a Chapter 7 bankruptcy. This is known as the “liquidation analysis.” Your Plan needs to be able to pass the liquidation analysis before the Plan can be confirmed. For an explanation of Chapter 7 and Chapter 13 see my article entitled, “The Difference Between Chapter 7 and Chapter 13, and Which One Is Right For You.” For an explanation of Plan confirmation see my article entitled, “Confirmation of a Chapter 13 Repayment Plan.”
In a Chapter 7 bankruptcy, the Trustee has an economic incentive in selling assets for the benefit of creditors. There are exemptions, or protections, that you can place on your property so that the Trustee cannot touch those assets and you can keep them. But if the value of your assets are greater than the available exemptions, there would be money available for your creditors.
When you file a Chapter 13 bankruptcy you file a Chapter 13 Plan. This Plan is a detailed statement of who gets paid and how much of your debt will be paid. Inside the Plan is a one to two page breakdown of your assets, their value, the amount of exemptions for those items, and whether there would be assets available to your creditors if your case was a Chapter 7.
In your Chapter 13 Plan there is a one-page statement of the total amount you are projected to pay into the Plan, and how much money will be paid to your unsecured creditors. If the total amount to be paid to your unsecured creditors in the Chapter 13 Plan is equal to or greater than the amount of money that would be available to your unsecured creditors if the case was a Chapter 7, your Plan “passes” the liquidation analysis. If the total amount to be paid to your unsecured creditors in the Chapter 13 Plan is less than the amount of money that would be available to your unsecured creditors if the case was a Chapter 7, your Plan “fails” the liquidation analysis.
The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.
By: Michael Benkstein, Esq.
Managing Attorney, Bankruptcy Department
The Law Offices of Joumana Kayrouz, PLLC
1000 Town Center
Southfield, MI 48075