Beach Park Bankruptcy Lawyer Describes The Chapter 7 Liquidation Ana...

The Chapter 7 liquidation analysis.  What it means is this: You have to pay the creditors back in a Chapter 13 bankruptcy at least as much as they would get if you did a Chapter 7 liquidation.  Now, as you may know, in 99% of our chapter 7 bankruptcy cases, there is going to be no liquidation.  They are not going to have any assets and they are going to get a fresh start.  There will be a no asset report by the trustee.

In the Chapter 13 cases, we are filing those because people do have assets.  So what this liquidation test says is that you are going to treat the asset as if it’s going to be liquidated.  If this case were a Chapter 7 and the trustee took it and sold it, what would be available for creditors?  That is factoring in the trustee’s fee and the cost of the sale.  So if it’s real estate, 6% or 7% has to go towards the cost of the sale.  So if someone has $50,000 in equity in real estate for example, individual, we are going to take off the $15,000 that they can protect which brings it down to $35,000 and then the cost of sale.  So let’s say the house has a $200,000 market value, 6% of that is what?  $12,000?  Yes, because remember, if a trustee took it and put it on the market and paid a realtor and paid all the taxes and closing costs, he doesn’t net $200,000.  He nets $200,000 minus the $12,000 that it costs to sell it.

So in my example here, the home that had $50,000 worth of equity for one person, by the time we protect his exemption and the cost of sale, the trustee would actually have $23,000 in his pocket that he can pay to the creditors.  That’s nowhere near the $50,000.    In a Chapter 7 liquidation analysis, that’s what the creditors would get, $23,000. 

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