Re: Bankruptcy News - Posted by Sterling
Posted by Sterling on April 15, 2005 at 20:04:29:
You won’t necessarily get paid just because the debtor files Ch 13
instead of Ch 7. In an actual Ch 13 case the debtor owed $40,000.
His repayment plan called for 37 payments of $410 each or $15,170
total. That means that approximately $25,000 of his debt was
discharged without payment. In the end the debtor made only 34
payments, not 37, because some of the creditors ignored the notice
from the court and simply wrote off the debts. Not only that but after
the case was discharged the debtor got a refund from the trustee.
Ch 7 may be better for the creditor than Ch13. Suppose you hold a
$4,800 note, zero interest, payable in 24 installment of $200 each.
After 3 payments, still owing $4,200, the maker defaults and files for
BK. Under Ch 7 you MIGHT be able to repo the collateral and be none
the worse off after finding a new buyer.
If the debtor files for CH 13 he gets to keep all assets so repo is out.
Plus the creditor may get only 10 cents on the dollar, meaning that
instead of getting back $4,200 he gets $420 payable in 60 installments
of $7 each.
Ch 13 trustees have great discreation in deciding who gets paid first.
Some creditors with secured loans still get some interest and they
usually get paid first. Those with unsecured loans get paid last.
As far as I know the new law simply imposes a means test without
changing the rules of who gets paid and how much. If the new law
brings pre 1970s rules back, when Ch 13 filers paid back everything,
albiet without interest, then the above scenario could not happen
The bill was first introduced during the first Bush administration. Its
immediate impact was an increase in bankruptcies filed, fueled by
bankruptcy lawyers advertising “this may be your last chance.”