The Bankruptcy Alphabet comes to a close with this final post. We previously discussed the requirements for a Chapter 12 and Chapter 13 Plan. In this post, we finish with the best type of Chapter 13 Plan: the zero-percent plan.
Z is for Zero Percent Plan
When we discussed the Means Test, we found that in a Chapter 13 case, the Means Test determines the length of the Plan (between 36 and 60 months) and how much general unsecured creditors are to receive under the plan.
A Zero Percent Plan is one where general unsecured creditors do not receive anything under the proposed Plan. So how do we get a Zero Percent Plan?
I generalized the Means Test as taking a debtor’s current income (not really current, but an average of the previous 6 months) and current monthly expenses (not really debtor’s expenses, but mostly standard expenses dictated by the Bankruptcy Code) and leaving a disposable monthly income that would be paid to general unsecured creditors.
I proffered a possible conclusion that the Means Test could result in a negative disposable monthly income, meaning unsecured creditors would receive nothing under a Chapter 13 Plan. The question posed was whether in a scenario where the Means Test indicates no payment to general unsecured creditors, if a Debtor could be a Chapter 7 case. I answered with a odd “no”. A debtor who fails the Means Test’s Chapter 7 qualifications cannot skirt through even with a negative disposable monthly income.
So what do we do?
Most court’s now require an analysis of Schedule I (current monthly income, this one’s for real) and Schedule J (current monthly expenses, yes, actual reasonable expenses). With this test, we don’t count payments to secured creditors (with the exception of mortgages). Whatever this amount is is how much the Debtor will pay each month.
In most cases, if the Means Test returned a negative disposable monthly income, than the entire monthly bankruptcy payment will go toward paying required secured creditors and attorney fees. The Debtor’s general unsecured creditors do not receive anything and if they do receive something, it is less than 1% of their claims.
This ends the Bankruptcy Alphabet, but not the continued education you can receive about ongoing changes or news in the field of Bankruptcy law.
Other Bankruptcy Attorneys talking about the Letter Z include: