What is the “best interest of creditors” test?

Charlotte Bankruptcy attorney Bryan W. Stone answers the question: “Can I buy a home after bankruptcy?”


Those who are filing for either Chapter 12 or, far more commonly, Chapter 13 bankruptcy protection, should familiarize themselves with the phrase “best interest of creditors.” To find out more about what this refers to and how it can impact your bankruptcy case, keep reading.


Ball of questions Charlotte Debt Lawyer North Carolina Bankrtupcy AttorneyWhich categories of bankruptcy require the best interest of creditors test?


The law says that the best interest of creditors test is applied in Chapter 11, Chapter 12 and Chapter 13. That means the test is not applied in Chapter 7 or other liquidation bankruptcy cases.


What is the best interest of creditors test?


The test, which is also known as the liquidation test, says that unsecured creditors involved in a Chapter 13 case must be paid at least as much money under a potential repayment plan as they would have received if the debtor’s case were liquidated under a Chapter 7 plan.


What’s the point of the liquidation test?


The liquidation test exists to ensure that creditors are receiving the most value from the debtor. The test guarantees that debtors are not able to pay so little money back under a repayment plan so that creditors actually end up with less overall than if the debts were simply liquidated.


In a Chapter 13 bankruptcy, debtors get to hold onto all their property in exchange for paying a portion of all their debts off in a repayment plan. If a creditor would stand to make more under a Chapter 7 it would be unfair to allow a debtor to file Chapter 13, allowing them to hold onto their property.


What happens if you fail the test?


If after your payment plan has been proposed the trustee subjects it to the best interest of creditors test and discovers that creditors would do better under a liquidation bankruptcy, the repayment plan will not be approved by the court. That means that you will either need to increase payments under the Chapter 13 to ensure that creditors end up with more money or consider filing for a Chapter 7.


If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC  today at (704) 370-2828 or find additional resources here. As professionals who are experienced in the bankruptcy arena, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.




“Chapter 13: The Best Interest of Creditors Test,” by Carron Armstrong, published at Bankruptcy.About.com.



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