Percent Payback in Chapter 13 Bankruptcy Filing


A man on a bankruptcy forum website recently submitted a blog containing a theoretical scenario about percent payback in a chapter 13 bankruptcy filing.

A percent sign.

Percent Payback in Chapter 13 (Photo credit: Wikipedia)

Percent payback in a chapter
13 plan is the percentage of the amount the creditors are owed as
determined by the bankruptcy court after all the creditors have made
their claims. If only a portion of the creditors file claims, they
will be paid monthly by the trustee until there is 100 percent
payback of claims or until the time of the plan ends, whichever comes
first. The percentage can be a problem because not all creditors make
a claim, and the debtor must make a proposed plan based on the total
number of claims that are available.

Here are the theoretical
questions raised in the bankruptcy blogger relating to a percent
payback: “Suppose I owe $50,000 to creditors and declare
bankruptcy. Then a rich uncle dies and leaves me $100,000 after
taxes. Now suddenly I have $100,000 disposable income. Do the credit
card companies get 100 percent of the $100,000? Can’t I just pay what
I owe and keep the rest? Or am I stuck in the weird scenario of a
Chapter 13 for 5 years anyway and whatever windfall I have goes to
credit card companies?”

Addressing the questions
raised by the blogger in the forum relating to the percent payback, I
might reply like this:

While I am not a lawyer or expert on
bankruptcy issues, I do believe I understand percent payback in a
chapter 13 filing, and how the misunderstanding many debtors have
concerning the percentage might occur. Therefore, please allow me to
address your questions.

Percent payback in a chapter 13 is more
related to how much you actually payback to claiming unsecured
creditors than it relates to what percent payback you proposed to pay
unsecured creditors in you plan.

If you are lucky enough to get a
windfall, my understanding is that the windfall does become the
property of the bankruptcy estate. Depending on the trustee, the
trustee can confiscate the entire amount and distribute the money to
the claiming creditors as per the original scheduled plan until there
has been a 100 percent payback of the unsecured debts, all owed fees
to the trustee paid, and all legal fees have been paid. The trustee,
at some point before the close of the bankruptcy, will issue the
debtor a check for the remainder of the windfall amount. Otherwise if
you want your share of the windfall sooner, you will have to formally
modify your plan to receive the access windfall amount. This normally
adds more cost to the bankruptcy process.

Another trustee might only take a
portion of the windfall, which would be enough money legally
satisfying a 100 percent payback of the unsecured debt plus trustee
and legal fees. The trustee could allow you a portion of the windfall
up front before distribution.

A bankruptcy lawyer having experience
with bankruptcy courts in your area may know how the local trustees
respond to such questions. If in doubt about these answers, contact
you local bankruptcy attorney who is qualified to give you legal

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