Why Exemptions Matter In Chapter 13

money-flickr sushiIn the typical Chapter 13,  the debtor keeps all of his property, exempt or not.

So why does a Chapter 13 debtor select  exemptions just as in Chapter 7?

The measure of what you pay in 13

Exemptions in 13  are used to determine whether amount to be paid through the plan complies with one of the Chapter 13 confirmation tests.

The “best interest of creditors test” requires that a Chapter 13 plan provide creditors at least what creditors would have gotten had the debtor filed Chapter 7

Thus, to apply the test, the Chapter 13 trustee calculates what property would be available for liquidation to pay creditors after the exemptions are deducted from the assets if the case were a Chapter 7.

The more of your stuff that is protected by an exemption, the less there is to be distributed to creditors in that hypothetical Chapter 7 case.

In fact, most individual bankruptcy cases are “no asset” cases, where the debtor keeps everything.

Best efforts test

The other test for confirmation of a Chapter 13 plan looks to whether the debtor is giving the plan his “best efforts”.

That test looks at the income available to fund the plan, as measured by the means test.

Read more

How Chapter 13 works

How the bankruptcy chapters differ

 Exemptions in bankruptcy

Image courtesy of Flickr and Sushi♥ina

About the Author
Northern California bankruptcy lawyer Cathy is a 30+ year veteran of bankruptcy practice in the Silicon Valley. She is known for energetic representation of clients and her command of bankruptcy law.