11 U.S.C. § 1325(a)(4), often called the “Best Interests of the Creditors” or the “Liquidation” test, requires that:
the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date;
As such, Chapter 13 Debtors must pay unsecured creditors at least as much as those creditors would get in a Chapter 7 liquidation. But it is important to keep in mind that a Chapter 7 liquidation is not without costs- the Chapter 7 Trustee will receive a strictly calculated commission pursuant to 11 U.S.C. § 326 (See Gold v. Robbins), a realtor or auctioneer that assists with the sale of assets will similarly be paid a commission (usually 6%, plus other marketing costs), and the estate may need to pay the attorney or other professional fees to obtain assets. (See In re Jarrett).
The attached MS Excel Spreadsheet is designed to calculate how much a Chapter 13 Debtor must pay to unsecured creditors, taking into account these hypothetical costs. Please feel free to use this form, but let me know of any errors you find.
For a copy of this form, please see:
AAA Liquidation Test
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