Friday, July 13, 2012

Oregon Chapter 13 and the "Best Interest Number"

Ryan Hackett - Portland, OR
Bankruptcy Attorney
One requirement of a successful chapter 13 plan in Oregon is for the Debtor to meet what is known as a "Best Interest Number".  This number basically means that the Debtor agrees to pay his or her creditors in the chapter 13 plan at least the same amount as the Creditors would receive in a Chapter 7.

For many cases this number will be zero. However, many debtors file chapter 13 in order to protect their assets that would otherwise be liquidated in chapter 7.  Since Chapter 13 is not a liquidation bankruptcy like a Chapter 7 there is no risk of a debtor losing assets that are to be sold to pay their creditors.  So, one benefit of filing a chapter 13 is to protect assets that would otherwise be sold off in a chapter 7.  Since the Court allows a debtor with regular income to propose a plan to protect assets it is only fair that the Creditors still receive the same amount of money that they would get in a Chapter 7.

For example, if an Oregon debtor owns a car outright that is worth $20,000 it would likely be sold if they were to file chapter 7 because the Oregon vehicle exemption is only $3,000. This person could file a chapter 13 to keep the car. But, they must pay their creditors the same amount as they would get if the debtor was to file chapter 7 and the car be sold. In this example, since there is $17,000 in non-exempt equity it would be natural to think the Debtor must pay $17,000 in the chapter 13. But, the formula is a little more complicated than that.  The debtor would be able to deduct things like cost of sale and the chapter 7 trustee's commission. So, in reality the best interest number in the chapter 13 would be less than the $17,000. A good chapter 13 attorney should be able to run a calculation and tell the debtor exactly what the best interest number would be in their case.

The bottom line that in every chapter 13 that is filed the Debtor must figure out what their best interest number is and propose a plan that at least meets this number.