Payments to Unsecured Creditors

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Payments to Unsecured Creditors

Payments to unsecured creditors are given and done either voluntarily by a debtor or from a formal decision given by a court. Usually, unsecured creditors have no legal share in any property of a debtor so they just wait for the court to decide.

Also, the unsecured priority claims are entitled to full payment and attorney fees are generally allowed as administrative claims. For the unsecured non-priority claims, unsecured creditors receive a pro rata share of what is left.

In the payments to unsecured creditors, creditors must receive an amount at least as much in a Chapter 13 as they would have received under Chapter 7. In a Chapter 7, there is no requirement for how much a non-dischargeable debt must be paid. Most Chapter 7 cases are no asset cases so the trustee cannot find any property to administer. Also, the property is exempted and there is no property that the debtor enjoys beyond exemption. Furthermore, dischargeability has nothing to do with the ability to pay. It means that the debt simply doesnft go away. In a Chapter 13, the creditor must get as much as theyfd get in a Chapter 7.

Now the question is, for the payments to unsecured creditors, are all disposable debtorsf income including spousefs income and necessary expenses being used to pay the unsecured creditors?

The answer is that if your income is higher than the state median, then the code imposes necessary expenses from the National and Local Standards upon the debtor under: first, they must propose to keep paying for five years under their Chapter 13 plan, rather than the three-year minimum required of below-median debtors. Second, because the Chapter 7 means test applies here too, if the debtors would have been barred from Chapter 7 because of a surplus of income over expenses, the amount of that surplus is what they are required to pay to unsecured non-priority creditors in a Chapter 13 plan.

Pertaining to the payments to unsecured creditors, generally, disposable income means current monthly income received by the debtor (other than child support payments, foster care payments, or disability payments for a dependent child made in accordance with applicable non-bankruptcy law to the extent reasonably necessary to be expended for such child) less amounts reasonably necessary to be expended. So the debtor must devote all disposable income to plan payments during the life of the plan. In addition, a plan must be proposed in good faith and not by any means forbidden in law.

But if a debtor is under the state median income, then the debtor must commit all disposable income to the plan and the judge will determine what disposable income is. One very important thing to remember for an unsecured creditor, if the debtor receives a discharge and completes the plan, the unsecured creditor will receive nothing even though the plan have prepared to pay all or some part of the unsecured claims. So it is very important for an unsecured creditor to file a proof of claim so that the payment to unsecured creditors will be paid and given rightfully. A Spokane Bankruptcy Lawyer offers free consultation, so whenever you are in doubt with matters like this you can seek for their help.