Which Creditors Are Paid?

[BKINAZ]

Okay stupid question...I thought in Chapter 13 all of our debtors got a piece of the pie, is that correct? A secured creditor just said that was the case. I assumed a portion of our money settlement would be split up to my unsecured and secured creditors.

Sorry for the lame question...but I might have just done something stupid.

[bcvw]

Secured creditors get paid in full first (after trustee, taxes and lawyer) or up to the amount you put in your plan. Then unsecureds get paid from what is left over.

[BKINAZ]

First I meant..."a secured creditor said that wasn't the case...that secured creditors get paid and unsecured do not."

With what you just said...lets pretend the discharge is $12,000 ($200 per month x 60 months)...what would you guess the only real secured creditor would get? (88k secured owed) I could have sworn I've seen a means test in here and I thought it said the $88k second got $1,500. I guess I am wrong or read it wrong?

[bcvw]

Are you paying the 2nd in your plan? I think not or you would have to have a plan that you paid into at least 88K. Or are you lien stripping the 2nd?

[BKINAZ]

Since it is chapter 13...they would be lien stripped out. Our value is less than what we owe on the first. So no...we are not paying the $88k, they get their cut from the monthly payments...right?

[justbroke]

Here's an answer -- and how it works -- for the original question.

In a Chapter 13 Bankruptcy, different creditors are assigned to different priorities. First, there aer the unsecured priority creditors. These creditors consist of the Trustee, the IRS (and certain other government taxing entitites), and your lawyer.

The next set of creditors are the secured creditors. This includes your home, cars and perhaps even your furniture store. They are paid 100% over the life of your Chapter 13 unless the loan exceeds the life of the plan. Generally, only a home (or other real property) would do such. Generally, cars and other secured property (like furniture) are paid 100% over the life of the plan.

The last set of creditors are the unsecured creditors. This includes all your credit cards like VISA, Mastercard and American Express. It could include some of your department store cards as well (if they file as unsecured). These creditors are paid from a pool of money left over, after paying all the secured and unsecured priority creditors. Sometimes, people refer to this as the % in their plan. Your disposable monthly income (DMI) is what goes to these creditors and they receive a pro-rata share of that money.

If you are in a 0% plan, then the unsecured creditors get nothing. If you are in a positive percentage plan, then the unsecured creditors will get something.

Does that help?

[catleg]

Since it is chapter 13...they would be lien stripped out. Our value is less than what we owe on the first. So no...we are not paying the $88k, they get their cut from the monthly payments...right?

Correct, if the court approves the lien strip then that loan is treated like any other nonpriority unsecured debt.

What did you do that you're concerned about?

[BKINAZ]

What did you do that you're concerned about?

My fear is that mentioned we are considering chapter 13...and by doing so did I put them on the offensive?

I told the the Second that we were considering chapter 13 and I'd like to work out a settlement. Are we filing chapter 13? Don't know...but I do know we wouldn't do 13 or 7 till later in the year (close to the end) so I feel justified in trying to negotiate the 2nd out. If they bite...then we can consider 7 if and when and not have the $88k hanging over our head.

That's the plan anyway...but then the 2nd played the "what do you mean we won't get very much...we are secured, we will be paid (in chapter 13) more than you are offering."

I offered $10k...and my means test says they will get 1/60th of the cure, which is $1,467. Am I missing anything?

[pcn]

One of the first lawyers we talked to suggested we do a 7 and not reaffirm our second. then later offer them a settlement. Several people on here didn't like that, and said the second could foreclose later, and/or might not be willing to bargain. Our lawyer liked it because it was all done very quickly. I think we are going 13+strip, for the safety, unless we can get some possitive replies on the board...

So why would you try to settle per filing, and pay something, when you could get out in the 13+strip and pay very little?

[woeisme]

The second is banking on the fact that you don't understand BK well. Or perhaps that particular person on the phone with you doesn't understand lien stripping in CH 13. If you really want to try to negotiate to avoid CH 13, then go in there with all your ducks in a row, and continue doing exactly what you are doing here, figuring out how the process works so you can show them you mean business and possibly even explain the law to them if they don't get it. Good luck!

[BKINAZ]

pcn- IF the second takes the offer...we can file chapter 7 and have no creditors. IF they don't...then we will owe $88k to them in a 7 and if we file 13 any extra money I make going forward would have to paid back to creditors...13 I think...is my last option.

WOE...that is what I am shooting for, but I flinched on the first shot back. I was fairly certain I was right...but before I puff my chest out...I need to know.

Again anyone...on my means test (lifted from in here) I put down as "other secured debt"
the $88k 2nd. I put that figure in the "cure" amount. They then calculated it out as "1/60th of the cure amount". I am correct in saying that my second will make $1,467 (means test figure given) in Chapter 13, right?

So I am correct in stating, "If you take the $10k I am offering, it will be more than you will get if I file chapter 13?"

[pcn]

OK, I think I understand better now. If they don't take your offers, does AZ have pretty good exemptions? Just thinking (and trying to apply to us possibly) that if one had money to pay toward an offer, and they didn't take the offer, one would need a way to protect that money if one filed later. And wouldn't the court look back and see that the money had existed, and then try to get it?

[optimistic1]

AZ Exemptions

http://www.azb.uscourts.gov/Documents/arizona_exemptions.pdf

[BKINAZ]

No Arizona doesn't have good exemptions...well...actually they have good ones...but I hear California has "wild card" exemptions...which would rock.

Check your email in a bit.

[pcn]

OK. AL has about the worst exemptions, from what I see so far. trying to think this through as an alternative here too. Thanks.