The phrase “best interests of creditors” could describe the entire point of view of this blog. For example topics have included creditors’ rights, bankruptcy basics, and terminology for creditors. Taken specifically in the context of bankruptcy, though, the phrase “best interests of creditors” refers to a test utilized in bankruptcy cases to aid in the determination of payment amounts to creditors. The test is also known as the “liquidation” or “best efforts” test.
In a Chapter 7 bankruptcy, the debtor’s assets are liquidated and creditors are repaid from monies raised in the liquidation. However, in the more complex process associated with a Chapter 13 filing, the debtor must follow a payment plan that is approved by the Bankruptcy court. The “best interest of creditors” test is a means to assure that unsecured creditors receive at least as much in repayment (through the court-approved plan) as they would have received in a Chapter 7 filing (from liquidating assets).
Chapter 11 bankruptcies generally concern business debtors rather than individuals. However, the “best interests of creditors” test is also utilized to protect Chapter 11 creditors, whose repayment will be affected and determined by the specifics of the debtor’s plan of reorganization. In fact, the Bankruptcy court will not approve a Chapter 11 plan if the results of the test indicate that the debtor has not adequately addressed the needs of secured as well as unsecured creditors.
Protecting the rights and claims of creditors in bankruptcy is a complicated undertaking for the trustee as well as for all parties involved. Considerations such as the “best interests of creditors” test are not intended to serve as a guarantee of satisfaction, but more of an overall safeguard of fairness toward creditors.
If you would like more information about creditors’ rights, or if you need assistance from an attorney, contact Windtberg & Zdancewicz to schedule an initial consultation.
The attorneys at Windtberg & Zdancewicz, PLC, provide clients with experienced legal representation in all collection matters. We are experienced in creditor’s rights including garnishments, charging orders, attachment, property execution, trustee’s sales, foreclosures, judgments, judgment collection, domestication of foreign judgments, and creditor’s issues in bankruptcy cases. If you need assistance with your collection matters, please contact us at (480) 584-5660.