The bankruptcy court approved a repayment plan pro- posed by debtors, Eddie and

Question

The bankruptcy court approved a repayment plan pro- posed by debtors, Eddie and Angela Freeman, pursuant to Chapter 13. Under the plan, the Freemans agreed to pay their secured creditors in full, but their unsecured creditors were to receive nothing. Public Finance is an unsecured creditor and appeals the affirmation of the plan, arguing that a plan that proposes no payment to unsecured creditors fails to meet the good-faith require- ment of the bankruptcy law. Does "good faith" exist only when the debtor proposes payment to unsecured creditors? Explain. 2.

Explanation / Answer

The payments to the unsecured creditors falls under non security category. How much they will receive, depends upon the conditions given below.

(a) Amount received by the unsecured creditors if the bankruptcy claim was filed under chapter 7 ( liquidation). It depends upon how much of the property of debtor is exempt.

(b) Disposable income left after paying all obligations. The disposable income ( if any) is to be committed for a period of three to five years ( Depending upon the income), and the creditors to be paid from the debtors plan payments.

The unsecured creditors start getting paid only when all priority and secured claims have been paid in full.

Good faith exists when debtor is in condition to pay the unsecured creditors, as mentioned in points (a) and (b). In other cases, despite of debtors acting in good faith, the creditors can't be paid.

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