Best-interests-of-creditors test

Best-interests-of-creditors test

The requirement that a claim holder voting against a plan of reorganization must receive at least as much as if the debtor were liquidated.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Best-Interests-of-Creditors Test

In Chapter 13 bankruptcy, a requirement that unsecured creditors receive at least as much as they would have in Chapter 7 bankruptcy. Chapter 7 bankruptcy is complete liquidation of assets while Chapter 13 bankruptcy allows the bankrupt person or business to continue operations so long as they submit a plan to repay debts over three to five years. It is usually used by persons or sole proprietorships with a heavy debt load but still significant income. The best-interest-of-creditors test exists to ensure that the person or business filing Chapter 13 is not simply trying evade liquidation or to escape repaying necessary debts. See also: Best Efforts Test.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved