Thursday, December 8, 2011
"Z" is for Zero
Obviously, the word zero can mean many different things. However, when one is contemplating bankruptcy, the field of meanings may be narrowed a bit. It could refer to a zero balance in the bank, or perhaps the amount you are eligible to barrow, or the number of creditors continuing to extend credit.
What one may not think of is zero-rate, referring to a value added tax, or zero-sum whereby gains equal losses. If you were to ask a bankruptcy attorney what zero means, you might find he or she refers to a zero percent plan.
So, what is a zero percent plan? The filing of a Chapter 13 bankruptcy includes something called a Plan. The Plan, once confirmed, or approved by the Bankruptcy Court, controls many aspects of the case as an agreement between creditors, debtors, and the Trustee assigned to your case. It will include how much money is to be paid to the bankruptcy estate, how often, and for how long; it also includes how those funds are to be distributed.
So, how does zero apply to the Plan? No, it does not mean No Plan. It refers to the amount, or percentage of the payments in the plan paid to unsecured creditors, such as credit cards and medical bills. So, for instance, in the typical Chapter 13 bankruptcy, priority creditors, like the IRS, the Trustee, your attorney, and support payments, would be paid first; then secured creditors, like mortgagees, would be paid. After they are paid, any additional disposable income is paid to unsecured creditors. When there is nothing left to pay unsecured creditors (or less than 1%), then you have what is sometimes referred to as a zero percent plan to unsecured creditors.
While some courts allow such treatment of unsecured creditors, others do not. If you are contemplating filing such a plan, you should check with a bankruptcy attorney in your area to see if this is permitted within the division you are filing in.
Other attorneys speaking about the Letter Z include:
Caldwell Law, LLC