Where unsecured creditors would receive nothing under the Chapter 7 liquidation recovery calculation, a zero-payment plan satisfies the “best interests of creditors" test. This is met where zero payment to unsecured creditors is not less than amount that would be paid if estate were liquidated under Chapter 7
There is a limitation on this and that is that the Plan must satisfy the disposable income test. The mere fact a zero-payment plan passes the “best interests of creditors test" does not guarantee confirmation where the plan is contested. This is true because a zero-payment plan may not satisfy the “disposable income" test
The Plan must be proposed in good faith. Arguably, a zero-payment plan is not proposed in “good faith" where the debtor actually has the ability to pay more money to creditors. Where unsecured creditors would receive the entire principal amount of their allowed claims in a Chapter 7 liquidation (i.e., the debtor is solvent), the plan must provide for total payments to them at least equal to the principal amount plus interest thereon. By contrast, if unsecured creditors would receive either nothing or only a partial dividend in a Chapter 7 liquidation (e.g., 10%), the plan does not have to pay interest on the unsecured claims to satisfy the best interests of creditors test.
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