The $110,000 Windfall

The debtor had a home valued at $500,000, and $350,000 total in 1st and 2nd mortgages, which meant there was about $150,000 in equity. The debtor also had more than $180,000 in credit card debt. Selling her home outside of bankruptcy she would still owe $30,000 in credit cards ($150,000 - $180,000 = - $30,000). The debtor attempted but could not fund through her limited income a Chapter 13 plan that would pay in $150,000, even over five years so she could keep her home. The only other option was a Chapter 13 liquidation plan where she would sell her home for the benefit of creditors, but do so over six months with a realtor, instead of an auction, so as to maximize the value and possibly realize sufficient profit to pay her debts and also herself. The home was sold for $550,000. However, credit card debtors had only submitted $90,000 in proofs of claim by the deadline.

Result: The debtor ended up with a $110,000 windfall. By selling in bankruptcy, the debtor, in her Chapter 13 plan, provided for payment to all those who submitted proofs of claim by the deadline. Since only the 1st and 2nd mortgage holders ($350,000) and $90,000 of the unsecured creditors submitted claims, for a total of $440,000, the remaining $110,000 went back to the debtor, and all debts (including those which listed but for which claims were not submitted) were discharged.