Bankruptcy A-Z: L is for Liquidated
December 31st, 2011 | 
Author: Bankruptcy A-Z: L is for Liquidated.
Bankruptcy is all about claims. If someone has a claim or even a potential claim against you, it is a debt that you must disclose. Many of my colleagues have written about one distinction, secured (which is a lien on some property) or unsecured. Another distinction is liquidated or unliquidated. This distinction can affect your case in dramatic ways.
L is for Liquidated.
A liquidated claim is simply a debt for a known number of dollars. An unliquidated debt is one where the exact amount owed has not been determined, such as an injury claim before trial.
Why is this important? Because Chapter 13 has limits on the amount of claims you can have.
Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated, unsecured debts of less than $360,475 and noncontingent, liquidated, secured debts of less than $1,081,400 is eligible for chapter 13 relief. 11 U.S.C. § 109(e).
Secured debts are those where you have pledged property for a loan. Examples of secured debts are real estate mortgages and car loans. Unsecured debts are everything else. Examples of unsecured debts are credit cards, doctor bills and personal loans.
A noncontingent debt is a debt that is owed now without needing anything to occur first. A mortgage is an example of a noncontingent debt. A contingent debt is a debt that is dependent on uncertain future contingencies. A personal guarantee is a example of a contingent debt; the debtor has to default and the creditor has to exercise the guarantee for the guarantor to be liable.
A liquidated debt is a debt where the amount and liability are known (or close enough). An example of a liquidated debt is a car loan. You signed the agreement, borrowed the money to buy the car, and can easily determine how much you owe (OK, you are supposed to be able to figure this out, but good luck asking some creditors for this information).
An unliquidated debt is a debt where the amount and liability are undetermined. The most common example of an unliquidated debt is a tort suit. The plaintiff has to prove that you are liable and how much the damages are. Car accidents claims, personal injury claims and defamation claims are just a few types of unliquidated debts.
WHY DOES THIS MATTER?
Remember, earlier in this post, I mentioned that there are limits to the amount of debts you can have and file a Chapter 13 case.
I had a case where the person was being sued on a defamation claim for about a million dollars. The plaintiff had to prove that the client committed a defamatory act AND the amount of the damages. Until the plaintiff did this, the debt was unliquidated (ignore the stay issues for a moment). The million dollars did not count toward the debt limits.
If the case had settled or had gone to judgment, the liability would have been determined and amount would have been fixed making it a liquidated debt. Then, it would count against the limits making the client ineligible for a Chapter 13 case.
Because the claim for a willful and malicious injury, it wasn’t subject to discharge in a Chapter 7 case. It was subject to discharge in a Chapter 13 case. If the debt became liquidated, the client would have two choices – pay the debt OR file for an expensive Chapter 11 case.
If you are in debt and need help, call a local lawyer. If you are in the metro Richmond area, or anywhere in central Virginia, contact bankruptcy and consumer lawyer Mitchell Goldstein at (804) 592-1674 or by email at mitch at mitchellpgoldstein dot com.
Other L posts:
L is for Lien Stripping.
L is for Lien.
L is for Lift the Stay.
L is for Luxuries.
L is for Lie, the Big Mortgage Industry.
Photo Credit: Rob React
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