Legal Definitions - best interests of creditors

Definition: Best interests of creditors is a test used in bankruptcy cases to determine if a reorganization plan ensures that each creditor receives at least the same amount they would receive if the debtor's assets were liquidated in a Chapter 7 case.

In simpler terms, it means that in a bankruptcy case, the court wants to make sure that the creditors are being treated fairly and are receiving the maximum amount possible.

For example, if a company owes money to several creditors and files for bankruptcy, the court will examine the reorganization plan to ensure that each creditor is receiving a fair share of the company's assets. If the plan does not meet the best interests of creditors test, it may not be approved by the court.

The best interests of creditors test is used in Chapter 9, Chapter 12, and Chapter 13 cases, and in Chapter 11 cases where some creditors do not vote to accept the plan. In these cases, the court must find that the plan is still in the best interests of the creditors before it can be approved.