If an allowed secured claim is $10,000, payment of $10,000 in a lump sum on Day 1 is worth more to the secured creditor than payment of $10,000 in installments over a period of several years. The measure of the difference in value is the amount of interest that the secured creditor could earn by investing a $10,000 lump sum payment during the installment payment period.. Accordingly, the stream of payments to the secured creditor must total $10,000 plus interest.  Bankruptcy courts have taken a variety of approaches to determining the appropriate rate of interest.  Some hold that the interest should be that which the secured creditor could earn over the installment payment period by investment of the money in similar investments (e.g. a loan to another purchaser of an automobile who poses the same credit risks as the Chapter 13 debtor).

     In this example, the stream of payments must have a present value of $10,000 as of the effective date of the plan. Some plans specify, and most courts hold, that the effective date of the plan is the date on which the court confirms the plan. That date is typically 4-6 months following the date on which the debtor files the Chapter 13 petition.