Tuesday, June 11, 2013

What happens to my Chapter 13 Bankruptcy Payments if my case is dismissed?

       The answer to the above question used to depend on how far along a person was in their bankruptcy plan.  The law was well settled that if a case was dismissed prior to the Court issuing an order of a debtor's plan, then the plan payments held by the trustee would go back to the debtor subject to only administration costs.

       Prior to just a couple of weeks ago, here in Middle Tennessee, if a case was dismissed after the plan had been confirmed any funds held by the trustee at that time were sent to the creditors in accordance with the plan since those payments were received by the Trustee when the case, and therefore the plan, was still alive. However, that was the custom.  The Middle Tennessee Bankruptcy Court just recently issued an opinion stating that any funds being held by the trustee when the case is dismissed will go back to the debtor, subject to any objections after parties have been given notice to file applications for that money. 

       Now, any funds received by the Trustee after the case was dismissed, because funds were in the mail or sent prior to an employer receiving notice of the dismissal, are sent back to the debtor.  That stills holds true.  The change in the disbursement of funds was limited only to funds received prior to dismissal, but not yet disbursed.  Good news for debtors, bad for creditors.

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