While filing for bankruptcy is something that most people don’t want to do, there are situations in which it makes the most sense for their financial health. When people in Tennessee file for Chapter 13 bankruptcy, they know that they have to fulfill a court-approved debt repayment plan for the next several years. While repayment plans in most cases are straightforward, occasionally interactions with creditors can present legal challenges and questions.
A 2016 court case help to clarify some questions regarding Chapter 13 creditor refunds. These are situations in which a creditor refunds money back to the bankruptcy trustee for a variety of reasons. In such cases, there was previously some question as to what should be done with the money.
The U.S. Bankruptcy Court for the Middle District of Alabama offered guidance. The judge ruled that money returned to the trustee should be treated differently depending on whether the bankruptcy case has been discharged or dismissed.
For example, if a creditor returns funds after the repayment plan has been completed and the rest of the debts have been discharged, money returned by a creditor must first be paid out to any unsecured creditors. Money left over can be given to the debtor. If the bankruptcy has been dismissed, either because the debtor requests dismissal or the debtor does not complete plan payments, the trustee must return the refund to the debtor.
Clearly, such situations can be confusing for many people. This is why it may be in the best interest of those seeking debt relief to consult with an experienced bankruptcy attorney. The attorney may be able to guide the debtor through the bankruptcy process and to answer questions regarding the correct fulfillment of a Chapter 13 repayment plan.