As Philadelphia bankruptcy attorneys we occasionally run into clients who have a hard time collecting claims from personal injury suits or workman’s comp claims after filing a Chapter 13 bankruptcy. We’ve even seen clients who have trouble holding on to inheritances, life insurance claims or other windfalls because they don’t handle these windfalls correctly in light of the Chapter 13 process.
There are four things you need to be aware of if you think you might be the beneficiary of any of these sorts of monetary disbursements.
Chapter 13 is a process, not an immediate discharge.
Chapter 13 creates a debt restructuring plan that allows you to pay off your debts over time without fear of repercussions. You don’t have a discharge until it’s done, and it can take 3-5 years to finish. During that two to five years you’re still in the middle of a bankruptcy case. It’s very important to understand this, because so long as you are in the middle of a bankruptcy case there are some restrictions on how you use your money, as well as some reporting requirements you need to be aware of.
By contrast, a Chapter 7 bankruptcy is over and done; the debts are wiped out, you get your discharge and your life is your own after that. You don’t have to report anything to anyone. Chapter 7 debtors don’t have to worry about these issues.
You need to tell your bankruptcy attorney if you have any lawsuits under way prior to the start of the bankruptcy process.
It’s not uncommon to see clients wrapped up both in a personal injury lawsuit and a bankruptcy lawsuit. Medical bills often come due long before insurance companies pay out, and medical bills drive people into bankruptcy more than any other type of debt.
There’s nothing wrong with being in the middle of both cases. You just need to be aware that it’s important to disclose this fact to your bankruptcy attorney so he or she can take steps to protect your future assets. What your bankruptcy attorney doesn’t know can hurt you.
Notify your attorney, in writing, if you receive new assets or claims.
Perhaps your assets came to you long after you started the bankruptcy process. Maybe you filed for bankruptcy in 2015 and score an inheritance in 2018. Your discharge is scheduled for 2020, what do you do?
The smartest thing to do is to set that money aside in a safe place and notify your attorney in writing that you’ve come into new assets. Again, this allows your bankruptcy attorney to take some steps towards protecting you.
Do not spend anything until your attorney gives you the go-ahead.
Keep in mind courts generally want to see you pay off your debts before you spend any windfalls. If you’re lucky, the windfall will surpass your debts. You’ll be able to get debt free very quickly, discharge your case and enjoy whatever you’ve got left. But if that’s not the case you need to be aware the courts may require you to send all that money off to your creditors.
You will put yourself into a very difficult position if you spend the money without talking to your attorney first, as you could jeopardize your discharge and put yourself in a dangerous position with each of your creditors.
If you are interested in the legal nitty-gritty see this article in the Consumer Bankruptcy Journal, Winter 2018.
Got questions? Contact the attorneys at Sadek and Cooper to learn more about how these different types of cases and claims can intersect. We can talk about your specific scenario and how we can protect you, what you may be able to use and keep, and what you’ll need to do to stay on the court’s good side. Call today.