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Recent ruling could impact bankruptcy estates in Florida

A judge from the U.S. Bankruptcy Court for the Western District of Louisiana ruled on Aug. 5 that proceeds from an auto accident settlement can be considered part of a bankruptcy estate. The case involved a man who was in an accident three years after his plan had been confirmed, and the court took the estate-replenishment approach when making its ruling. The driver had updated his schedules based on the possible cause of action after the crash.

The trustee then proposed a plan modification that would increase payments to unsecured creditors and use a portion of the settlement to pay down the plan balance. An attorney for the debtor negotiated a settlement of $196,845 of which $74,067 was left after fees and other expenses. Total allowed claims in the case were $11,359, which were to come from the man's settlement earnings before he is allowed to claim anything.

In making its ruling, the court said that the best interests of the creditors must be redetermined at the date of the modification. The court also said that it would have allowed the debtor to show that he needed the money for medical or other expenses. However, there was no such evidence submitted to the court.

Chapter 13 bankruptcy is a wage-earners plan that is available to those with steady regular income. An attorney may be able to explain the benefits of such a bankruptcy as well as a potential stay of creditor action. A lawyer could also explain who qualifies for Chapter 13 bankruptcy and how it may differ from a Chapter 7 liquidation bankruptcy.

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