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Court ruling clarifies debtors' rights in Chapter 13 case

Florida residents may be interested to know that a California court ruled on Sept. 26 that changes made to a Chapter 13 model plan violated bankruptcy law.The debtors in the case argued that there was no need for a minimum term in their cases because there was no objection by either the creditors or the trustees.

In the cases that led to the ruling, the debtors wanted to make sure that trustees couldn't distribute excess funds. Under the language of a form plan in San Jose, any money above a stated amount or percentage was to be returned to the debtors. The trustees would only be able to distribute those funds if they got a proper court order.

In the cases involving the debtors in question, their bankruptcy plans had been confirmed without a defined term. Typically, a Chapter 13 case has a three or five-year repayment plan. In the court's ruling, it said that all Chapter 13 plans must use a stated length, and a motion to modify would be needed to deviate from it.

Chapter 13 bankruptcy allows a person who makes a regular income to reorganize his or her debt under a formal repayment plan. The payment plan must generally be approved by creditors as well as the trustee overseeing the case. Benefits to filing for such protection from creditors may include the ability to delay a foreclosure or repossession. It may also put an end to creditor phone calls and letters. Those who wish to file for bankruptcy may benefit from speaking to an attorney who can further explain the eligibility and other requirements of the chapter.

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