If you're currently making regular payments to a trustee in conjunction with a Chapter 13 bankruptcy, you may be looking forward to the projected end date of your Chapter 13 plan. However, if you're instead looking to convert this plan to a Chapter 7 discharge and begin rebuilding your credit more quickly, a recent decision by the U.S. Supreme Court may affect what happens to your case -- and this decision could even mean some extra money in your pocket. Read on to learn more about how "conversion leftovers" will now be handled by all federal bankruptcy courts.
What are "conversion leftovers"?
Whenever you make your required payment to the bankruptcy trustee as part of your Chapter 13 plan, he or she distributes these funds to your debtors in order of priority and type of debt. If, like many Chapter 13 debtors, you decide that a Chapter 7 liquidation is a better option, your case will be converted to a Chapter 7 and any funds remaining in the trustee's possession will be termed "conversion leftovers."
In the past, the distribution of these conversion leftovers was unclear. Many trustees would send these funds to secured creditors or other entities who might otherwise not receive any compensation in a Chapter 7 discharge. Others could opt to return these conversion leftovers to the debtor. This varying treatment by bankruptcy courts led to litigation at the federal appellate level, and one case eventually made it to the U.S. Supreme Court.
What did the Supreme Court's decision in Charles E. Harris III v. Mary K.
This case involved a dispute about the disposition of around $4,000 in mortgage payments made
The Supreme Court held that, in cases that begin as a Chapter 13 and end as a Chapter 7, any excess funds held by the trustee must be returned to the debtor, rather than distributed to creditors without the debtor's express permission. Future (and current) Chapter 7 debtors are entitled to receive any remaining funds without having to make a specific request -- however, you can also appeal to the bankruptcy court if you believe the trustee is still holding your funds. To find out more, speak with someone like
29 May 2015
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