I’m In Chapter 13 and I’ve Goofed-What Now?

26 Mar I’m In Chapter 13 and I’ve Goofed-What Now?

While you are in Chapter 13 you are prohibited from selling or otherwise disposing of property without court approval, and you’re also prohibited from borrowing money (other than in the ordinary course of business) while you are in Chapter 13.  You are also required to get court approval if you settle a lawsuit or worker’s compensation claim.  But what if you forgot, or you didn’t know or remember, and the deed is done?

Contact your attorney as soon as possible.  Your attorney will be able to best advise you how to proceed.  In many instances, it may be possible to obtain court approval even though the transaction you’re asking the court to approve is finished.

You ask the court to approve something “nunc pro tunc,” which is a Latin phrase meaning “as if you’d done it right in the first place.”  Roughly.  Latin was never my strong suit.  In many cases, there is no harm to your creditors arising from the transaction, and the court is willing to overlook the procedural irregularity.

I recently filed such a motion when my clients sold their house without prior approval, but wanted to use the money to pay off their Chapter 13 anyway.  There was a clear benefit to creditors by approving the sale nunc pro tunc, and no benefit to anyone in dismissing the case.  Similarly, I have obtained nunc pro tunc approval of a personal injury settlement, where the debtor was entitled to claim the entire settlment as exempt from creditors anyway.

Some situations may not be solved that way.  Let’s say you came into some money while your Chapter 13 was going on, and it should have been reported but you didn’t and you’ve spent it.  There may be some circumstances in which your attorney will recommend that you simply dismiss your case, which you can usually do in a Chapter 13.  Or they may be other options which will resolve the situation.

There are a number of variables that can determine what is in your best interests: the value of your property when the case was filed, how far into your Chapter 13 plan you are, what property is exempt in your jurisdiction, to name a very few.  Discuss it with your attorney, and give him the opportunity to help you fix it.  That’s what he’s for.

Once again, call your attorney, not the trustee.  The trustee cannot help you, and may be obligated to take action which will limit your options.  The trustee’s job is to act in the best interests of your creditors, and you want someone to turn to that has your best interests at heart.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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