What Happens If I Get a Large Amount Of Money While In A Chapter 13 Bankruptcy?

by Peter Orville, Binghamton Bankruptcy Lawyer

September 22, 2008

Sometimes when you are in a Chapter 13 you learn that you are going to get some extra, out of the ordinary money. Sometimes it is from a bonus at work, or a lump sum settlement on a Social Security Disability or Workers Compensation case. Or it could be an inheritance or a personal injury settlement. Or you might get it from the sale of something you own, or as a gift. Or in some areas of the country such as the Southern Tier of New York and the Northern Tier of Pennsylvania, you might be offered a large sum of money to sign an oil and gas lease involving your property.

Many Chapter 13 Debtors believe that if the money was exempt funds, such as from a lump sum settlement of a Disability case, that they do not have to turn it over to the Trustee. This can be a big mistake.

 If you learn that you are going to receive a large amount of money during the time you are in a Chapter 13 bankruptcy, you must immediately contact your attorney. Whether you can keep some or all of the money or must turn it over to the Chapter 13 Trustee depends on several factors.The key question is often Is this money considered to be  disposable income  which you are required to turn over to the trustee? 

If you and a below-median debtor, and you have passed the three year point in your bankruptcy, then it may not be determined to be disposable income that you are required to turn over. If you are within the first 3 years, or if you are an over-the-median debtor, then it likely will be considered disposable income. Sometimes, however, if you can prove to the trustee that you have urgent needs for some or all of the funds that take it out of the  disposable income  category, you may be allowed to keep it and use it for those urgent needs. 

Your attorney should examine all of these issues with you and then inform the Trustee of the receipt of the money along with a proposal on what to do with it. Of course, if the money is enough to pay off your bankruptcy at 100% to the unsecured creditors, and it gets sent to the Trustee, your case will be complete and there will be no need to keep paying the Trustee each month.

It is important to note that anytime you receive a  Windfall  from any source, you must contact your attorney. Failure to report a  Windfall  while in bankruptcy may constitute fraud and could result in the failure to get a discharge

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.

Last modified: March 21, 2013