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Handling refunds in a South Carolina bankruptcy case

Chapter 13 bankruptcy allows those with regular income to reorganize debts and pay them back over a period of three or five years. However, there have been cases where creditors decide to return funds to a debtor. In one case, the IRS had a priority unsecured claim of $7,333 against a man who was to pay that money in monthly installments. Another case involved a woman who filed for Chapter 13 and owed $97,933 to a creditor called Selene Finance.

In the first case, the IRS sent $1,565 back to the trustee. In the second case, the trustee received $1,673 after the woman's case was dismissed for failure to make claim payments. A bankruptcy court in Alabama held that funds returned to a debtor after a discharge should be disbursed to unsecured creditors according to the plan submitted by the debtor. Any excess funds can then go to the debtor.

In the second, the court said that funds should be returned to the debtor if the case has already been dismissed. The money is not considered unclaimed property because the funds were delivered properly but rejected by the creditor. Funds should be returned to a debtor after a bankruptcy case has been dismissed because the goal is to then restore property rights to how they were found before the case began.

Bankruptcy may be an effect debt relief tool for those in need of a fresh financial start. It may be possible to obtain a stay from creditor action such as foreclosure or repossession, which may provide time to renegotiate the terms of a loan. An attorney may be able to explain additional benefits of bankruptcy such as the ability to reorganize debt into more manageable monthly payments. In a Chapter 13 cases, debtors may keep property while payments are being made.

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