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Settlement funds may belong to Chapter 13 Creditors

Individuals in South Carolina who opt for Chapter 13 bankruptcy know that they can expect some challenges over the next three to five years. That's because Chapter 13 allows debtors to keep their property while repaying creditors over a set period of time. After the repayment plan is completed, most remaining unsecured debt is discharged.

Chapter 13 is also known as a "wage-earner" plan. This is because the debtor agrees to use future income to repay at least a portion of what he or she owes creditors. In some cases, however the debtor may receive unexpected income. For example, in one case, a judge for the U.S. Bankruptcy Court for the Western District of Louisiana decided that a debtor could only receive his car accident settlement after a portion had been used to pay creditors.

It's important to note that in this decision, the judge also stated courts should consider whether a debtor who receives a settlement after an accident needs the funds for genuine medical purposes. In this case, the debtor did not present this evidence to the court, although an opportunity was provided.

Cases like this show that even straightforward bankruptcies can sometimes become complicated. For this reason, people who are considering bankruptcy may benefit from speaking with an experienced attorney. A knowledgeable bankruptcy attorney may not only be able to review the client's case, he or she can provide advice and representation in a variety of situations, including receiving an expected income, accidents, injuries and job loss. Having legal counsel during these times may make a difference in the success of the bankruptcy plan.

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