Can Trustee or Bankruptcy Court Take Funds Received in Personal Injury Settlement

[no1texan]

My question involves bankruptcy in the state of: Texas
I am currently in a chapter 13 plan and current on my payments. It is very likely that I will shortly receive money from an auto accident personal injury settlement. The amount will not be large, i.e. nothing like $100k, etc. More likely $10,000 or less. Am I required to report this to the Trustee or Court? Can the Trustee or Court take this settlement?

[JayFleischman]

Under Chapter 13 (unless your confirmed Plan says otherwise) all of your property remains property of the bankruptcy estate until your discharge is issued. That includes the personal injury lawsuit. You may settle only with court approval, and only on terms satisfactory to the court. Whether the settlement can be taken or not is a question of exemptions; you need to speak with your attorney about that.

[despritfreya]

Under Chapter 13 (unless your confirmed Plan says otherwise) all of your property remains property of the bankruptcy estate until your discharge is issued. That includes the personal injury lawsuit. You may settle only with court approval, and only on terms satisfactory to the court. Whether the settlement can be taken or not is a question of exemptions; you need to speak with your attorney about that.

This is not correct.

11 U.S.C. § 1327(b), provides, "[e]xcept as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor." The questions are. . . did the accident happen prior to or after filing? If prior to, was the claim listed on Schedule B? If it was listed on Schedule B, what does the Order Confirming provide? Does the Order state that this asset will remain property of the estate? If it does not then the asset vested back to the debtor and, while the debtor should check with his attorney, there is a good possibility that he does not have to turnover the proceeds.

Of course, if the asset was never disclosed then it never vested back and is property of the estate. Any settlement must be approved by the court with the proceeds given to the Trustee.

What if the accident happened after the filing of the bk? This is even more convoluted. Under Section 1306(a) after acquired assets are property of the estate. However there is no duty written into the Code that a debtor must amend Schedule B. Everything turns on the district and/or the debtor's good faith.

Courts have found that a conflict exists between §§ 1327(b) and 1306(a). Courts have generally dealt with this conflict using one of four approaches: The "reconciliation" approach, "estate termination" approach, "estate transformation" approach, and "estate preservation" approach. The "reconciliation" approach gives full meaning to the plain text of both §§ 1306(a) and 1327(b), and has been adopted by a majority of the Circuit Courts who have confronted the issue.

Read In re Rodriguez, 421 B.R. 356 (Bankr. S.D. Tex., 2009) for more info and the advent of a fifth approach in Texas.

Also see In Re Powers, 435 B.R. 385 (Bankr. N.D. Tex., 2010). Specifically,

“The provisions of sections 1306 and 1327 present a quandary. The problem here, given the particular facts and circumstances of this case, is that the Court fails to appreciate the consequences resulting from a decision that the settlement funds are or are not estate property. The Court is inclined to endorse the view that estate property that exists at the time of confirmation vests in the debtor per section 1327(b), but property acquired by the debtor after confirmation becomes estate property under section 1306(a)(1). If the latter described property may potentially enhance the dividend to creditors, then the debtor, the trustee, or an unsecured creditor can move under section 1329 to modify the debtor's chapter 13 plan to increase the debtor's payments. See 11 U.S.C. § 1329. But the debtors here have completed their payments and have long since received their discharge. Section 1329 provides that a modification may be proposed “after confirmation ... but before the completion of payments....” This case was closed; the issue arose after the debtors moved to reopen the case.”

Since OP is in Texas, if the accident happened after the case was filed, this after acquired asset may or may not have vested back to him. It will depend upon what judge and the circumstances of the case. Again, he needs to discuss the specifics with his attorney.

Des.

[despritfreya]

Too late to edit.

I forgot to mention that one of the questions is. . . Has the Plan been Confirmed? If not, vesting is not an issue as nothing "vests" until the Plan is Confirmed. If not Confirmed you absolutely need a Court Order to do anything relating to the auto accident claim.

Des.