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Accident settlement funds used to pay off creditors

Kentucky residents who have overwhelming debt may be able to work out a way to restructure their obligations by filing for Chapter 13 bankruptcy. If they have a regular income, Chapter 13 bankruptcy can allow them to repay their debts pursuant to a court-approved plan without liquidating any of their assets. However, any unexpected income that the debtor might receive after the plan is confirmed could result in the repayment plan being modified.

On Aug. 5, the U.S. Bankruptcy Court for the Western District of Louisiana ruled that a debtor must use a car accident settlement to pay off his creditors. The man was involved in a car accident three years after his Chapter 13 bankruptcy debt repayment plan had been confirmed. After he was received a settlement, the man's Chapter 13 bankruptcy trustee petitioned for a modification of the man's debt repayment plan.

The debtor was awarded $196,845 for his car accident, but he received $74,067 after fees and expenses were paid. The total allowed claims against his bankruptcy estate are $11,359, so the bankruptcy court ordered the man to pay that amount out of the settlement he received. Though the debtor had an opportunity to argue that he needed to keep his entire settlement to pay for ongoing medical and other expenses, he did not provide evidence to support this argument.

A debtor who files for Chapter 13 bankruptcy must prepare a repayment plan and have it approved by the court. An attorney can provide representation during the Chapter 13 bankruptcy process and make sure that the monthly payments that will be required to be made over a period of from three to five years are affordable.

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