Bankruptcy under Chapter 13 requires a debtor to attend a meeting with creditors to answer questions regarding terms of the plan submitted. Within 45 days, a judge holds a confirmation hearing on the feasibility of the plan. The substantive laws and procedural rules can often raise questions that require legal analysis to determine the right course of action for both debtors and creditors.
A legal claim falls within the estate under Chapter 13
A recent court case in the U.S. Bankruptcy Court for Southern District of Florida addressed an issue involving multiple laws within the Bankruptcy Code as well as Federal Rules of Bankruptcy Procedure. Specifically, the court had to review whether a debtor could amend a bankruptcy schedule under Chapter 13 to disclose a personal injury claim initiated after her discharge.
A woman filed a Chapter 13 petition in 2017 that the court dismissed for failure to confirm. She received a discharge in June 2022. One month later, she sued a company for negligence as the result of a slip-and-fall accident on its premises.
The court closed her case in September 2022, but she had failed to amend her bankruptcy schedules to disclose the claim. The debtor sought to reopen the case after the company argued in state court the debtor could not pursue the case.
Circuit Court of Appeals case weighs law in favor of debtor
The court emphasized that a unique aspect of Chapter13 – after confirmation all property vests in the debtor – permitted her to reopen the case. While Section 1306 expands the property listed in Section 541 that reverts to the debtor, a federal rule of procedure provided no guidance how to amend a schedule to disclose a litigation claim that became property of the estate.
Citing a decision by U.S. Court of Appeals for the Eleventh Circuit, the court noted that a different procedural rule permitted just such a means to disclose the claim. This reopening would not prejudice unsecured creditors since the debtor had already paid all the money owed to them.
Each chapter of Bankruptcy Code most effectively helps specific people or groups. For individuals who have income and meet certain guidelines, Chapter 13 affords options that may preserve their financial foundation.