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Court commands settlement winner to repay debt

Virginians who file for bankruptcy aren't necessarily guaranteed that their future earnings will be excused from old debt. In one August ruling, a bankruptcy court judge decided that a man who had filed for Chapter 13 and had the plan confirmed must use the funds he later received from a motor vehicle accident settlement to repay his debtors.

The debtor's original Chapter 13 bankruptcy plan was approved three years prior to his involvement in a car accident. After the incident, he changed his debt schedule to indicate the fact that he might receive a settlement, and the court decided that because the money he received went towards replenishing his estate, some of the proceeds must be diverted to the creditors.

The court rejected the man's claims that he needed the entirety of the settlement monies to pay for his increased living costs and continuing medical bills. Of the original $196,845 award, he only received $74,067. Notably, the man was barred from even claiming this amount until the creditors had been paid properly. The estate-replenishment approach to determining who benefits from property gained following Chapter 13 is just one guideline among many, but more courts are using it to make their decisions.

Although filing for bankruptcy is often a good way for individuals to manage their debt, it's important to choose the correct kind of filing and plan ahead. Chapter 13 may be used to protect property and put an end to creditor harassment, but the efficacy of such actions depends on what kind of repayment plan filers submit. Those with questions about which options might suit them best may benefit from talking to an attorney in advance.

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