Court Refuses to Reopen Completed Chapter 13 Bankruptcies After Filers Inadvertently Omitted Personal Injury Claims

Establishing a repayment plan through Chapter 13 bankruptcy is the right path for many Americans who earn a steady income but have been unable to catch up on their financial obligations. In these arrangements, individuals agree to bring down their debts according to a schedule lasting three or five years. Repayment terms are designed based on the filing party’s income and recurring living expenses. Once the schedule has been successfully completed, remaining debts, if any, can be discharged and the filer moves forward free of their former obligations.

As in all bankruptcy proceedings, Chapter 13 cases rely on the submission of complete, accurate financial information from the debtor. However, there are situations where a debtor might inadvertently omit a non-tangible asset when seeking bankruptcy protection. Does this allow a bankruptcy trustee to undo a Chapter 13 repayment plan, even after the filing party faithfully completed the schedule set forth by the court?

Recently, the United States Bankruptcy Court for the District of Massachusetts addressed this question in three proceedings with similar fact patterns. In each case, the trustee sought to reopen the Chapter 13 proceedings and convert them to Chapter 7 bankruptcies. The reason is that the debtors had inadvertently omitted personal injury claims when filing their original bankruptcy petitions. Based on this failure, the trustee sought the authority to liquidate the personal injury claims and distribute the proceeds to creditors.

However, the Bankruptcy Court rejected the trustee’s motions, emphasizing the finality of completed Chapter 13 plans. The court noted that the debtors had fulfilled the requirements of the repayment plans in good faith. As the omissions were not intentional, there was no fraud, and the court noted that repayment terms are based on post-petition income and federal law bars schedules lasting more than five years. Waiting for personal injury claims to be resolved could lead to unlawfully long Chapter 13 proceedings. 

By working with an experienced attorney, you can minimize the possibility that a pending legal claim or some other asset might be missed on your bankruptcy filing. Nevertheless, people who have obtained Chapter 13 relief or are considering starting the bankruptcy process should be comforted by the court’s decision upholding the principle that if you follow the terms of your repayment plan, you can move forward without worrying about your case being reopened. 

Jeff Field & Associates represents Georgians in Chapter 13 proceedings and other bankruptcy matters. For a consultation, please call 404-381-1278 or contact us online. We have locations in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur.