If you have chosen to file Chapter 13 bankruptcy in Fort Lauderdale, Florida, you may be aware that your payments are going to a trustee who distributes the funds to your creditors. When circumstances beyond your control make it impossible for you to make those payments, you may qualify to have your debts discharged through Chapter 7 bankruptcy. According to a U.S. Supreme Court ruling, this immediately changes the relationship you had with your court-appointed trustee.
Simply put, once you file the petition for a hardship discharge, your trustee is no longer a part of your case. This means that he or she can no longer distribute your payments to creditors. Instead, the assets you owned when you filed for Chapter 13 bankruptcy would be liquidated and those funds disbursed to your creditors.
In the case of Harris v. Viegelahn, the Supreme Court reiterated this when it ruled in favor of the debtor. The justices’ opinion states that the trustee assigned to the man’s Chapter 13 bankruptcy continued to act as a trustee, days after the man converted over to Chapter 7. Instead of returning the funds in her possession, the trustee chose to pay the man’s creditors, attorney and herself with the funds. The funds were accumulated after the man filed for Chapter 13 and, according to the court, would be exempt from the Chapter 7 liquidation of assets. The reason for this is because Chapter 7 liquidation is only processed on assets the debtor had at the time of filing. Therefore, the court decided, the funds belonged to the debtor and the trustee had no legal right to do anything but return them to him.
While this information may help you understand what could happen in a hardship discharge of a Chapter 13 bankruptcy, the circumstances in this case are not necessarily common to all cases. Therefore, this should not be taken as legal advice.