Unclaimed Property & Bankruptcy

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Following a bankruptcy filing, the court takes steps to ensure that funds are distributed to the rightful person or business. However, certain circumstances can arise whereby distributed funds associated with a bankruptcy are returned to the trustee. If you realize that you are due funds from a bankruptcy case, you can contact the appropriate bankruptcy court to claim your property.

Role of the Trustee

In both a Chapter 7 and a Chapter 13 bankruptcy, the debtor has an appointed trustee to administer the bankruptcy. A straight bankruptcy, also known as Chapter 7, is a liquidation of assets. However, in a Chapter 7, the debtor is allowed to keep a certain amount of assets, which are exempt from liquidation, so that he can move forward with his life. The trustee is responsible for liquidating, or selling, the debtor's non-exempt assets -- and distributing the money from the sales to the debtor’s creditors. With a Chapter 13 bankruptcy, the debtor creates a plan to pay off all or a portion of his debt over three to five years. He makes payments to the trustee who then distributes checks to the creditors.

Unclaimed Funds

Occasionally, the trustee will run into the issue of unclaimed property. Generally, this occurs where the trustee mails a check to a creditor, and the check is not cashed, or the check is returned by the postal service as an undeliverable address, perhaps because the creditor moved without informing the trustee of the new address. Even in cases where the check was successfully delivered, creditors are required to deposit checks within 90 days, after which time, they are considered unclaimed property and the trustee will stop payment on any such check. Unclaimed property does not go back to the debtor. Instead, the trustee must submit the money to the bankruptcy court.

Checks to Debtor

In some cases, a Chapter 13 case is dismissed because the court doesn't approve the payment plan, but the debtor might make payments to the trustee before learning of the dismissal. In this situation, the trustee will attempt to reimburse the debtor. However, if the trustee cannot get the check to the debtor because the debtor moved, or for any other reason, the trustee will then send the check to the bankruptcy court.

Read More: How to Conduct a Judgment Debtor Examination

Claiming Property

Bankruptcy courts generally hold unclaimed funds for five years -- and then deposit them in the U.S. Treasury. Creditors or debtors who did not receive owed funds can request them. The law does not impose a time limit for filing a request. You can search the records of the bankruptcy court to see if your name is on the unclaimed funds list. If you believe you are owed unclaimed property, you must follow the procedure of the particular bankruptcy court to retrieve the funds. Generally, you must file a motion or petition for the payment of the funds. The court might require that you provide proof of your identity and your address.


About the Author

Elizabeth Rayne earned her J.D. from Penn State University and has been practicing law since 2009, advising clients on issues ranging from employment law to nonprofit management. For two years, she served as a contributing editor for the "Vermont Environmental Monitor."

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