Bankruptcy

Creditor Garnishes Funds Held by Chapter 13 Trustee

By Carmen Dellutri, Southwest Florida Bankruptcy Atto

Can a judgment creditor seek to garnish funds in the possession of the Chapter 13 Trustee after a Chapter 13 case is dismissed?  The answer is yes in Orlando.  A recent bankruptcy decision in the Orlando Division of the Middle District of Florida holds that if a Chapter 13 Debtor’s case is dismissed and the Chapter 13 Trustee is still in possession of funds directed to go back to the debtor, a judgment creditor can run to the State Court and request an Order of Garnishment on the Chapter 13 Trustee.  Wow, what a horrible result.  I must admit that there is case law on both sides of this issue, but the Orlando Court followed the line of cases allowing the garnishment.

In this Chapter 13, the Debtor found herself in a position where the monthly payment became impossible to make.  Therefore, the Court had to enter an Order of Dismissal.  Along with that Order was a directive to the Chapter 13 Trustee to return monies held in trust to the Debtor pursuant to 11 U.S.C 1326(a).  Before the Trustee could mail off the money to the Debtor, a savvy creditor’s attorney was able to procure an order from the State Court allowing a garnishment.  As much as I hate to admit it, I always give credit where credit is due, and it is certainly due here.  The Creditor’s attorney made a bold move, and it paid off.

The Court acknowledged that there were cases on both sides of the issue; however, in her mind, the better line of cases were the ones allowing for garnishment.  So, a warning to all Debtor’s attorneys out there.  Please don’t promise your clients that they will receive any money back from the Chapter 13 Trustee when their cases are dismissed, especially if there is a judgment creditor lying in wait.

Full post as published by Bankruptcy Law Network on August 28, 2010 (boomark / email).