Must You Disclose a Car Accident in Chapter 13 Bankruptcy if You’re a Creditor?
The answer is yes, even if you’re a creditor collecting a judgment.
While the topic of disclosing a car accident might seem relevant to a debtor in Chapter 13, there are important lessons here for creditors who are working through the collections process. If you’re actively trying to collect on a judgment through a Chapter 13 bankruptcy case, this case law highlights that it’s crucial to understand how assets, like a car accident claim, must be disclosed.
What Happens When a Debtor Has a Claim?
If a debtor suffers a car accident during their Chapter 13 bankruptcy case, they must disclose that accident and any potential claim for damages. This is a key point to consider if you’re a creditor trying to enforce a judgment through garnishment or other means. If the debtor recovers any money, it’s possible that those funds may be diverted to pay creditors under the bankruptcy’s repayment plan.
The Flugence v. Axis Surplus Ins. case in the 5th Circuit made it clear that any asset acquired by the debtor—including accident settlements—must be disclosed. As a creditor, you need to keep this in mind when you’re exploring garnishment or other collection methods for the judgment you hold.
How Does This Affect Your Collection Efforts?
If you’re trying to collect from a debtor and they fail to disclose an asset like a car accident settlement, it could cause complications in your collection efforts. Not only could the debtor be accused of fraud, but it also means your ability to collect through methods like writs of garnishment might be impacted.
If the debtor receives funds as part of a settlement, these may be used to pay unsecured creditors as part of their repayment plan in the Chapter 13 case. You can ensure this doesn’t hinder your collection efforts by keeping a close eye on the debtor’s financial situation and asking your attorney to request an amended schedule if the debtor fails to disclose new assets.
What If the Debtor Does Not Disclose?
Failure to disclose a car accident settlement is a serious issue and can lead to penalties, including fraud upon the court. If the debtor attempts to hide assets, the funds from the settlement may go to the trustee, leaving you with nothing.
As a creditor, it’s critical to remain vigilant and ensure that the debtor discloses any asset that could potentially be used to settle your judgment. Even though the debtor may be entitled to any remaining funds after the trustee’s distribution, disclosure ensures that you get your fair share before any leftover funds go back to the debtor.
What Should You Do?
If you’re a creditor involved in a bankruptcy case, it’s important to stay informed about the debtor’s financial situation, including any potential claims or settlements they may acquire. Whether the debtor was in a car accident or experienced another unexpected event, make sure that any potential recovery is disclosed so you can take the necessary steps to collect the funds you are owed.
As a creditor, you may need to use writs of garnishment to seize bank account funds or even wages to satisfy your judgment. Understanding how the debtor’s Chapter 13 case may impact your ability to collect on your judgment is essential, and keeping track of new assets is critical.
Conclusion
When you’re working on collecting a judgment, always make sure that any potential sources of recovery—such as car accident settlements or inheritance—are disclosed by the debtor. If you’re uncertain about your rights or need assistance in navigating the collection process, contact us for a consultation.
We specialize in creditor rights and collections and can help you maximize your recovery. With over 25 years of experience in debtor collections and bankruptcy law, we know how to navigate the complexities of Texas law to help creditors recover funds they are owed.
