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Debtors Get Money Held by Trustee After 13 to 7 Conversion

Case Conclusion Date: 10.26.2012

Practice Area: Bankruptcy and debt

Outcome: Money paid into plan and not distributed to creditors is returned to the debtor.

Description: When debtors convert their cases from 13 to 7, according to the Third Circuit, any plan payments still in trustee's possession must be returned to the debtor. Because the funds are not in the possession of the debtor at the time of conversion, the funds are not property of the estate and subject to seizure by the chapter 7 trustee. This decision is not clear across the circuits. Others have found the money should be paid pursuant to terms of a confirmed plan, regardless of conversion.

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