01/27/2023
Bankruptcy Courts Holding Large Sums for Creditors Yet to Claim Funds
The Wall Street Journal has an article regarding unclaimed funds currently held by bankruptcy courts. Bankruptcy lawyers typically file claims on behalf of their clients, yet if an address changes, or if the creditor does not cash disbursement checks, the funds are turned over to the bankruptcy court to sit on account. Eventually, these bankruptcy funds will be turned over to the United States Treasury.
The funds come out of restructured bankruptcies where a bankruptcy attorney and debtor set up a repayment plan or bankruptcies where assets have been liquidated.
For bankruptcy restructurings/reorganizations (Chapter 13 for individuals), the bankruptcy debtor, with help of his/her bankruptcy lawyer, sets up a payment plan to pay the bankruptcy Trustee a set amount of money each month. The bankruptcy Trustee disburses those funds to the bankruptcy creditors posting claims in the case.
As Chapter 13 bankruptcy lasts three to five years, creditors sometime change their address and forget to update the new mailing contact with the bankruptcy attorney and trustee. If the funds are not cashed or returned in the mail to the Trustee, they will attempt to contact the creditor. However, if the creditor does not follow up, the funds get handed over to the bankruptcy court.
In Chapter 7 liquidation, assets or preference transfers are taken by the bankruptcy Trustee, and reduced to cash as needed. The Trustee then notifies the bankruptcy creditors of money on hand and advises them to file claims in the case.
Again, if the bankruptcy creditor changes address between the time of the filing the claim for bankruptcy funds and when the funds are disbursed, the creditor will not receive payment and funds will sit on hand with the bankruptcy Trustee to later turn over to the bankruptcy court.
The country’s bankruptcy courts are holding onto money for people who don’t realize it’s theirs.
The federal court system is guarding a surprising amount of forgotten money, usually from people and businesses that didn’t cash checks sent to them at the end of bankruptcy cases.
Money can get left behind at the end of a bankruptcy case for a number of reasons. Maybe the creditor’s address was wrong or outdated after a case that took years to wrap up. Perhaps the recipient died and his next of kin never got a hold of the claim. Or maybe the holder simply forgot to cash a payout check.
Certainly those who are responsible for a bankruptcy case and distributing the money do their best to connect the money with the right person.
Each bankruptcy court holds onto unclaimed money for several years before turning it over to the U.S. Treasury. The exact amount of homeless money is unclear. For all of the U.S. Judiciary, the U.S. Treasury held $280.8 million in unclaimed money as of June 30, 2015.
