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Chapter 13 bankruptcy petitioner allowed to keep civil suit hearings unlike Chapter 7 petitioners

In a recent case the court’s upheld the notion that a party who files for a Chapter 13 bankruptcy is still allowed to earn income unlike Chapter 7. The New York Law Journal discussed this case in a January 29, 2013 news article.

In the case, a woman filed for bankruptcy by means of a Chapter 13. Afterwards she was injured in a motor vehicle accident, where she brought a civil suit against the other driver. The woman then sought to amend her bankruptcy petition on the grounds that the civil claim was considered an asset of her estate. Under the traditional Chapter 7 and Chapter 11 bankruptcy, a trustee becomes in charge of any of the parties civil suits because it is seen as an estate that is absorbed by the state.

On the other hand, in Chapter 13 filings the debtor is allowed to keep the control over any civil suits. However, the debtor must still report their earnings from the suit. These earnings are then factored into a payment plan that the debtor must follow. Since the debtor in the case was filing a Chapter 13 she was not required to amend her petition.

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