motion to retain funds atlanta bankruptcy lawyer video

Motion to Retain Funds: How to Retain Your Tax Refund or Insurance Settlement While in Bankruptcy

Motions to Retain are a very common motion filed in bankruptcy court. The typical reason that bankruptcy attorneys file these motions is because their client is due either a tax refund or an insurance settlement and need to retain a portion or all of the funds for a necessary expense.

A Chapter 13 Bankruptcy typically lasts five years.  While it would nice if everything stayed the same during that five years, life happens and things come up. Over the course of five years our clients may get divorced, marry, have kids, need to purchase a vehicle, or even suffer damage to a home or vehicle already owned.  Like most Americans, most of our clients rely on their tax refunds to cover emergencies that come up.  Since bankruptcy clients are not allowed to save a portion of their regular monthly income in their budget they are usually very tight for money.

The general rule in bankruptcy is that if a debtor becomes entitled to any sum of money then it must be turned over to the bankruptcy trustee to be distributed to creditors.  Typical sources of money that need to be disclosed:

  1. Inheritance
  2. Tax refunds
  3. Insurance proceeds

If you receive any money during your Chapter 13 case you should inform your attorney immediately. If you want to keep some or all of the money that you are entitled to you can file a motion to retain the proceeds.  This will have to be submitted to the court and scheduled for a court hearing.  These motions typically will be heard in 30 days and can be opposed by a creditor or your trustee.  Below are the three most common scenarios we see in which a motion to retain is needed:

Client is due a tax refund and are in a case that requires tax refunds over $2000 be turned over to the trustee.

There are three chapter 13 trustee’s in the Northern District of Georgia where I practice and two of those trustees, Melissa Davey and Nancy Whaley, require that if a client is not in a case repaying 100% of their debt then they are required to turn over any tax refund money over $2000.00.

If a client is going to request to retain that refund over the $2000.00 then they have to provide proof that the refund is needed for a necessary living expenses.  These motions are very case specific but below is a list of needs that usually allow the retention or all or at least a portion of the client’s refund:

  • Dental work
  • Replacement of HVAC
  • Auto repairs
  • Funeral expenses
  • Medical expenses
  • Upkeep of home to avoid HOA fines

The trustee’s will not only require proof of the expense such as estimates, but some judges will also require proof of how the money was spent no later than 30 days after the hearing.  The courts want to ensure that the money being retained is actually for the purpose in the motion.

Client is due an insurance settlement check from a totaled car. 

For many of us living in the Atlanta metro area, we will be involved in a car accident while we live here.  My office hears from clients on a weekly basis that have been involved in an auto accident and have totaled their car.  If the client is entitled to receive money back from the insurance company after the car has been paid off, they are required to commit that money to the trustee if they are not repaying all creditors back in full.  Most clients in this position however need to obtain a replacement car in order to get to and from their job so they ask that we file a Motion to Retain.  It is important to note that if you receive insurance proceeds for property, i.e. a vehicle, and there is a total loss, then any existing loan balance has to be paid off before any funds are be released to you if your motion to retain is granted.
Client is due an insurance settlement check from a settled legal case

If a client has been involved in an accident then he or she may also have a legal action which entitles them to a recovery. If the client wishes to retain any or all of that money then they are required to show what basic living expense needs to be covered.  The trustee will want to see an estimate of the expense and will also seek to confirm how the money was spent.  Our firm recently handled a case in which our Chapter 13 client was injured in a very bad car accident.  Due to her injuries she need to have a special bed.  She was not able to purchase the bed until she received her legal settlement.  Our firm file the Motion to Retain and then provided the court with a copy of her doctor’s report in terms of the medical need for the bed and then an estimate from the manufacturer as to the cost.  Since this was a necessary medical reason, the court granted the motion and our client was able to purchase her bed.

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