New York bankruptcy debtors rarely worry about finding their creditors. In many cases, their creditors are exerting great efforts to find debtors and recover debts they owe—or just maintain the stream of payments. Although there are circumstances in which a creditor might not file a proof of claim, a different situation arises when the trustee’s check from the bankruptcy estate to a creditor isn’t deposited. Does that money revert to the debtor? The answer is no. Such “unclaimed funds” as the courts call them, remain the property of the bankruptcy estate and the Bankruptcy Code instructs the trustee as to how to manage them. Creditors in bankruptcy cases may want to know this information as well.
Section 347(a) of the Bankruptcy Code applies to cases filed in chapters 7, 12 (family farms), and 13. It states that 90 days after the final distribution of the funds from the bankruptcy estate, the trustee is to stop payment on any checks that have not yet been deposited by the recipient creditor. The trustee must then deposit the money into the bankruptcy court’s unclaimed funds account. Federal law authorizes bankruptcy courts to deposit any money they receive into either the U.S. treasury or a designated depository in the name of the court. The courts then track this money and if creditors appear to claim it, then the courts will release it.
Unclaimed funds never expire. Even if the creditor dies, his or her heirs can appear to claim the funds. Claiming unpaid money from a bankruptcy case requires identifying the case and completing whatever procedures the court requires. The U.S. Bankruptcy Court for the Southern District of New York, for example, maintains a Web site that explains the process and offers a search engine to help creditors find out if they are owed money and how much. The search feature only goes back five years, so cases for small amounts or from earlier dates will require more research by the creditor. For most creditors, a lawyer will not be necessary.
Although debtors don’t get their money back, unclaimed funds benefit everyone by paying creditors what they are owed and closing debtors’ cases. There’s no reason for a debtor’s case to continue because the trustee can’t find a creditor, and creditors shouldn’t miss out on receiving payments just because they couldn’t be reached. Debtors should also be aware that because a creditor cannot be found or declines payment from the bankruptcy estate, that doesn’t mean it can pursue the debtor for the original amount it believes it was owed. The discharge order applies whether creditors want the money or not.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.