CAN YOU KEEP PROCEEDS FROM INSURANCE IF YOU ARE IN BANKRUPTCY?
TOPIC BANKRUPTCY:EASTERN DISTRICT OF MICHIGAN BANKRUPTCY COURT. BANKRUPTCY FLINT ,ATTORNEY POSTING BY Flint Bankruptcy Lawyer Terry R. Bankert 810-235-1970.[Comments of Flint Bankruptcy lawyer Terry R. Bankert ,810-235-1970 ,in bracket or CAP headlines. If you have bankruptcy questions call today-810-235-1970 this article presented in a SEO format see, www.nojoketobebroke.com ]
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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION – DETROIT
In re: Pauline Marie Darr, Case No. 09-63229
Chapter 7,Debtor. Hon. Walter Shapero, Signed on March 24, 2011
_______ ___________________________/
OPINION ON DEBTOR’S MOTION TO RETAIN INSURANCE PROCEEDS
The matter before the Court is Debtor’s Motion to Retain Insurance Proceeds (Docket
No. 86). For the reasons set forth in this opinion, Debtor’s Motion is denied.
BACKGROUND-BANKRUPTCY FILED 07-27-09 CHAPTER 13
Pauline Darr (“Debtor”) filed her Chapter 13 petition on July 27, 2009. She filed her
Chapter 13 Plan on August 11, 2009 and the Order Confirming Plan was entered on December
22, 2009 (Docket No. 47).
DEBTOR ASKED TO KEEP MOLD DAMAGE CLAIM TO HER HOME
On July 19, 2010, Debtor filed a Motion to Retain Insurance
Proceeds to Repair Residence (Docket No. 60), seeking permission to retain the proceeds of an insurance claim covering her residence, totaling $2,750.38, which arose out of remediation of
old and water damage.
CHECK MADE OUT TO DEBTOR, DEBTORS SIGNIFICANT OTHER AND MORTGAGEE
The proceeds emanated from a check issued by the entity adjusting the
claim, which was delivered to the Debtor and was made payable to Debtor, her significant other, and the mortgagee of her manufactured home residence, Green Tree Serving, LLC (“Green
Tree”).
MORTGAGEE JUST WANTED TO KN OW THE MONEY WOULD BE SPENT WISELY
Green Tree responded to Debtor’s Motion, seeking a method by which they could be assured that the repairs would be timely made and that the disbursement of funds could be monitored.
ALL PARTIES AGREE TO A PROCESS
A hearing was set and eventually the parties stipulated to the entry of an Order Regarding Insurance Check (Docket No. 68), dated August 12, 2010, which essentially provided for the following:
(1) The check would be endorsed by the payees and the check’s proceeds would be
deposited in Debtor’s attorney’s trust account, with the funds to be disbursed therefrom as further provided in the order.
(2) Debtor would produce to her attorney and Green Tree certain documentation regarding the claim, including the adjustor’s itemized statement of the damages and a contractor’s estimate to remediate the damage. Incident to receipt of such, the
attorney would issue a check to the Debtor for 50% of the proceeds.
(3) Debtor was to have the repairs completed within thirty (30) calendar days of receipt of those funds, following which she was to produce proofs and certification of completion. If Green Tree found such to be satisfactory, the remaining 50% of the proceeds would be released to the Debtor.
DEBTOR HAD LEFT THE HOME
Previous to the entry of that Order, Debtor had (a) vacated the residence, and (b) obtained a repair estimate of $4,506.00 from a contractor; and ©) had received the adjustor’s loss report detailing how the $2,750.38 amount of the check was arrived at. That stated calculation was:
Gross Repair Estimate $ 4,213.22
Less: Policy Deductible _$ 500.00
$ 3,713.22
Less: Recoverable Depreciation _$ 850.48
$ 2,862.74
Less: Non-recoverable Depreciation _$ 112.36
AMOUNT OF CHECK $ 2,750.38
(The subsequent entry of the August 12, 2010 Order also implies that Debtor did not then take issue with the indicated insurance settlement figure)
DEBTOR TO GET $3,600.86 FROM THE CLAIM
What that meant was that (1) the money initially available from the insurance company for remediation was the check proceeds of $2,750.38 and (2) Debtor would also receive the recoverable depreciation of $850.48 on completion. Thus, the total to be ultimately received by
Debtor from the insurer in respect to the claim was to be $3,600.86. Debtor would be required to personally bear whatever, if anything, it cost in addition to that figure to remediate the damage.
Debtor having supplied the required documentation,
DEBTROS ATTORNEY GAVE HIM $1,300
Debtor’s attorney issued a check to Debtor for roughly half of the proceeds, i.e.: about $1,300. Sometime in October 2010, Debtor turned that amount over to the contractor from whom she received the indicated estimate, with the idea that the contractor would then commence the repairs.
DEBTOR TOLD THE CONTRACTOR TO NOT START WORK!.WHODATHUNK
However, the Debtor, for reason, thereafter told the contractor not to start the repair work.
CHAPTER 13 CONVERTED TO A CHAPTER 7
In the meantime, in November 2010, the Debtor’s bankruptcy case was converted to a Chapter 7 case and Green Tree thereafter obtained a lift of the stay in reference to its mortgage on the manufactured home residence.
CONTRACTOR RETURNS MONEY TO DEBTOR
Sometime in December 2010, the contractor returned to Debtor the money she had paid him, less some $300.00 he retained for his time and efforts to date.
DEBTOR GIVES MONEY TO ATTORNEY TRUST ACCOUNT
Debtor then turned that money over to her attorney who deposited it in his trust account, where it now sits together with the remainder of the $2,750.38 the attorney had not previously disbursed. Presumably the amount in that trust account is $2,750.38 less the $300 or so which the contractor did not return to the Debtor.
GREENTREE GETS THE HOUSE BACK
So, the situation is that (A) Green Tree has obtained a lift of the stay with reference to the residence and presumably will exercise its rights under its mortgage and for some time Debtor has not lived there and apparently does not intend to do so;
NO REPAIRS WERE MADE TO THE HOUSE
(B) no repairs were ever made to the residence incident to the loss covered by the insurance check;
THE INSURANCE MONEY IS IN THE ATTORNEYS TRUST ACCOUNT
(C ) the check/loss proceeds in the indicated amount are being held in Debtor’s attorney’s trust account, subject to this Court’s decision; and
COURT ORDER DID NOT ADDRESS ESCROWED ACCOUNT AMOUNT
(D) the August 17, 2010 Order did not state what would happen to the escrowed funds if the contemplated repairs were in fact not made.
DEBTOR ASKED THE COURT TO ALLOW DEBTOR TO KEEP THE MONEY
Debtor seeks to have some or all of those proceeds paid to her, as opposed to having them released to Green Tree, which seeks turnover to it of all of the funds.
DISCUSSION
In the Court’s view, given that the August 17, 2010 Order was not fully effectuated, the proper disposition of the funds must be determined by looking at both the Mortgage and the insurance policy involved.
INSURANCE REQUIRED AND ASSIGNED TO MORTGAGEE
The mortgage documents with regard to Property Insurance clearly
(a) require that the Debtor carry prescribed insurance coverage; and (b) assign to the mortgagee (in this case Green Tree) the proceeds of any insurance coverage on the manufactured home, the same to be applied to repair or restoration, or in lieu thereof, to the remaining unpaid balance due
under the mortgage.
GREENTREE WAS THE INSURED
The insurance policy involved in this case, which covers the loss involved,
among other things, names Green Tree as an insured.
DEBTOR SAYS MONEY CANNOT FIX PROPERTY SO DEBTOR SHOULD KEEP IT
Debtor argues that she should be entitled to all or part of the funds at issue because the
funds are insufficient to fully restore the premises and fully pay for the loss; that she did not have the funds to pay the difference; and that she continued to pay lot rent until the stay was lifted, and that she needs the fund to get back on her feet.
LOOK TO THE POLICY
While all of that might be so, such cannot alter the meaning and purport of the referred to provisions of the mortgage and insurance policy.
It was clear in the first place, whether Debtor fully appreciated it or not, that she was going to have to bear some of the cost herself (unless the contractor agreed to accept the check proceeds as full payment for the entire remediation). Furthermore, as indicated, the stipulated Order
pertaining to the disposition of the funds is silent on what was to happen if the provisions of the order were not carried out and the repairs were never made. That necessarily left the disposition
of the matter to the cited provisions of the relevant documents.
GREENTREE GETS THE PROCEEDS
Accordingly, Green Tree is entitled to all of the funds involved. Green Tree should prepare and present an order which requires the Debtor and Debtor’s attorney to forthwith turn over to it all of such funds. Debtor and Debtor’s attorney do not have any responsibility to turn
over the amounts deducted by the contractor before he returned the remaining balance to the Debtor and she thence turned it over to her attorney, because the Court has concluded the
circumstances do not warrant requiring them to do so.
—END
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