Why Get Court Approval For A Settlement?
January 1, 2007
Under the Federal Rules of Bankruptcy Procedure, a trustee in a bankruptcy case can make a motion to have the court approve a settlement. This power extends to a debtor in a Chapter 13 case because under Chapter 13, the debtor is given many of the rights of a trustee.
I get a lot of people who ask me why I would have the court approve such a settlement, especially given the fact that it makes it take longer and involves more work on the part of the debtor’s lawyer. After all, this isn’t something that the debtor’s lawyer will typically get paid to do.
The answer is relatively simple - because it’s important to have a court record of a settlement whenever possible. This way if the creditor fails to live up to its side of the agreement, it becomes easier to bring the creditor back to court for not only breach of the settlement, but also for contempt of a judicial order.
Judges don’t like it when lawyers and parties don’t pay attention to their orders. So if a creditor fails to live up to its side of the bargain, the consequences can be dire.
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