25 Jul 2013

What To Do When Creditors Won’t Cash Checks

1 Comment

Trustee Tip:

What To Do When Creditors Won’t Cash Checks

As a case is winding down and you need to begin the distribution of funds, the returning of these funds can be one of the most frustrating aspects of closing a case. Lately, we have seen trustees and their assistants having to deal with a large increase in returned funds.  One reason why can be attributed to the fact that the IRS is no longer withdrawing claims paid by the debtor or other party.  On the other hand, some creditors have already taken and written off the loss and don’t feel that it’s worth the effort to account for the funds. Other times, the creditors simply can no longer be located so a check never gets delivered. Either way, the distribution and accounting for all funds in a given case is something that needs to be completed in order for you to close out your cases.

With the IRS no longer withdrawing claims BMS has received an increase in calls requesting assistance with unclaimed funds. The tips provided are intended to help you with finalizing and closing out your cases.

How to Handle Unclaimed Funds

The following scenarios are not localized to one particular region. Across the country, trustees and their assistants have found themselves having to deal with similar situations.

Scenario One: Check Returned as Undeliverable

As you already have physical custody of the check, simply log into CaseLink Office and follow these simple steps:

1)       Void the transaction.

2)       Write a new check made out to the U.S. Bankruptcy Court and link it to the assigned claimant.  Remember, it is very important to link the check to the original claim, as it keeps reference to the original claimant.

3)       To complete, check the Unclaimed Funds box so the UTC code will display the -001 on Form 2  as seen in the images below.

4)       Print and mail out the check to the U.S. Bankruptcy Court.

5)       Verify that the transaction displays correctly in the TDR. (Details later in this article)


Scenario Two: Check Not Returned but goes Stale

Once you have exhausted all of your resources in trying to find the creditor, place a Stop Payment on the stale check.  You will need to wait one business day for the stop payment process to conclude.  Once the stop payment is in place, follow the same process as in Scenario One above.

Check How Unclaimed Funds Appear in the TDR Display

Check the TDR to make sure the transaction displays correctly. Otherwise, you will not be able to close your case. Keep in mind that transactions are stacked top to bottom when displaying transaction history.


When Funds are Refused by Creditors

When funds are refused by creditors, they should be calculated for redistribution. Completing a supplemental distribution uses the same process as the initial distribution…with one caveat:  when running the supplemental distribution, make sure to exclude the claimant who returned the funds from the supplemental distribution.  You do not want to send them a second check that they will not cash again.  If you need to exclude the creditor, deselect the claim during the distribution before you proceed (as seen below in step 2 of the Distribution Wizard)


If you have any questions on how to run any of these processes in CaseLink Office, contact the BMS Support Center via email or call 800-634-7734 ext. 6.

If you have another situation that you need help resolving, please let us know by sharing your comments below. We are always here to help.

One Response to What To Do When Creditors Won’t Cash Checks
  1. When I get a distribution check back from a creditor, with a note or letter saying the debt is not due, I send or reissue the check back to this creditor with a letter stating that the distribution check was issued pursuant to a properly filed and reviewed Proof of Claim, by Order of the Bankruptcy Court, and that, if a refund is due to their customer/client/patient/taxpayer, they should make the refund directly to same, as the trustee does not have court authority to send the money to the debtor or to redistribute the funds. By reminding the creditor that it filed the claim in the first place, and that checks are written by the trustee only pursuant to Bankruptcy Court orders, the ball is bounced firmly back in their court (no pun intended). I have never had a check re-returned by a creditor, even the IRS.

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