Chapter 13 Bankruptcy Trustees are known as standing trustees because they are going to be part of your case for 36 to 60 months. There are only two Chapter 13 Trustees in our Eastern District, Sacramento Division who together annually handle over $100 million dollars worth of payments. In contrast there are over a dozen Chapter 7 trustees in our district who rarely liquidate assets or pay anything to creditors.
Many of the same basic principles that are common with Chapter 7 trustees also apply to Chapter 13 trustees. When a Chapter 13 petition is filed it lays out the debtor(s) income, monthly expenses, assets, and debts. Based on your income and expenses, the debtor also proposes a payment plan to repay all or some of his or her creditors during the life of the bankruptcy. After your case is filed, verification paperwork such as tax returns, bank statements, and pay advices need to be sent to the Chapter 13 so he can approve your plan for confirmation.
The main duty of the Chapter 13 trustee is to check for Eligibility, Feasibility and Good Faith of your plan. An eligible individual(s) who may file under Chapter 13 has two requirements: regular income and the $383,175.00 debt level for unsecured debt and $1,149,525.00 for secured debt. These limits will adjust up again in April 2016. Regular income has been determined to be any form of income, even unemployment benefits, worker’s compensation benefits, or other government benefits. It is not necessary to have wage employment or be self employed to file for Chapter 13.
Feasibility of a plan has two aspects: arithmetic and liquidation. The trustee’s job is to make sure that the plan you propose actually calculates out arithmetically. For example if you propose to pay a $20,000.00 car note through your sixty month plan, but only propose $100.00 a month, the trustee will not have sufficient funds to pay off the note. Likewise, a Chapter 13 is not a liquidation bankruptcy so the trustee has no power to take and sell your assets to satisfy the claims of creditors. Instead, if you have unexempt or otherwise unprotected assets that would be subject to liquidation under Chapter 7 then your plan must pay an amount no less than that which the unsecured creditors would have receive under Chapter 7.
Good faith is a test which allows the Court to confirm a plan if “the plan has been proposed in good faith and not by any means forbidden by law”. 11 U.S.C. §1325(a) (3). Although the bankruptcy code does not define good faith, our courts have established several criteria as to what is and is not good faith. The court looks to the honesty of intention and as long as the debtor is open, honest, and plays fair with all creditors after filing the debtor meets this test. For example, if you propose a plan wherein you are going to keep paying for a $40,000 luxury boat but pay nothing to your unsecured creditors, the trustee will object on good faith grounds because this boat is not necessary for your reorganization and it is unfair that you get to keep a luxury item at the expense of your unsecured creditors.
Like a Chapter 7 trustee the Chapter 13 trustee also conducts a meeting of creditors wherein the focus is not only on your assets, but also at your income and expenses and your ability to make future plan payments. From the onset of your case the Chapter 13 trustee begins distributing the funds to your creditors in accordance with the terms of your proposed plan. Since it takes three to five years to complete a Chapter 13 plan, the trustee is charged with receiving your payments and paying them out to your creditors until your plan is completely paid off. During this time, the trustee must also keep an accounting of all monies received and how much has been paid out to each creditor.
Finally, the Chapter 13 trustee only pays creditors based on claims and the trustee along with the debtor are charged with the responsibility to review claims of creditors for payment and objecting to any claims that are not filed properly, or that do not have sufficient documentation to support their claim.