Daily Archives: May 11, 2014

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.

Mark Shmorgon on Google+

Every bankruptcy case has three parties: debtor(s), creditor(s), and trustee.  A trustee in Bankruptcy is a person who is appointed by the United States Department of Justice or by the creditors involved in a bankruptcy case.  Although creditors rarely participate let alone appoint a trustee in a typical consumer case.

When a Chapter 7 case is filed a bankruptcy estate is formed.  The bankruptcy estate consists of everything the debtor owns at the time of filing including all personal and real property as well as equitable and contingent interests in legal claims and property such as insurance claims and even divorce settlements.  The bankruptcy estate also draws in all community property even if only one spouse files.  Because under California law all property acquired during marriage that is not a gift or an inheritance of one spouse is considered community property and hence indivisible until death or divorce.  The bankruptcy estate, however, is limited to those assets and interests the debtor(s) had on the day of filing, with the only exception being an inheritance, property settlement, or divorce settlement that comes in within 180 days of filing.  Therefore, if get a big raise, start a business, get a big tax refund in future years, become a reality star, or win the lottery post filing, those items are all yours free and clear of any creditor claims that were discharged in your bankruptcy.

The overarching duty of the chapter 7 trustee is to collect and liquidate the property of the estate and to distribute the proceeds to creditors.  This statement may sound very scary in a vacuum, however, very few cases actually have a liquidation, because most of the assets that the majority of debtors have are typically exempt from liquidation.  When you file for bankruptcy my job as your attorney is to prepare and submit your petition along with other papers with the court disclosing your personal and financial information.  Your bankruptcy papers include information about your income, assets, debts, and the state of your financial affairs.  In addition to filing your papers with the court, I must send the bankruptcy trustee certain documents such as pay stubs, tax returns, and bank statements that verify the information listed in your schedules.  It is then the trustee’s job to review your bankruptcy petition and verify the information and calculations using your financial documents and other independent sources.  For example, if you state that you make $4,000 a month in your bankruptcy papers, the trustee will compare that against your paystubs to make sure the figure is accurate.

Approximately a month after you file your case, my client(s) and I will attend a hearing in front of the bankruptcy trustee.  This is called a §341 meeting of creditors because your creditors are free to come and ask you questions during the hearing.  In my experience creditors only come to the hearing if they feel that you are hiding assets, committed fraud in obtaining the debt, or if the creditor is a lay person such a family member, former business partner, or an ex-spouse who does not understand his or her rights and is there to complain about your fresh start and the unfairness of them about discharge of his or her debt.  The bankruptcy trustee’s job is to conduct the hearing and ask you questions while you are under oath about the information contained in your bankruptcy documents.  The entire process when creditors are not present typically lasts between two to five minutes and the trustee routinely goes through ten to fifteen cases per hour on the hour.

Lastly the trustee is given certain powers in order for him to act as a fiduciary to the bankruptcy estate.  In other words to be fair to both you and your creditors.  For example, the trustee is able to avoid preferential and fraudulent conveyances.  Most commonly avoided preferential payments are those debts that were paid back to family members within a year of filing; payments to unsecured creditors in excess of $600.00 in the 90 days prior to filing; and the sale, mortgaging, or transfer of assets within 2 years of filing where little to no consideration was given for the debtor’s interest.  When the trustee exercises his avoidance powers the transfer, sale, payment, or lien is undone and the amount collected is then distributed evenly to all creditors in accordance to their preference order.  Here at OneDayBK my job is guide you through this process to make sure you get through the process as smoothly, quickly, and reasonably possible under circumstance.

Mark Shmorgon on Google+