The so called “means test” is a formula that Congress made part of the Bankruptcy Code in 2005. In revising the Bankruptcy Code, Congress decided that too many Debtors were “abusing” bankruptcy by obtaining a discharge of debt that they really could afford to repay. Read more “What is the “Means Test”?”
In the broadest sense, the bankruptcy “Trustee” refers to the Office of the United States Trustee, which is part of the United States Department of Justice. The Trustee comes from the executive branch of the government, which is different from the bankruptcy judge, who is part of the judicial branch of government.
The mission of the Trustee is to promote integrity and efficiency in bankruptcy cases for the benefit of both debtors and creditors. The Trustee’s office oversees the administration of cases, and is a “watchdog” to prevent fraud and abuse.
As a practical matter, the “Trustee” in a particular case is a lawyer who “administers” the bankruptcy estate. In a Chapter 13 reorganization, the Trustee conducts the first court hearing (the “Meeting of Creditors”), and makes recommendations to the bankruptcy judge with regard to the approval (“confirmation”) or rejection (“dismissal”) of Chapter 13 plans. After the plan is accepted, the Trustee monitors the debtor’s performance under the approved plan.
The Chapter 13 Trustee also takes in “plan payments” from debtors each month, and then pays those monies out to creditors. In the Northern District of Georgia, the Chapter 13 Trustee has an office in Atlanta with several lawyers and support staff. The Chapter 13 Trustee takes in millions and millions of dollars from debtors, and then disburses those monies to creditors each month.
In Chapter 7, the “Trustee” plays a different role. In Chapter 7, a local “case Trustee” is assigned to conduct the first court hearing (“Meeting of Creditors”) and to “administer” the estate. A Chapter 7 case is a “liquidation” case. The general purpose of the Trustee is to liquidate (sell) “assets of the estate”. These consist of the debtor’s property as of the date of filing to the extent that the property is worth more than what the debtor is allowed to “exempt” (keep for himself). The Chapter 7 estate does not include the debtor’s wages after the case is filed, though it may include assets inherited within six months of filing, or the recovery of monies from law suits.
As a practical matter, the vast majority of Chapter 7 cases are “no asset” cases. This means that there are no assets for the Trustee to sell, and usually the debts that are owed to a debtor’s creditors are “discharged” without any payment whatsoever. The reason is that “exemptions” permitted to debtors are fairly generous, so that people who don’t own very much property free of liens are usually permitted to keep that property. (If property has a lien on it, it belongs to the creditor to the extent of the lien, and the Trustee has no interest apart from the “equity” in it.)
As explained elsewhere, “exemptions” are allowances permitted under the law in different dollar amounts in different categories of property. One of the jobs of the debtor’s lawyer is to evaluate the property that you own and determine what you can protect (“exempt”). If you are at risk of losing something that you don’t want to lose, sometimes Chapter 13 is the superior choice, or sometimes you may have non-bankruptcy options. The key to making safe decisions is to clearly disclose what property you own to your lawyer in the early stages of consultation.
Q: I was a little behind on my car payments, and my car was repossessed. Can filing a bankruptcy help me get it back?
A: Yes. Chapter 13’s are often used to cure defaults on car notes. Having the car repossessed does not in and of itself make you lose all of your rights in the car. So long as you have any remaining rights, you can usually use a Chapter 13 to force the lender to give it back and let you pay for it through your Chapter 13 plan. Read more “Bankruptcies and Vehicle Repossession: Q & A”
Q: I’m behind on the house payments. My bank stopped accepting payments, and I received a letter saying that my mortgage has been referred to a lawyer for foreclosure. What does that mean? Will filing a bankruptcy help this situation?
A: “Foreclosure” is the process by which the lender on real estate takes title back from the borrower because of a default, usually by missing payments. There is no minimum number of missed payments that will trigger this action. If payments are not made according to the schedule set out in the note, the bank has the discretion to foreclose.
Chapter 7 and Chapter 13 are different tools that are used to handle different financial problems. Chapter 13 is a debt consolidation plan used to repay debt in full or in part over a period of years. Chapter 7 is a fresh start or liquidation case that is usually finished after only a few months.
In Chapter 13, you can force secured creditors like mortgage lenders or car lenders to allow you to cure defaults over time, whether they agree or not. In Chapter 7, unsecured debts are discharged without payment, and you indicate your preference (intent) as to whether or not you want to “reaffirm” and keep paying your secured creditors. Alternatively, you may surrender the collateral and discharge the debt.