The Chapter 13 Bankruptcy Trustee

The difference between a Chapter 13 trustee and a Chapter 7 one reflects the differences between these two procedures.

 

Chapter 13 Summarized

A Chapter 13 case is very different from Chapter 7 one.

Most Chapter 7 consumer cases involve a relatively quick determination whether or not everything you own is exempt and whether all of your debts can be written off or “discharged.” If everything is exempt—as most often it is—your dischargeable debts are discharged within about 4 months after the case is filed, and that’s it.

A Chapter 13 case is an “adjustment of debts” based on a three-to-five-year payment plan. Much of the case turns on setting up, getting court approval for, and complying with that payment plan. The plan often greatly reduces what you need to pay to most of your creditors, and usually both requires and allows you to pay much more to secured creditors and special “priority” creditors. By the end of your Chapter 13 case, all or almost all of your debts have either been paid off or else get written off at that time.

The Chapter 13 trustee is involved in every step of this process, and has various roles along the way.

The Gate-Keeper

The Chapter 13 payment plan you and your attorney propose can have a fair amount of flexibility but also has to follow the law in many ways. The trustee’s first role is as a gate-keeper, by reviewing your plan to see if it complies with the law. The trustee raises issues about any aspects that he or she finds inappropriate, and works with you and your attorney to adjust the plan accordingly. In this the trustee acts on behalf of all the creditors, especially the unsecured ones, in requiring you to pay as much as the law requires. Usually any trustee concerns are resolved through persuasion or compromise, or else by having the bankruptcy judge decide the matter.

The Monitor

The Chapter 13 plan—either as originally proposed or with any adjustments—is approved, or “confirmed,” by the judge, usually about two or three months after your case if filed. After that the trustee and his or her staff continues to monitor your case for compliance with the plan throughout the three-to-five-years that it will likely take to complete. They track your payments, usually review your income tax returns each year to see if your income stays reasonably stable, and file motions to dismiss your case if you don’t comply with these and other requirements.

Payment Disburser

The trustee collects payments from you and distributes the money according to the terms of the court-approved plan.  Related to this role, the trustee’s staff reviews your creditors’ proofs of claim—documents filed by your creditors to show how much they claim you owe. The trustee may object to ones that do not seem appropriate. When you have finished paying all you need to pay according to the plan, the trustee informs you and the bankruptcy court. Then the court discharges (writes off) the rest of your remaining debt (except for long-term debts like a home mortgage or student loan).

Chapter 7 vs. Chapter 13 Trustees

  • The Chapter 7 trustee focuses on the point in time that your case is filed. He or she determines if you all of your assets as of that point in time are “exempt,” and if not may collect and sell any that are not. In contrast, the Chapter 13 trustee receives and pays out money over a period of years and oversees the case throughout that time.
  • Both kinds of trustees are not court employees but private individuals, carefully vetted and monitored. Your Chapter 7 trustee is selected out of a “panel” of several trustees within each bankruptcy court. As a result your attorney will usually not know or be able to influence which one of the trustees from the panel will be assigned to your case. In contrast, there is usually only one “standing” Chapter 13 trustee assigned cases from each court or each geographic area within the court’s jurisdiction. So your attorney will usually know which Chapter 13 trustee will be assigned to your case.

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