The Bankruptcy Trustee
The bankruptcy trustee is appointed by the U.S. Trustee to represent the best interests of unsecured creditors. A trustee does not serve as a judge – think of the trustee as tantamount to opposing counsel. The bankruptcy trustee’s job is to find and liquidate any non-exempt assets owned by the debtor for the benefit of unsecured creditors, and to ensure the smooth administration of the case. The most common types of non-exempt assets include a home or car with too much equity, monies held in a checking or non-retirement brokerage account, tax refunds, 25% of earned but unpaid wages on the filing date, or a “non-essential” item of personal property such as a boat or timeshare.
The trustee in chapter 7 or chapter 13 is appointed with the goal of requiring that all but the most indigent debtors seeking a “fresh start” pay back some or all debts back by requiring turnover of non-exempt property (or the value thereof). As an experienced Denver bankruptcy lawyer, David M. Serafin will help you properly plan in advance (whether maximizing exemptions or spending down monies before filing) how to protect assets from the trustee and creditors.
In Colorado, chapter 7 trustees are more aggressive as the 341 hearing is the only opportunity to determine which assets are protected. As chapter 7 is the quickest and simplest form of debt elimination, there is no payment plan. As chapter 7 trustees are under pressure to process cases expeditiously, a debtor will be required to either immediately turn over an exempt asset or pay back the value of such asset over no longer than a few months (in the best case). A chapter 7 trustee typically earns $60 for “no-asset” bankruptcy matters plus a commission (in asset cases) from any assets liquidated.
The chapter 13 trustee, who both represents the best interests of unsecured creditors and reviews the proposed 3-5 year payment plan to determine the debtor’s ability to make monthly payments, has even more responsibility. The chapter 13 trustee is responsible for collecting monthly plan payments and forwarding (after the trustee’s commission) the balance to unsecured creditors who have filed a timely and allowed Proof of Claim. Non-payment of plan payments will immediately lead to a Motion to Dismiss the case. (I’ve found that debtors are allowed to be up to a month behind but no more before dismissal is sought.) The trustee and the debtor’s lawyer will always have competing interests as to what percentage of unsecured debts (0 to 100%) are paid through the plan.
The chapter 13 trustee has incentive to object to most proposed plans because it receives 10% of all plan payments. Thus, the trustee will often object to more of the subjective bankruptcy Means Test deductions (and require substantiation or receipts), such as out-of-pocket medical expenses, payments made to or for the benefit of somebody elderly or disabled, or child care as disallowance of a deduction results in a higher plan payment. Disallowance of a Means Test deduction could also mean the difference between a 3 year plan (for below median income debtors) and a 5 year plan (for above median income debtors), meaning that 2 additional years of plan payments will result in more money paid back to unsecured creditors and the trustee.
Last, the chapter 13 bankrutpcy trustee ensures that the non-exempt portion of the value of an asset is paid back into the chapter 13 plan. For instance, the Colorado Homestead Exemption for a primary residence is $60,000 ($90,000 if the owner is 60 years of age or older, or disabled). A younger debtor with $80,000 of equity (calculated after subtracting mortgage liens and costs of sale from fair market value) would be required to “reconcile” the $20,000 non-exempt portion over the 3 to 5 year plan (interest free). This “reconciliation” allows the debtor to keep desired and valuable property.
An experienced Denver bankruptcy lawyer, David M. Serafin will help protect your rights when dealing with a trustee (whether in court or by negotiation) so that you can keep as much as possible.