Trustee Duties in a Chapter 13
After filing for bankruptcy, a debtor will receive a Notice of Appointment of Trustee from the court which provides the name, address, and phone number of the trustee. The Notice may also include a list of any financial documents the trustee wants copies of, such as bank statements, canceled checks, and tax returns, and the date by which they are due.
Administers the Bankruptcy Estate and Property
Filing for bankruptcy lumps all of the debtors assets and debts into an entity known as the bankruptcy estate. In a Chapter 13 case, the trustee manages all claims (debts) that relate to the estate. That means all property owned before filing is under the supervision of the bankruptcy court. Don’t throw out, give away, sell, or dispose of any property until the bankruptcy trustee can approve the transaction.
If a debtor receives certain kinds of property (or become entitled to receive it) within 180 days after filing for bankruptcy, it must be reported:
- Property inherited or entitled to inherit.
- Property from a marital settlement agreement or divorce decree.
- Death benefits or life insurance policy proceeds.
If any of this property is nonexempt, the Plan may need to be modified to ensure unsecured creditors are paid the right amount.
Collects Proof of Insurance
If a debtor plans to make up the payments on secured debts like mortgage and automotive loans, they may have to provide proof that there is adequate insurance on the collateral. This requirement protects the creditor if the collateral is destroyed or damaged.
Many trustees require the first payment be made by cashier’s check or money order and will not accept personal checks or cash. Debtors will need to make the first payment within 30 days of filing the bankruptcy petition. Making the first payment demonstrates the debtor can make the payments outlined in the Plan. If not, the bankruptcy court can move to dismiss the case, or deny confirmation of the Plan. While Plan Payments are normally taken directly out of a debtor’s paycheck, if the payment does not come out, the debtor will need to make sure to make the payment directly.
Except under extraordinary circumstances, Chapter 13 Trustees will almost always insist on collecting payments directly through wages. Either the attorney or the trustee will file a wage order shortly after the case is filed so that payments are made on time. Again, if the payment does not come out, the debtor must make sure to do so on their own.
Attends The Creditors Meeting
Debtors must attend the creditors’ meeting and answer questions under oath from the creditors and the Trustee regarding finances and the proposed terms of the plan. They also questions the Debtor to make sure that the information submitted is accurate. In negotiating a Plan Payment, the Trustee may attempt to verify or challenge projected expenses that appear high or unreasonable.
Attends The Confirmation Hearing
After the creditor’s meeting, the bankruptcy judge will hold a confirmation hearing, and either confirm or deny the Plan. The confirmation hearing must be held twenty to forty-five days after the creditors’ meeting.
The Trustee appears at the Confirmation Hearing and report to the Court whether they approve of or disapprove of the Plan. If additional time is needed to meet the Trustee’s requirements, the hearing may be reset to a later date so that the Trustee’s objections as well as those of the creditors can be met. If the Plan needs to be drastically revised in a way that warrants giving additional notice to creditors, the Plan may be denied and the debtor’s attorney may be given a certain amount of time to file a new Plan.
Once the Plan is confirmed an Order Confirming Plan is entered by the Court.
Fulfillment Of The Court Order
Once that Plan has been approved (or confirmed) by the Court, the Court orders that the reorganization happen as the Debtor proposed (unless the Debtor later requests that the Plan be modified). The Chapter 13 Trustee obeys the Order of the Court. They ensure the Plan effectively organizes the financial affairs of the Debtor and the Creditors get paid in the way the Plan contemplated.
The Trustee is also responsible for preventing abuse and fraudulent activities relating to the disbursal of a debtor’s estate. If all of the needs are fulfilled at the end of the case, the Chapter 13 Trustee files a report with the Court and recommends that a discharge of any remaining debt be entered.
Advocating For The Debtor
Despite the trustee’s interest in a debtor’s finances, the financial relationship is not as stifling as it may sound. The Trustee acts as an advocate of the debtor by ensuring that any professional costs associated with liquidation and disbursement are reasonable and that creditors avoid harassing the debtor after the court has implemented an automatic stay. They have the power to refer violations of the law to the United States Trustee’s Office and therefore acts as a custodian of good faith for the bankruptcy arrangement. By following the terms of the Plan, debtors should still have a substantial amount of control over their money and property acquired after filing.