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by Jeff Curl
The term trustee is used in bankruptcy quite a bit, and you might be wondering, “who is the bankruptcy trustee?” In typical consumer cases there is a Chapter 7 trustee or a Chapter 13 trustee, and then there is always the United States Trustee.
If you file for Chapter 7 bankruptcy, this is the trustee you will meet with at your meeting of creditors. For every Chapter 7 case that is filed, the United States Trustee appoints a Chapter 7 trustee to oversee the case. While appointed by a government agency, the Chapter 7 trustee is a private individual essentially operating a business.
Upon filing Chapter 7 bankruptcy, all of your property goes into the bankruptcy estate. The Chapter 7 trustee is the trustee of that bankruptcy estate, i.e., your property. This means that he or she controls your property upon filing bankruptcy. The trustee’s primary job is to examine your assets to determine if he or she can take and sell them, i.e., liquidate your belongings for the benefit of unsecured creditors.
In most Chapter 7 filings, the debtor is able to exempt and protect all property. In such cases, the trustee will not take and attempt to sell any of your property. A trustee gets paid a flat $60 for administering such a case. On the other hand, if the trustee is able to liquidate assets, he or she gets a percentage of from the sale.
Like a Chapter 7 trustee, a Chapter 13 trustee is appointed by the United States Trustee. A chapter 13 trustee does not take and liquidate your assets like a Chapter 7 trustee. In Chapter 13 you propose a plan to pay some portion of your debt over the period of time. The Chapter 13 trustee is charged with examining the proposed plan to ensure that the plan is fair.
Whereas a Chapter 7 trustee is usually more concerned with assets, a Chapter 13 trustee focuses on income and expenses, to ensure you repay a fair amount. The trustee may either challenge or recommend your proposed plan for confirmation. Confirmation is where the judge allows your proposed plan payment.
In Chapter 13, you send a check to Chapter 13 trustee each month, and he or she will take that money, and distribute it to the creditors over the life of your plan.
The United States Trustee (UST for short), is a government agency. The UST is a division of the Department of Justice. The UST oversees the trustees and reviews all cases filed under Chapter 7 and Chapter 13 bankruptcy. In Chapter 7, the UST looks for abuses by the debtor, and will look at excessive fees paid to attorneys or bankruptcy petition preparers.
In Chapter 13, the UST spends more time overseeing the Chapter 13 trustee, ensuring that the Chapter 13 trustee is bonded, audited, monitored for trust accounting and reviews his or her budget.
Photo courtesy of chrisinplymouth
by Jeff Curl
Operating a sole proprietorship is a huge topic in bankruptcy that covers a lot of ground. So let’s take a couple of smaller bites and break down what operating a sole proprietorship means in bankruptcy. We have the pleasure of working with a lot of business owners, and sole props have their own special issues.
A lot of sole prop owners in financial distress ask if they can file the business only, and not involve themselves personally. The short answer is no. Having a license from the city to operate as a DBA (doing business as) does not create a separate legal entity. Corporations and LLCs are formed as separate entities under the laws of the state where they are formed. Sole proprietorships do not obtain this legal designation. So if you are John Smith DBA John’s Auto Shop, you will be filing yourself and business as one.
It is really important to understand what happens when filing Chapter 7 and you are operating a business as a sole prop. Here are couple of major considerations:
There are several distinction between Chapter 7 and Chapter 13 when it comes to operating a proprietorship. Here’s a couple of important ones:
In other words, Chapter 13 generally offers flexibilities and forgiveness that are not available in Chapter 7. But sometimes one chapter is better than the other, or sometimes you only qualify for one. Operating a business leads to a lot of complicated issues quickly in the bankruptcy world, so please consult with a bankruptcy attorney familiar with these complications.
Photo by elycefeliz
Any person filing for bankruptcy must meet a few basic criteria to be eligible for bankruptcy. Sometimes these requirements can present difficult obstacles to qualifying for bankruptcy protection but actions can be taken to cure these issues.
To file for Chapter 7, you must meet the following criteria to qualify for bankruptcy:
This part is easy. It’s not like you have to go to school. For about $35, you can take the course over the internet or by telephone. It lasts about an hour or so, and requires putting together a budget and expenses.
You are entitled to a certain amount of income. If you have more income than the threshold, you must complete the means test that permits additional deductions to determine your monthly disposable income. If your income is low enough, you can file Chapter 7. There are ways around the means test, such as business debt and heavy tax debt; if the majority of your debt is “business” related, you get a pass on the means test.
To get a discharge a Chapter 7 to Chapter 7 must wait 8 years. Chapter 13 to Chapter 7 is six years unless in your Chapter 13 you paid 100% or 70% and made something referred to as your “best efforts.”
To file for Chapter 13, you must do the following:
It’s the same class described above.
A Debtor is barred from Chapter 13 bankruptcy if his or her debt exceeds $1,081,400 in secured debt and/or $360,475 in unsecured debt. If clients exceed these limits, sometimes actions can be taken such as selling a home. Taking any actions like these should be done in consultation with your bankruptcy attorney.
To get a discharge a Chapter 7 to Chapter 13 must wait four years. A Chapter 13 to Chapter 13 must wait two years.
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Let’s face it. Attorneys are expensive. One of the most common reason for racking up additional attorney fees - being disorganized. You can save yourself money and make it easier for your bankruptcy attorney by following these simple steps.
Once you make the decision to file for bankruptcy, the next hurtle is gathering and providing all of your financial documents to the attorney. As a general rule of thumb, everything that has to do with your income, assets and debts must be provided. When you finally hire your attorney, you might think he or she will be able to “make it better” or solve your problem using a magic wand. Nope, your bankruptcy attorney needs your help. A common issue we come across is where clients don’t want to do the legwork gathering all the documents and organizing them in an orderly manner.
In general, attorneys are paid hourly, meaning the more time an attorney has to spend on your case, the more you’ll pay. So, doesn’t it make sense to save your attorney as much time as possible? When you hire a lawyer, you are paying her for her legal expertise, not her document organization skills. I want to spend my time figuring out legal issues, preparing your petition, or answering your questions. Not opening unopened bills or sorting through 500 pages of a disheveled pile of mess.
There’s no easy button. Only you have access to your documents. I can’t get your bank statements, tax returns, credit cards statements, collection letters, mortgage statements, or medical bills. You have to provide it to me. The average client will produce somewhere in the neighborhood of 500 pages. Imagine having to go through and review 500 pages of document for not just one client but for multiple clients. That’s a lot of information to sort and digest.
Review. Look over the list of documents and get an understanding of what we need.
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