Chapter
7 Trustees
Chapter
7 is most commonly used by most citizens. It is the type of bankruptcy
that you can erase your unsecured debts. Essentially wiping the
slate clean to get a fresh start. Only people can file a Chapter
7. See Chapter 11 below for businesses.
Under
the Bankruptcy Reform Act of 2005, debtors are automatically
forced into a Chapter 13 (see below) until proven they need and
or qualify for a Chapter 7.
A Chapter 7 trustee's duties differ based on asset or no asset
cases. In no asset cases, the trustee is to file a no asset report
and close the case as quickly as possible so that debtors receive
their "fresh start." The last time I checked, trustees
received $60 from the filing fee as payment for presiding over
the 341(a) meeting of creditors for no-asset cases.
In chapter 7 asset cases, the trustee is to take possession of
assets, liquidate property for the benefit of unsecured creditors,
distribute the assets and close the case as soon as possible. For
doing this, the trustee is paid a sliding scale commission. It
is the trustee's duty to object to exemptions, claims, and the
discharge of the debtor.
There are certain matters that must be brought before the court
via an "adversary complaint." That provides trustees
to hire attorneys. Attorneys for the trustee receive their "reasonable" hourly
rate of pay and reimbursement for expenses. Some trustees who are
also licensed attorneys have a pattern of hiring themselves as
attorney for trustee.
Effectively,
the trustee who hires him/herself as attorney for the trustee
is a pro se party with a license to practice law. Realizing this
double standard each time I hear a joke about pro se litigants
being "fools" for taking their own advice makes me
choke.
A trustee playing both roles is a conflict of interest. The trustee
is suppose to administer cases for the benefit of unsecured creditors
of the bankruptcy estate. When they step into the role as attorney
for themselves, their motive and incentive involves their personal
enrichment. Think about it -- once a trustee hires an attorney,
(even if hires himself), he has to recover assets to pay the legal
fees.
Chapter 13 Trustees
Chapter
13 is a repayment plan and often utilized by people that are
behind in their home or auto payments and want to keep those
assets. The
The
standing trustee receives payments according to the payment plan.
The last I heard, they are paid 10 percent of the plan's payments
as compensation.
Chapter 11 Trustees
Chapter
11 bankruptcy is for corporations. The debtor can be DIP or,
Debtor in possession In large chapter 11 cases, there is generally
a
committee of unsecured creditors that the DIP reports to. The
committee of unsecured creditors is privileged with hiring an
attorney to represent them.
Secured
creditors, however, are known for requesting the U.S. Trustee
to appoint an independent trustee or liquidator. That person
so appointed receives commission based pay. That person is allowed
to also hire an attorney to represent him/herself. Also, chapter
11 debtors pay quarterly fees into the bankruptcy system,which
is used to support the U.S. Trustee Program.
Chapter 9 Trustees
Chapter
9 bankruptcy is for farmers. Just like Chapter 11 for corporations,
this form of bankruptcy has its own set of rules and guidelines
unlike the others.
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Things
to Watch for with Bankruptcy Trustees
Ultimately,
the more assets recovered in a case, the more a bankruptcy
trustee stands to earn in commission and the less there is
to distribute to creditors. That in fact, trustees can and
do divert all assets to their commission and fees for their
hired professionals and do so with the U.S. Trustee.
Bankruptcy
trustee's and judge's approval. In their Final Reports, trustees
often justify diverting all assets on the allegation that
a party, such as the debtor or a creditor, did not cooperate,
causing the trustee to litigate for x number of years which
required more legal fees.
A discharge in bankruptcy does not close the case. The case
is closed when a Final Report is approved by the court. If
I remember correctly, statute provides one year after discharge
for the trustee to re-open the case to recover assets.
There
have been cases, however, where trustees re-opened several
years after the case closed. If the case has been closed
for more than one year, the trustee is suppose to request
the court or the U.S. Trustee for appointment as trustee.
Just stepping back in to the case as trustee does not make
the trustee duly appointed.
11 USC Sec. 541 describes property of the estate. It sets forth
that property of the estate consists of:
"any interest in property that would have been property
of the estate if such interest had been an interest of the
debtor on the date of filing of the
petition, and that the debtor acquires or becomes entitled to acquire
within 180 days after such date: (A) by bequest, devise, or
inheritance; ..."
The last copy of The Handbook for Chapter 7 Trustees that I
have sets forth:
"If
a case is reopened, a trustee is appointed only upon order
of the bankruptcy court. FRBP 5010.
If the court orders appointment of a trustee, the United
States Trustee may or may not reappoint the original trustee
to the case."
Because the case you referenced had been closed for three
years, you should check the docket for the case to see whether
the trustee was "duly appointed" when reopening the
case. If not, that trustee is acting in his individual capacity.
A law professor I spoke to once, referred to bankruptcy
trustees as "bottom feeders." The Bankruptcy Statute
was written to allow accountants to be appointed to the panel
of trustees. A license to practice law is not a requirement.
That is why trustees must file a motion in court to approve
the hiring of an attorney when the case involves litigation.
Reader
Comments
From: "mrsmoriarity" <torgo7:...>
Monday, Jan. 22, 2007 4:41 PM
My experience with the bankruptcy system has been a mixed bag,
at best. What I am confused about is the role of the bankruptcy
trustee. Is he/she supposed to be neutral/adversarial etc.?
Because there is a personal issue here about a settlement received
and what right does a bankruptcy trustee have to step in over
three years post filing to claim monies from it for the "estate".
It's
like they're a predator that smells blood and goes for the
share of the kill. Especially if the bankruptcy leaves one
completely devastated.
I've
heard there is a lot of room for fraud in the BK system.
I love the way corrupt businesses can find an "out" through
filing Chapter 11 but the little guy gets socked badly whether
it's a Chapter 13 or a Chapter 7.
Can someone please explain the exact role of the trustee and
how long they are to maintain an interest in the bankruptcy
after discharge?
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