Monday, December 1, 2014

Trustees and Creditors Have Different Roles in Consumer Bankruptcy Cases

Q:       What is the role of a trustee in a consumer bankruptcy case?
A:        In a Chapter 7 consumer bankruptcy case, assets are liquidated to pay creditors. In such a case, a trustee is appointed to investigate the debtor’s financial affairs and determine if any unencumbered, non-exempt assets can be liquidated and paid to creditors. The trustee may sell non-exempt assets and bring lawsuits against the debtor or creditors. The trustee also reviews the debtor’s filed bankruptcy papers to make sure they are accurate and complete. The trustee convenes and presides over the meeting of creditors, and reviews any claims filed by creditors. If appropriate, the trustee will file an objection to any claim that appears to be invalid.
            In a Chapter 13 bankruptcy case, the debtor proposes a repayment plan based on the debtor’s monthly budget. This repayment plan can last up to five years. The trustee presides over the meeting of creditors in a Chapter 13 bankruptcy case, just as in a Chapter 7 case. The trustee also examines the debtor’s bankruptcy papers, paying specific attention to the debtor’s proposed budget and Chapter 13 plan to make sure all of the debtor’s disposable income is being paid into the plan and that the plan meets all Bankruptcy Code requirements. The trustee can refuse to confirm a proposed repayment plan and object to proofs of claim, if appropriate.

Q:       What limitations and rights do creditors have in a consumer bankruptcy case?
A:        Whenever a bankruptcy case is filed, there is an automatic “stay.” This means that creditors cannot take or continue any collection actions against a debtor. For example, a creditor cannot make or send collection calls and letters, file a lawsuit or continue to pursue a pending lawsuit, or take any action, such as garnishing wages, to collect a judgment. Most creditors can never collect a debt that has been discharged in bankruptcy. However, in most cases, secured creditors can keep their lien/mortgage rights after a bankruptcy, and the debtor keeps some debts, such as certain taxes and spousal or child support obligations.
            Creditors have these rights in a bankruptcy case:         
·       to attend the creditors’ meeting and question the debtor;
·       to file proofs of claim in the bankruptcy case and participate in any bankruptcy payments;
·       if there are grounds, to file a lawsuit in the bankruptcy court claiming that the debtor should not receive a discharge or that the creditor’s debt should not be discharged.
Also, secured creditors may seek relief from the automatic stay in order to preserve and to liquidate their collateral.

Q:       What do the trustee and creditors do at the meeting of creditors?
A:        The Bankruptcy Code requires a meeting of creditors in every bankruptcy case. In both Chapter 7 and Chapter 13 bankruptcy cases, the trustee conducts the creditors’ meeting. At the meeting, the trustee examines the debtor, whose lawyer is generally present. The debtor testifies under oath about the bankruptcy, and the testimony is recorded. The trustee asks the debtor about assets, liabilities and other financial matters, and tries to determine if there are any assets that the debtor has not disclosed. 
            Creditors may, but are not required to, attend this meeting. Once the trustee has finished questioning the debtor, any creditors present at the meeting will be allowed to examine the debtor. Secured creditors often ask about the status of their collateral—its location, condition and whether it is insured. A creditor may also ask questions about the possible discharge of its debt. In most consumer bankruptcy cases, however, creditors do not attend the meeting of creditors.

Q:       What does a trustee expect from the debtor?
A:        In Chapter 7 and Chapter 13 cases, trustees expect debtors to fully disclose their assets, liabilities and income. They expect debtors to appear, on time, with legal counsel and all required documents, at the meeting of creditors. Trustees also expect debtors to fully cooperate as the case proceeds. If a debtor in a Chapter 7 case fails to cooperate or to provide additional information and documents, the trustee can ask the court to require the debtor to appear for an examination under oath and can object if the court issues a bankruptcy discharge. A Chapter 13 trustee can refuse to confirm the debtor’s bankruptcy plan or ask the court to dismiss the bankruptcy case due to the debtor’s lack of cooperation.

This “Law You Can Use” consumer legal information column was provided by the Ohio State Bar Association (OSBA). It was prepared by Columbus attorney Kenneth M. Richards. Articles appearing in this column are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.

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