The Chapter 13 Trustee is the administrator of a debtor’s Bankruptcy Estate in Chapter 13 bankruptcy proceedings.
That is, the Chapter 13 Trustee acts as legal custodian of the debtor’s assets and as payment agent for the funds paid to creditors by the debtor through the Chapter 13 Payment Plan.
The Chapter 13 Trustee ensures, at least on paper, that all parties in involved in a Chapter 13 bankruptcy process abide by the requirements of the US Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and by Local Court Rules.
However, the Chapter 13 Trustee is much more than that impartial, objective referee. He or she is also the debtor’s primary adversary in the bankruptcy process. A Chapter 13 Trustee can be the reason why a Chapter 13 bankruptcy process fails.
This is especially true in Detroit Chapter 13 bankruptcy proceedings.
We will discuss, in this Article, why and how all of the above are true. This Article will also discuss ways in which you can make life easier for yourself if you are filing Chapter 13 bankruptcy in the Eastern District of Michigan.
That is, it will discuss how best to give the Chapter 13 Trustee what she wants—without giving away the farm.
First, what is Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy—Briefly
Chapter 13 bankruptcy is a “reorganization” bankruptcy. That is, it is a mechanism for repaying your creditors in a priority order of importance.
It is a payment plan, in other words.
For 3-5 years, or 60 months maximum, you make a payment into your Chapter 13 payment plan. This payment plan is supervised and enforced by the US Bankruptcy Court.
Creditors are paid from these funds in the priority order set out in your Chapter 13 payment plan and the Bankruptcy Code. It is the Chapter 13 Trustee who accepts your payment and then disburses it out to your creditors in that order.
Secured creditors are paid before unsecured creditors. Priority creditors are paid before non-priority creditors. Non-priority unsecured creditors are those to whom you owe money for credit cards, medical debt, back rent, Michigan state court collection lawsuit judgments, personal loans, and other such obligations.
The fees of both the Chapter 13 Trustee and your own Michigan bankruptcy attorney are paid before any of them. Unsecured non-priority creditors only receive whatever is left of the money you pay into the Chapter 13 plan after higher priority parties are paid.
Whatever you may still own them “on paper” afterward is then discharged entirely just as it would be in Chapter 7 bankruptcy.
For the entire duration of the Chapter 13 process, creditors are prohibited from harassing you for payment by the Automatic Stay injunction that activates the moment you file for bankruptcy.
The Role of the Chapter 13 Trustee
As noted, the Chapter 13 Trustee takes the role of “money-handler” in the Chapter 13 process. Your Chapter 13 plan payment does not magically wind its way through the Bankruptcy Court to land in the laps of your creditors.
Someone has to receive your payment, deposit it into an account, and then write and mail checks to each creditor from that account.
That person is the Chapter 13 Trustee.
Indeed, the Chapter 13 Trustee’s offices actually resemble mid-sized law firms, staffed with dozens of paralegals, administrative assistants, bookkeepers, and staff attorneys. In Detroit in particular, the Chapter 13 Trustees run high-volume operations with many moving parts.
The Chapter 13 Trustee has additional tasks beyond managing your money, however.
The Bankruptcy Code tasks the Chapter 13 Trustee with ensuring the integrity of the Chapter 13 process. That is, it is also the role of the Chapter 13 Trustee to ensure that everyone follows the rules of the Chapter 13 process.
Thus, Chapter 13 Trustees must review all documents filed by debtors (that’s you) and creditors, alike.
What do creditors file? Creditors file, in particular, “proofs of claim.” These are forms that are supposed to include all of the information and documentation necessary for each creditor claiming to be owed money by the debtor to prove that this is true.
Chapter 13 Trustees conduct the 341 Meeting of Creditors hearings, where they question debtors about their documents and circumstances. They also hold “confirmation hearings” when a Chapter 13 plan still has unresolved issues that may need to be decided by a Bankruptcy Court judge.
On paper, the Chapter 13 Trustee is a neutral party who works hard to ensure that nothing untruthful is filed and that the Chapter 13 plan that you file is likely to be successful.
The Chapter 13 Trustee in Reality
In reality, the Chapter 13 Trustee is also the biggest obstacle to the success of your Chapter 13 plan. Especially in the Detroit Bankruptcy Court, located in the Eastern District of Michigan.
Chapter 13 Trustees take their gatekeeper role very seriously. Often, too seriously.
In Detroit in particular, you can count on Chapter 13 Trustees filing objections (some legally meritorious, some less so) as a routine matter of course. This is not the same in Flint or Bay City Chapter 13 bankruptcy cases. Detroit Chapter 13 Trustees seem to view objecting to every conceivable detail of a Chapter 13 debtor’s budget, payment plan, and plan language as an affirmative obligation.
Chapter 13 Trustees do represent, to an extent, your unsecured creditors in the Chapter 13 process. Unsecured, non-priority creditors have no real leverage over you in your bankruptcy process other than to file proofs of claim forms and hope for payment.
The Bankruptcy Code indeed requires Chapter 13 Trustees to ensure the integrity of the Chapter 13 process—for the creditors of your Bankruptcy Estate.
However, the Code also requires Chapter 13 Trustees to ensure that creditors abide by the rules. This task they undertake almost never. Chapter 13 Trustees rarely review or object to a creditor’s proof of claim, for example.
Instead, policing creditors, and the Trustee, is a job left to your own Michigan bankruptcy attorney.
Work with an Experienced Michigan Bankruptcy Attorney
For any Chapter 13 bankruptcy process to succeed, it is essential that you retain an experienced Michigan bankruptcy attorney.
Bankruptcy Attorney John Hilla has successfully represented hundreds of clients through Chapter 7 and Chapter 13 bankruptcy processes in Livonia, Detroit, Westland, Southfield, Dearborn, Redford, Farmington, Ann Arbor, Flint, Bay City, and virtually everywhere else in Michigan.
Offering free, virtual consultations and friendly, one-on-one service from Livonia bankruptcy attorney John Hilla, we will ensure that your matter is prosecuted properly, competently—and with kindness.