Who Is the U.S. Trustee in the Bankruptcy Process?

Someone You Hope You Will Not Meet in Your Chapter 7 or Chapter 13 Case

The U.S. Trustee’s Office is a division of the U.S. Department of Justice tasked with overseeing the bankruptcy process in the United States. The Role of the U.S. Trustee encompasses a number of different tasks, but the primary focus tends to be on a couple of different areas of specific concern to you as a consumer considering filing for bankruptcy:

• “Safeguarding” Chapter 7 eligibility by scrutinizing the Means Tests and income and expenses of each Chapter 7 filed;
• Ensuring that the people who you pay to help you prepare your petition are doing so within the framework of the law;
• Appointing and supervising the Chapter 7 and Chapter 13 Trustees who you actually interface with in your bankruptcy proceedings; and
• Prosecuting criminal cases related to bankruptcy matters when required.

The U.S. Trustee is tasked with policing not only the behavior of the real human beings actually filing bankruptcies in the U.S. but also the creditors responding to and filing claims for the debts they are allegedly owed within bankruptcy cases, but, as with Chapter 7 and Chapter 13 Trustee, the scrutiny laid upon creditors is very cursory relative to the amount of energy they spend policing the Means Test and the fees paid to debtors’ attorneys and (quite rightly) non-attorney “petition preparers.”

Should I Worry About the U.S. Trustee?

The vast majority of Chapter 7 and Chapter 13 cases filed do not involve any interaction with the U.S. Trustee. Although the staff and trial attorneys employed by the U.S. Trustee do review the transcripts of every 341 Meeting of Creditors meeting and Means Test and other petition Schedules filed in Chapter 7 cases, the reason that their role stops there in most cases is  because the filing debtor has hired a good bankruptcy attorney to assist them.

If you have retained an experienced bankruptcy attorney to assist you with your Chapter 7 or Chapter 13 filing, you will in all likelihood have little reason to be concerned about the U.S. Trustee. Your attorney will guide you through the assembly of the documentation required to accurately, honestly, and fully disclose all of the assets, debts, income, expenses, and other past and expected future financial transactions that are required to be disclosed in the bankruptcy petition. If you are eligible for Chapter 7 and it is the best option for you relative to other non-income considerations, your attorney will so advise you and guide you through that process. If you are not or Chapter 13 is the better option for you for a variety of reasons, your attorney will expertly guide you through that process.

The guidance of a knowledgeable bankruptcy lawyer is what will keep the U.S. Trustee away from your case. Attempting to draft your petition yourself or to calculate your own Means Test or paying a non-attorney “petition preparer” a few hundred bucks to “fill in the blanks” on the “bankruptcy forms” is a good way to put yourself in the cross-hairs of the U.S. Trustee.  It is potentially a good way to encounter Federal criminal charges, depending upon what you decide you don’t have to disclose.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact  The Hilla Law Firm, PLLC at (866) 674-2317 or click the button below to schedule a free, initial consultation.

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If you enjoyed reading “Who or What Is the U.S. Trustee,” please browse Attorney Hilla’s other articles on his main Michigan Bankruptcy Blog.

Do I need Trustee’s approval to get a new job?

By Massachusetts bankruptcy lawyer, Michael Goldstein

Consumer debtors who file for bankruptcy protection under Chapter 13 do so in order to propose a plan to demonstrate the ability to pay back their creditors to the extent that their disposable income will allow, within the guidelines of the law. A Chapter 13 plan under the Bankruptcy Code requires the Debtor to propose a plan which demonstrates the best effort to pay back all of the creditors over the course of the plan. This “best efforts test” requires a Debtor to devote all disposable income to the plan. 11 U.S.C. § 1325. In order to determine how much money a debtor can afford, a Debtor must calculate how much money the household brings in each month after the employer, or other revenue generating source, withdraws taxes, insurance, and mandatory payroll deductions; otherwise known as the Debtor’s net income. From that net income, the Debtor then also deducts all reasonable and necessary household expenses.

The difficulty of proposing a Chapter 13 reorganization plan is that this type of debt relief is not typically a short process from start to finish. In general, these plans propose payments from anywhere between three and five years. That is a long time for anyone to continue to do the same thing. As a matter of fact, the Bureau of Labor Statistics of the U.S. Department of Labor reported in a study spanning three decades in September, 2010 that the average person between the ages of 18 – 44 keeps a job for 2.36 years. Moreover, in the current economy, the sad fact is that many people lose their jobs due to corporate downsizing and, as a result, many Americans are moving from job to job much more frequently these days then they have in the past.

Changing jobs, especially where your income remains substantially the same, is not something that is of great concern in a bankruptcy case. However, there are times when you may wish to change jobs and, as a result, it is either required or, at least a very good idea, to discuss your plan with the Chapter 13 Trustee. For example, in the event that your hours at work are going to be temporarily cut, or you are going to start a new job and your income will need to ramp up in order to pay your Chapter 13 plan payment, you want to let the Trustee know what is going on. In these cases, your attorney can file a Motion with the court to suspend or modify your payments on a temporary basis.

In a more typical scenario, a Debtor will either lose a job or need to voluntarily resign due to a hostile work environment. In this situation, you may be able to work with the Trustee to again suspend your payments for a short time. If, however, the Trustee does not know that you are struggling to make your payments and you either fail or refuse to make the payments, the Trustee may file a Motion to dismiss your case for failure to stay current with the proposed and confirmed plan.

Finally, there is the scenario where a Debtor obtains new employment and receives an increase in income. Many people believe that once a Chapter 13 plan is confirmed there is no need to disclose anything about having more money. The problem with this concept is that, unless the Debtor is already in a 100% plan, the Debtor still has an obligation to put forth the best effort of paying back the creditors. As such, if a Debtor’s income increases significantly, a modified plan may be required by the Trustee.

The bottom line in all of this is that, if you are in a Chapter 13 bankruptcy case and your income changes or is certain to change in the near future, you need to communicate this fact with your attorney to ensure compliance with in the guidelines of Title XI.

Can’t I just wait to file my taxes so that the trustee cannot take my refund?

Can’t I just wait to file my taxes so that the trustee cannot take my refund?

Good thought, but no. The bankruptcy estate and what the trustee can take interest in is not based only on what you actually have at the time of filing; it is also based on anything that is owed to you at the time of filing.

In short, waiting to file your taxes with not prevent the trustee from taking the refund. In fact, it can prolong the bankruptcy because the trustee can hold up the case until the tax refund is received and disbursed to your creditors.

There are many other assets that are part of the bankruptcy estate. For example, a personal injury claim is an asset. Even if the case has not been filed in state court or no settlement has been reached, the event that led to you being owed something, the accident, occurred prior to the bankruptcy and therefore is part of the estate. Similarly, loans that are owed to you, inheritances, insurance claims, etc. are all considered assets under the bankruptcy.

Given that some of the claims mentioned above may be for large sums of money, it is important to make your attorney aware of any money that you may be expected so that you can be told of your options in advance. The last thing you want to do it file a bankruptcy and have to forfeit a large settlement where it may have been avoided had your attorney known about it prior to filing.

Wage Order in a Chapter 13 Bankruptcy

What is a wage order and what are the benefits?

A wage order in a Chapter 13 is where a portion of your Chapter 13 plan payment is automatically deducted from your paycheck by your employer. Your employer then sends the money directly to the trustee.

If you are paid bi-weekly then the monthly payment will be prorated. For example, if your Chapter 13 plan payment is $300 then $138.46 would be taken out of each paycheck.

Benefits to wage order:

· Presumed current if less than 10 days late

· No paying entire payment out of one paycheck

· Payments guaranteed to be made (so long as your employer is following the order)

· You are not tempted to spend the money elsewhere

· Allows for an overall successful completion of a Chapter 13 plan

In Illinois, wage orders are required where the Debtor is employed. In Missouri, while it is not required, it is strongly recommended as is ensures payments will be made to the trustee on a regular basis.

What are your payment options if you do not have a wage order?

Payments can be made in the form of a cashier’s check or money order and mailed to the trustee. You can also set up for an official bank check to be sent on a monthly basis directly to the trustee. They will NOT however accept a personal check from you.

To avoid incurring the fees of a money order on a monthly basis for your entire Chapter 13, talk to your attorney about setting up a wage order for you.