Chapter 13 bankruptcy gives homeowners extra time to cure past due mortgage payments, allowing debtors to avoid foreclosure. Chapter 13 can also reduce debts, freeze collection efforts, stop car repossession, and build a platform to make other financial improvements. However, in order to complete Chapter 13 successfully, debtors must make recurring payments to a bankruptcy official called a “trustee.” Philadelphia bankruptcy attorneys discuss the role of the trustee in Chapter 13, including topics like how the Chapter 13 trustee is different from the Chapter 7 trustee, and questions the Chapter 13 trustee might ask a debtor during the Pennsylvania bankruptcy process.
What Does the Chapter 13 Trustee Do?
The debtor must complete several steps before filing Chapter 13 bankruptcy, such as completing a credit counseling course. Once pre-bankruptcy requirements are met and the appropriate documents have been gathered, the debtor may file his or her bankruptcy petition in the U.S. Bankruptcy Court for the Eastern District of Pennsylvania, Philadelphia Division, which serves Bucks, Chester, Delaware, and Montgomery Counties, among several other counties in Southeastern Pennsylvania.
Soon after the debtor files his or her bankruptcy petition, the bankruptcy court will assign to the case a neutral third party known as a “bankruptcy trustee.” Bankruptcy trustees play important, but very different, roles in Chapter 13 and Chapter 7 proceedings.
The trustee has two key functions in a Chapter 13 bankruptcy case:
- Acting as a liaison between debtors and creditors by collecting and distributing Chapter 13 payments.
- Checking to ensure that the debtor is complying with bankruptcy laws and court rules.
Unlike Chapter 7, which is a liquidation bankruptcy, Chapter 13 revolves around a “reorganization” plan, which is why Chapter 13 is sometimes described as “reorganization bankruptcy.” The reorganization plan is proposed by the debtor and, if feasible and properly structured, approved by the bankruptcy court. It lasts for a period of three to five years, during which the debtor makes monthly or biweekly payments to the Chapter 13 bankruptcy trustee.
Some debts must be paid in full, including priority claims such as pay owed employees, unless the creditor agrees to accept a lower amount. Other creditors may receive only a portion of what they are owed.
The trustee is responsible for distributing the debtor’s payments among the debtor’s secured and priority creditors. Under federal bankruptcy law, the debtor must start making payments to the Chapter 13 trustee within 30 days of filing for bankruptcy, even if the court has yet to approve the proposed reorganization plan as of that date.
Chapter 7 trustees necessarily play a different role, because the Chapter 7 bankruptcy process in Pennsylvania is different from the Chapter 13 process. In Chapter 7, there is no reorganization plan and therefore, no monthly or biweekly payments. Instead, some of the debtor’s assets may be liquidated (sold), and the proceeds distributed to creditors. The Chapter 7 trustee is responsible for liquidating the debtor’s assets, with exceptions for “exempt” assets, or assets which are protected from liquidation by bankruptcy exemptions.
What Questions Will the Bankruptcy Trustee Ask Me?
In addition to distributing the debtor’s payments to his or her creditors, the trustee plays another, equally important role: checking the information the debtor provides. Though your Philadelphia Chapter 13 lawyer will handle preparing your bankruptcy documentation, the Chapter 13 trustee will still want to examine your statements for accuracy and completeness.
One of the ways the trustee does this is asking questions during a bankruptcy procedure called the “meeting of creditors,” “341 meeting,” or “341 hearing.” The 341 hearing is generally attended by the debtor (who must be present), his or her West Chester Chapter 13 bankruptcy attorney, and his or her creditors. The hearing will be conducted by the Chapter 13 trustee somewhere between 21 and 50 days after the debtor’s filing date. If the Chapter 13 bankruptcy was filed jointly by a married couple, both spouses must attend the hearing, and both will be subject to questioning.
At the hearing, the trustee will place the debtor under oath and ask him or her questions concerning assets, trusts, business ownership, taxes, real property, home refinancing, alimony and child support, and other financial matters, where applicable. For example, has the debtor filed all of his or her tax returns? Has the debtor ever filed for bankruptcy in the past? Did the debtor list all of their assets and properties? Has the debtor transferred any property during the past several years?
Debtors should be ready to provide detailed and up-to-date financial information pertaining to any of these issues. Creditors who attend the hearing may also ask questions of the debtor, in addition to questioning by the trustee.
Philadelphia Chapter 13 Attorneys Serving Bucks, Delaware, and Montgomery Counties
Chapter 13 bankruptcy can stop your home from being foreclosed on, stop your car from being repossessed, and stop creditors from beginning or proceeding with debt collection efforts. Chapter 13 can also give you an opportunity to pay back less than what you owe on certain debts, while extending your time to pay off others.
If you’re falling behind on your mortgage and are worried about foreclosure proceedings, consider exploring Chapter 13 before it’s too late to protect your property. For a free legal consultation about Chapter 13 bankruptcy in Pennsylvania, or alternatives to bankruptcy like pre-foreclosure forbearance plans, call the Philadelphia foreclosure attorneys of Sadek and Cooper Law Offices, LLC at (215) 995-2543 today.