Category Archives: Trustee

TEXAS BANKRUPTCY: IS THE TRUSTEE GOING TO TAKE MY POSSESSIONS?

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Chapter 7 bankruptcy is sometimes referred to as a “liquidation” bankruptcy case.  However, in practice there is very little liquidation of property.  Most Texas bankruptcy debtors find that they don’t lose any of their property in Chapter 7 bankruptcy.

When a person files bankruptcy they have to list all of their property and what they think it is worth.  This is a very imprecise process for most personal property, which is everything you own except land.  As a general rule, we try to estimate what the property would sell for at a garage sale or if you sold it on Craig’s List.  Some property does not retain its value over time.  For example, we usually estimate that clothing will sell for about 10% of what you paid for it.  For automobiles we use the clean retail value as calculated by NADA.  For homes we generally use the tax appraisal value.  Keep in mind that the NADA and the tax appraisal value are simply starting points.  You must consider damage to the property that lowers its value or upgrades to property that have increased its value, as well as any other factors that affect the property’s value.

 

Once we establish the value of the property we apply exemptions.  Exemptions are laws that allow you to protect specific types of property from liquidation by creditors or in bankruptcy.  Exemptions have their limitations though.  For example, you may be able to exempt a Toyota Corolla but you probably would not be able to exempt a Ferrari.  Every state has its own set of exemptions and many states also allow you to use Federal exemptions as well.  Texas is one of the states that allows Federal exemptions.  In fact, the combination of Texas and Federal exemptions provides a lot of flexibility in protecting property.  Texas is a very good state in which to file bankruptcy.

 

The bottom line is that if you qualify for Texas exemptions, meaning that you have lived in Texas for at least two years, then it is unlikely that you will have any property liquidated in Chapter 7 bankruptcy.  Of course, before filing Chapter 7 you should discuss how your assets will be affected with an experienced bankruptcy attorney.

BANKRUPTCY: CREDIT COUNSELING AND DEBTOR EDUCATION

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The Bankruptcy Code requires that all individuals filing bankruptcy receive credit counseling before their case is filed.  Credit counseling must be provided by an agency approved by the Department of Justice’s U.S. Trustee Program.  These agencies will charge a fee of around $50.  Upon completion of the course, debtors receive a certificate of completion.  This certificate has to be filed with the bankruptcy documents and must have been issued within 180 days before the bankruptcy filing.  If the certificate is dated after the date the case is filed or more than 180 days before the filing date, the court will dismiss your bankruptcy case.

 

The Bankruptcy Code also requires that debtors take a debtor education course.  This course is completed after the bankruptcy case is filed and upon completion of the course debtors will receive a certificate of completion.  In chapter 7 cases, debtors must file the certificate within 45 days following their 341 meeting of creditors.  In chapter 13 cases the certificate must be filed before the debtors complete their chapter 13 plan and receive a discharge.  In both chapters, failure to file the debtor education certificate will prevent debtors from receiving a discharge of their debts.

BANKRUPTCY: WHAT IS A TRUSTEE?

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A trustee in bankruptcy is a person who is appointed by the United States Department of Justice to administer the bankruptcy estate.  This means different things depending on whether the debtor files bankruptcy under Chapter 7 or Chapter 13. In Chapter 7 bankruptcy, the trustee presides over the 341 meeting of creditors, during which the schedules and statements filed by the debtor are reviewed.  The trustee determines whether or not the debtor has non-exempt property that can be liquidated.  If there are assets that can be liquidated, the trustee arranges for the sale of the property, uses the proceeds to pay the expenses of the sale, and then distributes the remaining balance to creditors.  In a Chapter 7 case, the trustee is usually involved in the bankruptcy process for approximately four to five months after which the debtor is discharged and the case is closed.

 

In Chapter 13 bankruptcy, the trustee presides over the 341 meeting of creditors, reviews the schedules and statements filed by the debtor, and determines whether the plan submitted by the debtor meets all the requirements under the Bankruptcy Code.  The Trustee is responsible for collecting monthly payments from the debtor and distributing those funds to the creditors as directed in the Chapter 13 plan.  The Trustee is also responsible for making sure that the creditors file claims timely.  In a Chapter 13 case, the trustee is usually involved in the bankruptcy process for three to five years, which is the duration of a Chapter 13 plan in most cases.

CHAPTER 13 BANKRUPTCY: WHEN IS MY FIRST PAYMENT DUE?

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Under the Bankruptcy Code, your first payment is due “not later than 30 days after the date of the filing of the plan or the order for relief.”  11 U.S.C. § 1326(a)(1).  This means that once a case is filed, the trustee must have a payment in hand within 30 days.  A payment mailed on the thirtieth day is considered late.  Debtors should be aware that many trustees use out of state banks, so it may take several days for the payment to reach the trustee.

 

Some courts are very strict about the deadline for the first payment.  In the Northern District of Texas, if a debtor is late making their first payment, the trustee will file an NOI (Notice of Intent to Dismiss Case).  An NOI states that the debtor’s case will be dismissed after the seventh day following the deadline to make the first payment if no payment is received by the trustee.  An NOI does not require a hearing.  Debtors who know their first payment is going to be late should let their attorney know.  Sometimes trustees will hold an NOI if a debtor’s attorney contacts them to let them know a payment is going to be late.

BANKRUPTCY: SCHWAB V. RILEY – WHAT EXACTLY ARE WE EXEMPTING?

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Bankruptcy law doesn’t seem to get much attention from the Supreme Court.  So on June 17, 2010 when the Supreme Court decided Schwab v. Reilly, bankruptcy attorneys, judges, and trustees paid close attention to the Court’s holding, which explained what debtors are protecting when they claim an exemption in bankruptcy. 130 S.Ct. 2652 (2010).  In Schwab, the debtor exempted kitchen equipment valued at $10,718.00.  The trustee was aware that the equipment had been appraised for $17,200.00 but did not file an objection to the debtor’s exemptions before the deadline to do so passed.  After the deadline, the trustee moved the bankruptcy court for permission to auction the equipment so he could acquire the excess value for the bankruptcy estate.  The bankruptcy court denied the trustee’s motion to auction the equipment.  This decision was affirmed by both the district court and the court of appeals.

 

The Supreme Court reversed the lower courts’ decisions, holding that “in cases such as this, an interested party need not object to an exemption claimed in this manner in order to preserve the estate’s ability to recover value in the asset beyond the dollar value the debtor expressly declared exempt.”  Id. at 2659.  The Court explained that when choosing exemptions, the debtor is not exempting the property but rather is exempting the debtor’s interest in the property.  The debtor in Schwab did not exempt her kitchen equipment.  She exempted a $10,718.00 interest in the equipment.  The additional value of the property was nonexempt and could be realized for the bankruptcy estate.  Since the Trustee did not object to the exemption, whether or not the deadline to object to exemptions had passed was irrelevant.