Bankruptcy is quite unlike other civil cases in Minnesota. In a divorce or commercial dispute, the judge controls almost everything that goes on in the case. But in a bankruptcy, the debtor may not ever even see the judge. In fact, it’s not uncommon for the debtor never to even go in a courtroom.
Instead, the trustee has day-to-day responsibilities in terms of case management. These responsibilities vary significantly between a Chapter 7 and a Chapter 13. However, the trustee’s overall role in a Minnesota bankruptcy remains the same. The trustee, who is not a judge and may not even be a lawyer, must do what is in the best interests of the creditors. The trustee is not on your side. That’s your lawyer’s job.
THE TRUSTEE IN A MINNEAPOLIS CHAPTER 7
Bankruptcy is not really a court case in many respects, and a Chapter 7 “liquidation” is usually not a “liquidation.” A Chapter 7 trustee must evaluate the assets listed in Schedules A, B, and C. The trustee must determine if it is in the creditor’s best interest to liquidate the asset. This analysis is different from simply determining an exemption. Most courts, and therefore most trustees, use an equitable analysis.
For example, assume that the debtor has a trailer house on the edge of her property where her son is currently living rent-free. That trailer house is clearly not exempt. But her son may get to stay.
Even if it is in top condition, a used trailer house has almost no value. If it needs any work, it may have a negative value. By the time the trustee pays to repossess it, secure it, fix it up, clean it up, and market it, the trailer house almost definitely has a negative value. It does not benefit the creditors to give them yet another bill to pay. So, the trustee will probably leave that property alone.
The same thing applies with regard to other nonexempt assets in Minnesota, like a motorcycle or boat. Assets like these often have loans to pay off, which increases the expenses the trustee faces even further – and means that in most cases recreational vehicles subject to loans will not have to be turned over to the trustee.
Evaluating property is only part of the trustee’s job. The trustee must also review the paperwork which the debtor files and make sure it is accurate.
Furthermore, the debtor will probably request additional materials, such as the most recent two or three years of 1040s. The trustee is looking for unusual changes in income. The trustee is probably looking for an anticipated tax refund as well. Different judges have different rules regarding tax refunds. Some seize them if they are nonexempt and some always allow the debtor to keep them.
The Trustee in a Minneapolis Chapter 13
In a repayment plan bankruptcy, the trustee takes on an additional role. After determining the status of any nonexempt assets, the trustee works with the debtor to devise a payment plan.
The repayment plan’s goal is to allow the debtor time to pay off any past-due charges on any secured debts. Depending on the fee arrangement, the debtor may need to pay off attorneys’ fees during this period as well. The trustee always gets a percentage fee. It’s usually 10 percent.
To determine the payment amount, the Minnesota trustee usually looks at Schedule I (Monthly Income), Schedule J (Monthly Expenses), and a section of the Means Test (Chapter 13 Disposable Income Calculation).
The debtor must have regular employment, business, or other such income. Gifts from family members, even if they’re made pursuant to a written agreement, usually do not count. But the law is in flux, as an Illinois court recently held that a Chapter 13 debtor could keep his tax refund because he had used it to calculate the repayment plan. The expenses must not exceed the allowable limits unless the attorney has a very, very good reason for deviating from the guidelines. Finally, everything must add up properly in the Means Test.
Typically, the debtor submits a proposed repayment plan with the voluntary petition. Because of our experience, we know what the trustee is likely to approve. So, with Kain & Scott, there is no guesswork in this part of the process.
Assuming that the debtor has enough income to sustain the repayment plan, the trustee nearly always approves the plan. If the monthly debt consolidation payment turns out to be unaffordable, most debtors can convert to Chapter 7 without an additional penalty.
The trustee is not on your side in a bankruptcy, but just like you, the trustee also wants the bankruptcy to succeed. For a free consultation with an experienced Minneapolis bankruptcy attorney, contact Kain & Scott. We are proud to be Google’s highest-rated Minneapolis bankruptcy law firm.
Minneapolis, MN 55402