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Personal Finance Building (and Keeping) Good Credit A good credit score is important. As you probably already know, it determines the amount of credit you can get and the interest rate you will be charged. A low score may mean you don’t get the credit you need to buy a car or home. A low score could even mean lost job opportunities, higher insurance rates, and a big deposit with your utility company. Even if you have debt, you can rebuild your credit. The key to success is showing that you can handle credit responsibly. Here’s how to do it.
Step 1: Create a budget and stick to it. Begin by tracking your expenses for a month or two. Record everything you spend, no matter how small. Don’t forget to factor in expenses that you pay annually or quarterly, such as insurance premiums. Convert them to a monthly amount (e.g. $1200 a year for car insurance means you need to budget $100 a month) and add them to your spending record. Once you have all these numbers add them up. Next, apply your monthly income to the expenses. If you have enough to cover your bills with some extra, allocate the extra to savings or paying down any remaining debt that was not discharged in the bankruptcy (e.g. student loans). If your expenses exceed your income, see if there are ways to increase your income or reduce your expenses. Try to reduce your expenses so that you can save 10 to 15 percent of your income each month for an emergency fund. Electronic budgeting apps and financial advisors can assist you with budget planning. Some nonprofits offer these services free or for a nominal charge. Step 2: Pay all your bills on time, including debts not discharged in bankruptcy. Once you have your budget, establish a routine process for paying your bills each month. Some ideas include: n Setting up a paper or electronic calendar so you can see due dates at a glance and dates by which a payment must be sent to arrive in time. n Arranging for automatic text or email reminders from your creditors. n Asking your creditors to change your payment due dates to better align with your cash flow. n Establishing one or two regular bill paying days each month. These could be on or immediately after your regular paydays. n Using online bill pay and scheduling payments in advance. Just make sure to keep tabs on how much money is in your account so you won’t overdraw your account. n Using financial apps and software to assist with budgeting, saving, and bill paying. Some debts may not have been discharged in your bankruptcy (e.g. student loans, a car loan, a mortgage). Paying these on time will gradually improve your credit score. Keep up with payments on accounts not reported to the credit agencies, as they could be reported if you fall behind. A good payment history is the most important factor in determining your credit score. Step 3: Pay your new credit card or loan on time. As mentioned above, a good payment history is the single most important factor in your credit score. Make sure you have a method in place to ensure timely payments on your new account. For example, open your bill as soon as you receive it; make a note of the payment date; and make sure you send the payment so that it will reach the creditor by the due date. If you have trouble remembering, sign up for an automatic email reminder or set up automatic payments from your bank account, but make sure you have enough money to cover the payment. (Overdraft protection is a good idea.) Pay the balance each month. Step 4: Keep your credit balance low relative to your limit. After payment history, the next most important factor in your credit score is your balance as a percentage of your credit limit. Try to keep your charges at or below 30% of your credit limit. Most important, do not charge more than you can afford to pay. Step 5: Don’t make multiple applications for credit. Don’t open more than one or two new lines of credit right after bankruptcy. About 10% of your credit score is determined by whether you have recently applied for new accounts. While you will need to apply for new credit to begin rebuilding your score, keep the accounts to a minimum and spread out your applications over time. Your FICO score can go down if you apply for multiple new credit lines in a short period of time. So apply sparingly. Step 6: Continue to monitor your credit reports and scores. Check your credit score regularly while you are actively improving your credit. Watching that number go up can make you feel like your hard work is really paying off. Watching your credit reports and score will also enable you to see if anything out of the ordinary appears to be happening, investigate it if it does, and report any abnormalities. Ĵ
Assets and Debts in Bankruptcy ASSETS The Bankruptcy Code has a list of exempt property that basically serves as a model for state laws. In some states, debtors can apply these federal exemptions to their property; in other states, debtors must use the ones provided under state law. There is an important caveat. If the property has a loan against it, the owner must continue making payments according to the agreed-upon terms, because secured moneylenders do not care if their current customers file bankruptcy or not. If the payments stop, they will ask the judge for permission to go around the automatic stay and repossess the property, and judges nearly always grant special permission in these cases. House The law varies by jurisdiction, but most states allow debtors to keep their homes if they do not have more than a certain amount of equity; that amount is typically between $25,000 and $50,000. Unless they have been in their homes for more than eight or ten years, most people do not have more equity than that in their homes. And, quite frankly, homeowners with large amounts of home equity probably do not need to file bankruptcy to eliminate their debts. Debtors list their houses, and any other similar assets, on Schedule A. In addition to the property, debtors must also declare a value. This is where it gets a little tricky, because the value that the county tax assessor uses is generally not the same as the home’s fair market value. Tax appraiser values are often slightly inflated, so the taxing jurisdictions obtain a little more revenue.
Moreover, according to the Bankruptcy Code, debtors must list their assets’ “garage sale value.” So, the question is not so much fair market value, but how much the house would be worth in a non-inspection, as-is cash sale. Most home investors will not pay more than 60 percent of fair market value in such transactions, and their initial offers are typically much lower than that. If there are issues with the amount of equity, this fact could well come into play. Assume Dora Debtor owns a house that is valued at $200,000 on the tax appraiser’s website and her loan balance is $150,000. At first blush, she appears to have $50,000 in home equity and therefore, depending on where she resides and whether she uses federal or state exemptions, Dora may run afoul of the equity limit. But the $200,000 figure on the website is not the fair market value, and it is also not the as-is cash sale value. In fact, the “garage sale” value is arguably $120,000, because that is what a home investor would pay Dora for the house. So, although she may have $50,000 after a list sale, she might be saddled with $30,000 of negative equity in an as-is cash sale. Debtors should be very careful when listing the value of assets, because substantially under-valuing them means a red flag to the trustee at best and a bankruptcy fraud prosecution at worst. Retirement Accounts In many households, a 401(k), IRA, or other retirement savings plan is the family’s largest asset. The Bankruptcy Code expressly states that these accounts are exempt, and the United States Supreme Court recently reaffirmed this principle in Clark v. Rameker (2014). That case involved a debtor who inherited a $450,000 IRA from her mother; by the time the heir filed Chapter 7 bankruptcy, the account balance was about $300,000, because unless the new owner was the original owner’s spouse, monthly payments are the only disbursement option in inherited IRAs.
Although Clark went against the debtor, the holding applies only in the handful of cases that involve inherited IRAs. The important thing is that the Supreme Court accepted the Bankruptcy Code as gospel truth on this issue, and reaffirmed that these accounts are 100 percent exempt in most cases, even if the balance is several hundred thousand dollars. Non-Exempt Assets In addition to a primary residence and a retirement account, most other personal assets, including motor vehicles, furniture, tools used in business, and even cash in some cases are exempt. However, some assets are often clearly non-exempt, such as boats, weekend vacation cabins, and debtor-owned rental property. Many times, these assets are at least partially exempt, and even if they are not, the “garage sale” value principle discussed above once again comes into play. Assume David Debtor has a non-running project car in his garage. Once the car is finished, it will probably have a substantial dollar value. But for now, it is only worth about $1,000. Moreover, the car is clearly non-exempt under both the federal and applicable state bankruptcy exemptions. David is afraid that the bankruptcy trustee will seize the car, sell it, and distribute the proceeds among the creditors, meaning that all the work and money David poured into the car would be gone. But if the trustee did take David’s car, the bankruptcy estate would incur significant expenses. After the car is seized, stored, cleaned up, and a sale price is negotiated, there may be few or no proceeds to distribute. As a result, in situations like the project car, bankruptcy trustees often elect to let debtors hang onto non-exempt property. The same logic applies to fishing boats that need some work, rental properties that prior tenants trashed, and so on.
DEBTS Most middle-class families fall into one of two categories: households that confront their debt problems and households that hide their debt problems. That’s because most families have essentially no savings and over $130,000 in secured and unsecured debt. So, when life’s financial storms hit, families must juggle payments instead of drawing on savings. This approach is often effective for a month or two, but putting off bills has a snowball effect. Three or four months down the road, a budget that was once barely feasible will essentially fall apart, and the financial news will more than likely only get worse. Unsecured Debts Credit cards and medical bills are the two biggest unsecured debt categories, because the moneylender extends credit or provides services based solely on a written or oral promise to pay. Payday loans are also unsecured in most cases, although the moneylender would like for you to believe otherwise. Some furniture companies issue revolving-debt cards, like MasterCard and Visa, to allow customers to buy furniture on credit; these debts are also typically unsecured. The procedural differences between a Chapter 7 and Chapter 13 are discussed below, but for now, suffice it to say that both these chapters eliminate these unsecured debts. Secured Debts Home mortgages and vehicle loans are secured debts, because a third-party lender agreed to advance the purchase money for the property in exchange for a security interest in the collateral. In addition to monthly or periodic payments, security agreements often have other provisions as well, such as maintaining property insurance.
From a bankruptcy perspective, most secured debts are dischargeable. However, although a bankruptcy judge has the power to discharge the debt, the judge does not have the power to discharge the borrower’s obligations under the security agreement. So, if the borrower defaults on payments or otherwise breaches the agreement, the moneylender can seize the collateral. The automatic stay, which is discussed below, often comes into play regarding secured debts. Special Category Debts Not all debts are dischargeable with no strings attached, and most of the special category debts are somehow tied to state or federal governments: • Domestic service obligations, including child support and spousal support, are almost never dischargeable in bankruptcy, regardless of the debtor’s circumstances. • Income tax debt is dischargeable only if it adheres to the 3/2/9 rule. First, the taxes must be at least three years past due. Second, the returns must have been on file for at least two years. Third, the debt must not have been assessed in the last 240 days. In most cases, that means the taxpayer has not received a collections letter in the past nine months. These rules are very strict. • Student loans, whether or not they were government-guaranteed, are likewise only dischargeable in cases that involve a “hardship.” • Rent. If a judge has not signed a writ of possession, the automatic stay applies. If the judge has signed a writ, the automatic stay only applies if the tenants deposit one months’ rent with the bankruptcy court and confess that they owe the amount of delinquent rent stated in the writ or judgment. Furthermore, the tenants must pay the entire delinquent amount within thirty days, or the landlords can enforce their writs.
What Are the Pros and Cons of a Chapter 13 Filing? Not all debtors qualify for a Chapter 7 filing, so it can be helpful to also learn about Chapter 13. Here are its advantages: ADVANTAGES • All property can be retained so long as the terms of the plan are fulfilled • An unincorporated business may continue to be operated and its debts included in the Chapter 13 plan • Some types of secured claims can be modified. For example, if $12,000 is owed on a car purchased over 2-½ years ago and now worth $9,000, the amount owed can be reduced to $9,000 and paid off over the life of the plan. • If a home has multiple mortgages but is worth less than the first mortgage, Chapter 13 will convert the additional mortgages to unsecured debts which don’t have to be repaid in full • Cosigners are protected by Chapter 13’s automatic stay DISADVANTAGES • A trustee’s commission of roughly 10% of the plan disbursements over the 3 or 5-year life of the plan must be paid • Attorney’s fees are higher for Chapter 13 than for Chapter 7 • For the life of the reorganization plan, the bankruptcy court will review the debtor’s financial life • If income or assets increase during the life of the plan, creditors can seek increased payments • If a payment is missed, the trustee and creditors can seek to dismiss the case and block discharge • The plan must propose payments to non-priority, unsecured creditors (credit cards, medical bills, lawsuit judgments, etc.) that are at least equal to the value of the debtor’s nonexempt property.
WHAT DEBTS MUST BE REPAID IN CHAPTER 13? Priority claims are unsecured debts that must be repaid first in Chapter 13. Back taxes incurred in the last three years and child support arrearages owed to a child or ex (not a government agency) are the most common priority debts that must be paid in full. The Chapter 13 repayment plan must also provide that the debtor will stay current on secured debts that will last longer than the plan (e.g., mortgage). During the life of the plan all arrearages must be paid. All other secured debt must be paid in full under the plan. Examples are tax liens and car loans. If the debtor is incapable of paying these mandatory debts during the plan, he or she may have to give up some secured property on which payments are being made. Alternatively, living expenses can be reduced. WHAT ARE THE MOST COMMON OBJECTIONS TO REPAYMENT PLANS? • The plan was not proposed in good faith • The plan is not feasible • The plan does not commit all the debtor’s projected disposable income • The debtor do not pay creditors as much as they would receive in a Chapter 7 liquidation • The plan does not properly treat creditors’ claims according to their priority Secured creditors might also make minor objections to the plan: the proposed interest rate is too low, the schedule takes too long to pay arrearages, or, if the plan is proposing a cramdown, that the value assigned the collateral is wrong.
WHAT IS CONSIDERED A REASONABLE EXPENSE DURING THE LIFE OF A REPAYMENT PLAN? The answer varies from debtor to debtor and court to court, but in general luxury items or services are not reasonable. For example, gardening services will be considered a luxury and thus not allowed. Loan payments for a luxury car will be reduced to the level of a standard car. Voluntary contributions to a retirement plan are generally not allowed unless the debtor is approaching retirement age.
Tips for Rebuilding after Filing Bankruptcy’s Impact on Credit There is no denying that bankruptcy will temporarily harm a debtor’s credit standing. The filing will be placed on the debtor’s credit report and may stay there for up to 10 years. However, a bankruptcy filer’s credit score can bounce back to a decent number as soon as 18 months after the filing, and can be in strong territory 24 months after filing. As bankruptcy recedes into the past, it will have less of an impact on a current credit score. The first step in protecting a credit score is to file bankruptcy before a debtor’s reputation is damaged by repeated late pays, delinquencies, collections, and charge-offs. The more damage that occurs before filing, the longer it will take for a score to rebound. Debtors need to avoid the common mistake of compounding the effect of bankruptcy with repeated late pays and collections. After filing, a debtor can begin rebuilding your score by obtaining small amounts of credit and making timely payments. Keeping a clean record with all 3 bureaus will push a FICO score to the low or mid 600s within 18 months and the high 600s within 24 months of bankruptcy discharge. Ĵ
3 WAYS TO REBUILD CREDIT SCORE 1. Obtaining a gas card and paying it on time, every month. 2. Signing up for a secured credit card (which requires a cash deposit for the amount of the credit limit) and using it lightly, 3. If a car loan was reaffirmed, making timely payments will have 3 credit sources reporting favorably to the bureaus.
Bankruptcy and Foreclosure Unemployment, medical debts, and divorce: these are three of the most common causes of bankruptcy. It doesn’t take much for one of these issues to shatter the American dream. Once an individual is two or three payments behind on the mortgage, it may seem impossible to catch up and mortgage companies will start talking foreclosure. A bankruptcy filing will halt the foreclosure process in most cases. The Automatic Stay Can Stop the Foreclosure In most cases, a stay is imposed automatically as soon as the bankruptcy is filed. From day one, the stay will stop creditors from continuing their attempts to collect debts. The stay is an extremely powerful tool that stops most collection activity, including foreclosure, repossession, garnishment, lawsuits, telephone calls, and demand letters. Foreclosure and Chapter 7 Bankruptcy A Chapter 7 bankruptcy is a liquidation bankruptcy. It will delay foreclosure for the duration of the bankruptcy at best, or until the mortgage lender asks the bankruptcy court to lift the stay and the court agrees. Generally, foreclosure stops once a Chapter 7 bankruptcy is filed because of the automatic stay. The mortgage company must file a written motion with the court to lift the stay if it wants to start or continue foreclosure proceedings before the Chapter 7 bankruptcy is concluded. Once bankruptcy proceedings end, or the court lifts the stay, the mortgage lender can proceed with foreclosure. A Chapter 7 filing buys the filer time to make alternative living arrangements, obtain a loan modification, or work out an alternative to foreclosure, such as a deed in lieu of foreclosure. The average Chapter 7 bankruptcy takes 3 to 4 months to complete. Foreclosure and Chapter 13 Bankruptcy Chapter 13 is a type of bankruptcy that many people use to save their homes, cars, and other assets from creditors. The distinguishing feature of Chapter 13 is its payment plan. The plan is similar to a debt consolidation, only better. A Chapter 13 bankruptcy allows the filer to repay pre-bankruptcy mortgage arrears over a threeto-five year time period. It is the more appropriate type of bankruptcy to file to keep a home. How it works Foreclosure proceedings are usually stopped on the filing of a Chapter 13 because of the automatic stay. The stay will remain in effect during the case as long as Chapter 13 payments are timely made. The repayment plan must be proposed within 14 days of filing a Chapter 13 bankruptcy unless the court grants an extension. The regular monthly plan payments to the Chapter 13 bankruptcy trustee must begin within 30 days after the bankruptcy is filed. A trustee is an individual appointed by the United States Trustee’s Office to review the bankruptcy for compliance with the law and to distribute plan payments to creditors. The calculation of a monthly payment plan is based on a variety of factors, including the amount of the filer’s debt, income, and assets. A Chapter 13 repayment plan will last 36 to 60 months. Past due mortgage payments are added to the regular monthly mortgage payments, and are paid off a bit each month over the life of the plan. Added benefit: eliminate second mortgages Chapter 13 contains another useful tool if the filer has more than one mortgage and the property is worth less than owed. Many people find their homes lose value during recessions. If it is worth less than the first mortgage, there is no value to secure any other mortgage. The second or even third mortgage can be completely eliminated in a Chapter 13 case. The process is called lien stripping, and it can only be accomplished in a Chapter 13 case. The attorney must file a motion with the court to strip the lien, and a discharge must be obtained. If the case is dismissed or closed without a discharge, the lien will remain in force. Loan Modifications Both Chapter 7 and Chapter 13 bankruptcies present an opportunity to contact the mortgage company about doing a loan modification. A loan modification is a change in the terms of the loan. Changes can include lower interest rates, lower monthly payments, and a longer term for the loan. Filing bankruptcy can stop a foreclosure in its tracks if it is done correctly. A Chapter 7 bankruptcy will buy time, but is not intended to be a long-term solution. A Chapter 13 bankruptcy allows for repayment of the mortgage arrears and is the better option for keeping a home. Ĵ
WHAT IS A BANKRUPTCY TRUSTEE? A trustee is an individual appointed by the United States Trustee’s Office to review the bankruptcy for compliance with the law and to distribute plan payments to creditors.
When filing for Chapter 13 bankruptcy protection, debtors may be eligible for what’s called a “cramdown” for existing secured debt. Let’s take a look at what this entails. Understanding the Purpose of a Chapter 13 Bankruptcy In a Chapter 13 filing, a debtor seeks protection of the court and develops a three to five year repayment plan. Therefore, debts aren’t discharged or forgiven during the repayment period, but the debtor will likely have their payments reduced significantly. Understanding Secured Debt Secured debt includes loans for things like a car or a house where the property purchased acts as collateral. Unsecured debt has no collateral. Credit card balances or personal loans made to friends or family are common examples of unsecured debt. A cramdown can only be used for secured debt.. What is a Cramdown? A cramdown allows a debtor to reduce the amount of their outstanding secured loans to the value of the property or collateral secured. For example, if the debtor has a car worth $7,000, but the outstanding balance is $10,000, the debtor may be eligible for a cramdown to reduce the amount owed to $7,000. The big advantage to a cramdown is allowing the debtor to pay less interest and reduce their monthly payments. Are There Any Restrictions on a Cramdown? Cramdowns are not allowed for unsecured loans. Also, restrictions apply for certain types of loans. For example: Ë Cramdowns are not permitted for principal residences (the home where the debtor lives) Ë For car loans, the car must have been purchased at least 910 days prior to filing bankruptcy Ë For household goods, the property must have been purchased at least 1 year before the bankruptcy �
What Does a Bankruptcy Trustee Do? When a bankruptcy petition and related documents are filed, several parties become part of the bankruptcy case -- the debtor, U.S. Trustee’s Office, appointed local trustee, and each of the creditors. The U.S. Trustee’s Office is the agency of the U.S. Department of Justice that oversees the administration of bankruptcy cases and the local trustees in each case. Most filers never hear from the U.S. Trustee’s Office. It gets involved only when fraud, means test, or other major issues arise. The appointed local trustee is the individual who will: Review the bankruptcy petition Review the case for fraud or red flags Verify exemptions Try to maximize the amount of money the unsecured creditors will receive The trustee’s other roles vary depending on whether the case is a Chapter 7 or Chapter 13. The Chapter 7 Trustee Chapter 7 Meeting of Creditors In a routine Chapter 7, the only court proceeding a filer needs to attend is the meeting of creditors. Despite the name, creditors rarely make an appearance. This meeting is not usually held in a courtroom, but in a room at the courthouse or even at a neutral location. However, it is a legal proceeding and the debtor will be under oath. The meeting is facilitated by the trustee. He or she will verify the debtor’s identity and then ask some routine questions. For example, “Have all the assets been listed?” “How was the value for the house obtained?” Most meetings last only a few minutes. Sometimes the trustee will ask for additional documents. But typically, if all the debtor’s assets are exempt, nothing further is heard from the trustee. Nonexempt assets, on the other hand, may cause the trustee to continue the meeting to another date additional documentation is provided or assets are turned over. In rare cases, trustees may hire their own attorneys to pursue nonexempt assets. Chapter 7 Trustee’s Commission The Chapter 7 trustee earns a commission from the court on any property that is recovered and sold for the benefit of unsecured creditors. If the bankruptcy petition indicates that the debtor’s property is exempt, the trustee won’t show much interest in the case unless it looks like the debtor is hiding assets or mischaracterizing them. If all the debtor’s property is exempt, the trustee gets no commission. Each trustee does receive a nominal fee for reviewing the paperwork and facilitating the meeting of creditors. The majority of Chapter 7 cases are “no asset” cases.
Chapter 7 Trustee’s Administrative Duties Seize nonexempt assets If there are nonexempt assets in the bankruptcy estate, the trustee has a duty, under the direction of the bankruptcy court, to collect or seize those assets for the collective benefit of the unsecured creditors. The debtor is given an opportunity to “buy the assets back” from the trustee at a negotiated price or to substitute exempt assets for nonexempt assets. In either case, the debtor is expected to cooperate with the trustee in handing over property or, if buying items back, cash. Abandonment of nonexempt assets If the debtor has nonexempt property that has little or no value or would be difficult for the trustee to sell, the trustee can and often will abandon the property. The trustee will then file a motion with the court to abandon the property and put the creditors on notice that the property is not worth liquidation. Search for nonexempt assets A trustee will likely conduct asset searches for real estate and vehicles to verify that the debtor has listed all property in the bankruptcy petition. Sometimes the trustee will ask to verify car titles, insurance policies, or other assets with actual records. A trustee might look at social media to see if the debtor has posted pictures of assets not listed in the bankruptcy paperwork. Look for fraud and inaccuracies in the Petition: The trustee acts as the eyes and ears for the U.S. Trustee’s Office. Under its supervision, the trustee will assess the bankruptcy filing for accuracy and for signs of possible fraud or abuse of the system. Provide notices related to support payments If the debtor owes back child support or spousal maintenance, the trustee is required to provide notices to the holder of the support claim and the state support enforcement agency to keep them informed of the bankruptcy and help them locate the debtor after his or her bankruptcy discharge. File reports with the court: The Chapter 7 trustee in both asset and no asset cases is required to file a summary report with the court. This will outline the assets, value, whether all property is exempt, or if there is property of value left in the bankruptcy estate. In asset cases, the trustee files additional documents to put creditors on notice if property will be seized and other motions that might be needed to administer the bankruptcy estate. At the end of a Chapter 7, the trustee will file a final report in asset cases and something called Report of No Distribution in no asset cases. This signals the end of the trustee’s obligations in the Chapter 7 bankruptcy.
The Chapter 13 Trustee In many regards the role and duties of the Chapter 13 trustee are similar to those above. However, the Chapter 13 trustee is tasked with some additional duties in the administration of the case. While a Chapter 7 bankruptcy occurs usually over in a matter of months, most Chapter 13 cases last years, up to a total of 60 months or 5 years. Most Chapter 13 trustees do not need to be concerned about exempt and nonexempt property as long as the Chapter 13 plan proposes to pay the unsecured creditors as much as they would have received had the debtor filed under Chapter 7. Many Chapter 13 trustees play a much more active role in the cases they administer and are less adversarial than Chapter 7 trustees. It is important to remember that, no matter how friendly a Chapter 13 trustee may be, the trustee does not work on the debtor’s behalf. Chapter 13 Meeting of Creditors The Chapter 13 meeting of creditors is slightly different than a Chapter 7 meeting of creditors. As with Chapter 7, creditors rarely show up at the meeting. The debtor will need to appear at the meeting and will be placed under oath. Many Chapter 13 meetings of creditors are actually held at the Chapter 13 trustee’s office. This setting is usually much less formal than it would be in a courtroom. The Chapter 13 trustee will verify the debtor’s identity, and tax, bank, and income records. The trustee will ask additional questions about the debtor’s assets and debts. The Chapter 13 trustee’s main objective is to determine that all the debtor’s income is verified and his or her expenses are consistent with that income level. The Chapter 13 trustee must further determine that the debtor has allocated all “disposable income” to the Chapter 13 plan and that the debtor has the income to fund the repayment plan. Chapter 13 Trustee’s Commission and Duties The Chapter 13 trustee is paid by keeping 7-10% of the payments the trustee disburses to creditors. The trustee is paid only if the debtor’s plan is confirmed by the court and plan payments are made. The trustee receives the debtor’s payments and then needs to accurately process the payments by creating accounting records for all the payments, and distributing the payments to creditors. Creditors paid under the plan can include both secured and unsecured creditors. Once a Chapter 13 repayment plan is confirmed by the court, the Chapter 13 trustee will be responsible for: Ë Receiving the payments made under the plan and distributing the funds to each creditor in the manner required by your Chapter 13 plan and law. Ë Verifying the proof of claims for creditors and prioritizing who gets paid and when. Ë Monitoring the debtor’s monthly and annual reports. Ë Monitoring the debtor’s duty to file tax returns with all taxing agencies and reviewing the records each year. Ë Keeping all support agencies informed, as applicable. In both Chapter 7 and Chapter 13 bankruptcies, the trustee has an active role in reviewing, facilitating and administering the bankruptcy case. The trustee is the gatekeeper and one of the determining factors in whether a debtor gets to discharge. Cooperation with a trustee is important. �
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