Will My Assets Be Protected in Bankruptcy? What Are the Bankruptcy Exemptions?

Most people who file for bankruptcy are able to protect most if not all of their assets, including cash bank accounts, household goods and furnishings, 401(k) plans and IRAs (as well as other types of retirement accounts), cars and vehicles, their homestead and more. Assets are protected in a bankruptcy by way of exemptions, meaning that an asset is protected when it is ‘exempt from the bankruptcy estate’.  When an asset is exempt, it is outside of the reach of both creditors and the bankruptcy trustee and will not be liquidated to cash to be applied to debts. When an asset is non-exempt, it must be surrendered to the Chapter 7 trustee or otherwise the value liquidated and paid into a Chapter 13 plan.

In both Chapter 7 and Chapter 13 bankruptcy, all assets must be fully disclosed on the bankruptcy Schedules A and B. Assets include any interest in real property as well as all conceivable forms of personal property, bank accounts, and even certain intangible property such as rights to sue and future interests. Exemptions are listed on the bankruptcy Schedule C which restates the property claimed exempt, its value and the amount claimed exempt, and the basis for the exemption under either federal exemptions or Minnesota state exemptions. Both the federal and Minnesota bankruptcy exemptions provide for various categories of commonly exempt property, such as the debtor’s future earnings and income, a homestead interest, vehicles and cars, jewelry, tools of trade used in a debtor’s profession, household possessions and personal effects, retirement accounts, social security benefits, tax refunds, insurance proceeds, and many more. Most exemption categories specify a defined dollar limit for each type of asset exempted and the exemption limits are updated regularly.

While most people’s assets are protected within the available bankruptcy exemptions, common sense dictates that there are reasonable limits to what can be protected when one files for bankruptcy. For example, it may be difficult for a debtor to receive a discharge in Chapter 7 bankruptcy while retaining significant equity a family cabin or rental property. Whether your assets can be protected in bankruptcy is fact dependent and a comprehensive disclosure of assets is an important discussion to have with your bankruptcy attorney before you file bankruptcy. And this is a discussion that should be open and honest since full disclosure of assets is required on the bankruptcy schedules. Additionally, some asset exemption planning steps may be taken before a bankruptcy is filed to maximize your ability to protect certain assets.

Wartchow Law Office provides free initial consultations to discuss your assets and what exemptions may be available to you in either Chapter 7 or Chapter 13 bankruptcy. Located in Edina, MN, Lynn Wartchow represents clients in Minneapolis and throughout Minnesota.

Homeowners Associations and Bankruptcy: How Does Bankruptcy Affect My Condo or Townhome and My Association Dues (HOAs)?

The prevalence of condo and townhome development in the mid-2000s throughout Minneapolis and the suburbs was hit especially hard by the decline in the real estate market, with prices sinking disproportionately on these urban homes that were often originally overpriced and over-marketed to younger consumers. Owners of condos or townhomes who file bankruptcy should be aware of the Minnesota laws that govern the association’s rights as well as be properly advised of what bankruptcy can and cannot do with regard to unpaid HOA assessments.

Under Minnesota law, a homeowner’s association has a statutory lien for any unpaid HOA assessments, which means that unpaid association dues automatically become a lien against the property much like a second mortgage would be however without the need for the HOA to record the lien with the county. Additionally, the association also has a claim against the homeowner for any unpaid HOA dues incurred prior to filing bankruptcy. With both avenues of relief available, the association has several options to collect against a defaulting homeowner, including restriction of rights to use common amenities, bringing a civil action against the homeowner and even foreclosure of the unit under Minnesota law.

While the bankruptcy of an association member will discharge their personal liability to repay the HOA assessments accrued through the file date of the bankruptcy case, the association nonetheless still retains its lien against the property. This association lien can be foreclosed just same as an unpaid second mortgage. An association lien often also includes additional amounts for unpaid late charges or interest, fines imposed upon an owner for violations of the HOA’s rules and regulations, attorney fees incurred by the association, and any other amounts charged against an owner under the association’s declaration.

In either Chapter 7 bankruptcy or Chapter 13, the rule of thumb is that a homeowner will be liable for most if not all HOA assessments in spite of their bankruptcy, particularly if the property is not foreclosed or otherwise the homeowner continues to own the property. This is because any HOAs arising after the file date of a bankruptcy case are not included in the bankruptcy, and any HOAs that arose prior to the file date of a bankruptcy case usually remain a lien against the property and therefore must be paid off in order for the owner to sell or refinance. If the property is foreclosed, the homeowner generally will owe all HOAs due through the later date of either the foreclosure (i.e., the sheriff’s sale in Minnesota) or the homeowner’s bankruptcy.

In Chapter 13, the homeowner can obtain relief with regard to HOA arrears by paying those off with interest over the course of a three to five year Chapter 13 plan.

If you are considering bankruptcy and own a condo or townhome, it’s important to understand how bankruptcy may impact your liability for HOA association dues and other assessments, your right to continue to occupy the property and use the common amenities (noting some amenities can be denied), and foreclosure. Especially under these circumstances, you should seek advice from a bankruptcy attorney who can advise you on the best way to obtain bankruptcy relief while protecting your interests with regard to your property.

Lynn Wartchow is a Minneapolis / St. Paul area bankruptcy attorney representing clients in Chapter 7 and Chapter 13 consumer bankruptcy proceedings in Minnesota since 2005. Email for a free bankruptcy consultation to understand your options in Chapter 13 or Chapter 7 bankruptcy.

What is the Median Income in Minnesota and How Does is Factor into Chapter 7 Bankruptcy?

Qualification for Chapter 7 bankruptcy is largely determined by comparing one’s household income to the median income for their state. Essentially, if your gross annual household income exceeds the Minnesota median income for your family size you may not qualify for Chapter 7 and may be required to file Chapter 13 instead. Therefore, the Minnesota median income is a significant factor in determining whether you may qualify for Chapter 7 bankruptcy or if you may be instead steered toward filing a five-year Chapter 13 repayment plan. As of 11/01/2015, the median income in Minnesota for a household of one person is $51,199, for two people $68,515, for three people $80,804, and $98,447 for four people. The median income adjusts at least once per year and these amounts reflect the median income as last adjusted on November 1, 2015 which will again be adjusted in April of 2016.

If you fall above the median income, it’s important to understand that you may still qualify for Chapter 7 bankruptcy if certain factors are present—this is called “rebutting the presumption of abuse” in bankruptcy. These factors are part of a more comprehensive “means test” eligibility calculation and include such expenses as mortgage payments, tax payments, health care expenses, child care and child educational expenses, child support or maintenance payments, and a host of other variables that may be employed to qualify someone for Chapter 7 even if they are above the median income. In general, the higher over the median income a household falls, the less likely it will be to “rebut the presumption” and qualify for Chapter 7. In this case, your option is to file Chapter 13 bankruptcy, which can still be a good solution (see my blog on why Chapter 13 is not always a gloomy diagnosis in bankruptcy).

While some people seek out some of the unique advantages of Chapter 13 bankruptcy—including the possibility of cramming down a car loan, paying off mortgage arrears over five years or even stripping a second mortgage off a homestead—many people still prefer the ease and speed of Chapter 7. Nevertheless, the means test and the median income establish the threshold criteria for whether Chapter 7 or Chapter 13 may be filed, and usually there is little to no wiggle room from the strict results calculated by the means test.

The means test is complicated and often it’s best to have an experienced bankruptcy attorney calculate your household income based on the last six months of income, compare your number to the median income and prepare the means test calculation to determine what type of bankruptcy you may qualify for.

Wartchow Law Office is a law firm located in Edina, Minnesota with an exclusive practice in Chapter 7, Chapter 13 and Chapter 11 bankruptcy law, representing individual consumer and business clients throughout the Twin Cities of Minneapolis and St. Paul, Minnesota. Contact Wartchow Law Office for a free bankruptcy consultation.

What Should I Expect at the 341 Bankruptcy Meeting of Creditors?

If you have done basic research into the bankruptcy process, you will know that about one month after filing a bankruptcy petition and schedules there will be a mandatory hearing called the “341 Meeting of Creditors”, which is named after the section of the Bankruptcy Code that requires the hearing.

Clients often ask what to expect at the Meeting of Creditors, what they should bring to the Meeting of Creditors and what creditors will be present at the Meeting of Creditors.

For most people, the Meeting of Creditors is relatively uneventful: it’s typically held at the federal courthouse in a hearing room with people who filed bankruptcy around the same date that you did and their attorneys, all waiting for their names to be called so they can sit for the few minutes of questioning by the bankruptcy trustee assigned to their case. When your name is called, you can expect to go up and sit at the hearing table across from the trustee, and then be sworn in under oath to tell the truth, to confirm your name and address and then to answer some basic yes/no questioning for several minutes. If you have fully disclosed everything to your attorney and on your bankruptcy schedules, there should be no surprises and nothing new that comes up during the Meeting of Creditors. In the vast majority of cases, the trustee’s job is routine and they blandly conduct this hearing to determine if there are any non-exempt assets and to get your required testimony on record.

What should I bring to the Meeting of Creditors? In Minnesota bankruptcy cases, you should plan to bring your driver’s license and social security card, all paystubs received since the date that your case was filed, and also a bank statement that confirms the balance in each bank account on the file date of your bankruptcy case. If the trustee wants more documentation, they will either request it at the Meeting of Creditors or from your attorney.

Who shows up at the Meeting of Creditors? Usually, just you, your attorney and the bankruptcy trustee are present for a Meeting of Creditors. It is rare that any creditor will appear for a Meeting of Creditors, even though all creditors will receive notice of the scheduled time and date at least 21 days prior to the hearing. However, the only creditors who typically show up are ex-spouses or ex-business partners that feel jilted by the bankruptcy or, in some rare cases, individuals who have something to reveal to the trustee that was may not have been fully disclosed in the bankruptcy petition and schedules. Rarely does an everyday unsecured creditor make an appearance at the Meeting of Creditors. Even if a creditor or other party-in-interest shows up for the Meeting of Creditors, they are only allowed to ask questions related to the information contained in the schedules and are not allowed to use the Meeting of Creditors as an opportunity to ask unrelated questions.

Many people understandably feel nervous about their upcoming Meeting of Creditors, and inevitably all feel much relief once it is favorably concluded without incident. As long as you have fully disclosed all information in your petition and to your attorney, and you have the required documents and IDs on the hearing date, then the Meeting of Creditors should pose no concern. If you still feel anxious, just ask your attorney to spend a little more time helping you prepare for the Meeting of Creditors and/or provide a list of the sample questions asked at the Meeting of Creditors.

Keep reading for the Typical Questions Asked at the Chapter 7 Meeting of Creditors

Wartchow Law Office is a bankruptcy law firm located in Edina, Minnesota with  an exclusive practice in Chapter 7, Chapter 13 and Chapter 11 bankruptcy law,  representing individual consumer and business clients throughout the Twin Cities of Minneapolis and St. Paul, Minnesota.

Foreclosure in Minnesota: Know the Process, Timeline and How Bankruptcy Can Help

Home foreclosures in Minnesota are common and arguably are even on the rise despite an improving real estate market. In April 2012, the Star Tribune reported that while foreclosures were slightly down during the first quarter of 2012, signs still point to an 11 percent increase in Minnesotans facing foreclosure, adding that one in 312 Minnesota homeowners have received some sort of notice of foreclosure.

Home foreclosure in Minnesota happens via one of two legal proceedings: either the lender forecloses by advertisement or the lender forecloses by action. This post only discusses foreclosure by advertisement, which is the more common of the two Minnesota home foreclosure processes.

In a foreclosure by advertisement, the defaulting homeowner will typically receive one or more pre-foreclosure notices that warn of their lender’s intent to start the foreclosure process if payments are not brought current within a specified time. The time between the first default in mortgage payments and a homeowner’s receipt of the pre-foreclosure notice can be one to three months or more, depending on the lender and any efforts the homeowner may be making to do a workout with their lender. After the pre-foreclosure notice has gone out and the homeowner still has not brought their mortgage current, the lender will then serve the homeowner with a notice of sheriff’s sale. While the Minnesota laws governing service of process in a foreclosure proceeding are detailed, most homeowners are served in-person with the foreclosure papers at their home address. The Notice of Sheriff’s Sale, sometimes also called the auction notice, will provide the date, time and location of the upcoming sheriff’s sale, usually to be held six weeks after the date of service and at the county sheriff’s office. Once the sheriff’s sale has come and passed, ownership of the home transfers to the winning bidder (which is usually the lender for the first mortgage on the home) and the homeowner then has his or her redemption period to reside in the home before vacating it permanently. The length of the redemption period varies according to circumstances, but is most often six months from the date of the sheriff’s sale.

Chapter 13 bankruptcy can help a homeowner save their home from foreclosure by providing an avenue to repay the mortgage arrears over three to five years in a Chapter 13 plan. In fact, mortgage arrears is one of the most Common Reasons for Filing Chapter 13 Bankruptcy in Minnesota. If the homeowner can afford to make the monthly Chapter 13 plan payments, their mortgage may be brought current at the end of the Chapter 13 plan, in addition to the discharge of other debts allowed in bankruptcy.

Chapter 7 can stall the foreclosure process for two or more months and, like Chapter 13 bankruptcy, can also serve to discharge any deficiency owed on the second mortgage. While Chapter 7 bankruptcy will not help to resolve any mortgage arrears owed so that the homeowner can save their home, it can buy more time in the house before the homeowner must leave.

Keep reading for more information about How to Postpone a Sheriff’s Sale in Minnesota.

While Minnesota law governs the foreclosure process, the terms of a mortgage also govern a homeowner’s rights and a lender’s ability to foreclose. For more information on the foreclosure process in Minnesota and how Chapter 13 or Chapter 7 bankruptcy may help, contact Wartchow Law Office for a free bankruptcy consultation to understand your options.

What is the “Means Test” and Why Does it Matter in Bankruptcy?

The “Means Test” was one of the major and most controversial additions to consumer bankruptcy law that occurred as part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). Part of the congressional intent of BAPCPA was to limit a person’s ability to obtain Chapter 7 relief and instead direct them into filing Chapter 13. While there are many reasons why some consumer debtors actually prefer to file Chapter 13 bankruptcy, Chapter 7 is still widely available and common, only now with a few additional hurdles to pass.

These “hurdles” to qualify to Chapter 7 that were added in 2005 as part of BAPCPA are collectively referred to as the “Means Test”. In actuality, the Means Test is an 8-page calculation that determines one’s eligibility for Chapter 7 using criteria such as the debtor’s income (as based on the last six months), household size, expenses and any special circumstances that may justify relief under Chapter 7 bankruptcy. While many of the numbers used are drawn from IRS standard allowances for food, utilities, and similar routine expenses, a person’s actual payments made monthly on secured debts such as mortgages and car loans are included to reduce their income. Generally speaking, if a person has no disposable income remaining at the end of the month after payment of all these standard and actual expenses, they may qualify for Chapter 7.

However, if when the last six months of income is annualized (i.e., doubled) and the person falls above the median income for their household size and state, they are instead steered toward filing Chapter 13, which includes a monthly repayment plan. As of 11/01/2015, the median income in Minnesota for a household of one person is $51,199, for two people $68,515, for three people $80,804, and $98,447 for four people. The median income adjusts at least once per year and these amounts reflect the median income as last adjusted on November 1, 2015 which will again be adjusted in April of 2016.

Even if someone is above the median income for Minnesota, they may still qualify for Chapter 7 (also referred to as “passing the Means Test”) based on other circumstances.

One job of your bankruptcy attorney is to give you all your bankruptcy and non-bankruptcy options, including calculating the Means Test for you and advising you on whether you qualify for Chapter 7 or if you may want or need to file Chapter 13 instead.

Wartchow Law Office is a law firm located in Edina, Minnesota with an exclusive practice in Chapter 7, Chapter 13 and Chapter 11 bankruptcy law, representing individual consumer and business clients throughout the Twin Cities of Minneapolis and St. Paul, Minnesota.

 

What is the “Credit Counseling” Requirement to File Bankruptcy?

A credit counseling course must be completed before an individual can file bankruptcy. This course basically goes through your budget and educates on how to prioritize certain expenses, save money and manage a household budget.

While every individual who files for Chapter 7, Chapter 13 or even Chapter 11 bankruptcy is required to complete this credit counseling course before filing bankruptcy, this class is relatively simple and some even find it useful.

What you should know about the credit counseling course:

  • You can take the course online, over the phone or in person.
  • The course usually costs around $25 if you take it online or over the phone.
  • Once completed, you will be issued a Certificate of Credit Counseling, which you must provide to your bankruptcy attorney for filing with the court.
  • Have your attorney’s email address handy when you take the course so the agency can forward the certificate directly to your bankruptcy attorney.
  • A Certificate of Credit Counseling is only valid for 180 days. If you do not plan to file for bankruptcy for another six months or more, you may wish to hold off on taking the class until closer to the file date.
  • It must be taken from an approved credit counseling agency in Minnesota (for Minnesota bankruptcy filers).
  • You will also have to take a second course after you file bankruptcy but before you get a discharge. This second course is called “Debtor Education” or “Financial Management” and the process is similar to taking the first course. This second certificate must be filed with the bankruptcy court before you can receive a bankruptcy discharge. You do not have to take the second course from the same agency that you took the Credit Counseling.

A list of the approved Credit Counseling and Debtor Education agencies can be found on the US Department of Justice website at www.justice.gov/ust/eo/bapcpa/ccde/index.htm.

Lynn Wartchow represents clients in Chapter 7 and Chapter 13 in Minneapolis, Edina and Twin Cities Minnesota consumer bankruptcy proceedings. Consultations are free.

Bankruptcy and Divorce: What Should Come First?

Divorce is often a precursor to bankruptcy, for either one or both of the divorcing spouses find themselves in need of discharging debts in the face of earning only a single income once again. The difficult question is determining what should come first: the bankruptcy or the divorce.

The answer of course depends on a multitude of circumstances including whether the spouses can cooperate and agree to a joint (and amicable) bankruptcy filing before the divorce is finalized, how long it may be before a divorce decree is entered, which assets owned jointly versus individually, whether there are any joint debts, how the incomes of each of spouse may affect a joint bankruptcy both during a bankruptcy proceeding and after the divorce is final.

When divorce and bankruptcy overlap, the first question is timing. Often family  attorneys may advise their clients to file a bankruptcy before finalizing the divorce, which has the optimistic effect of clearing up those debts so the divorce decree has one less thing to divide up between the spouses. However, there are reasons why it may be better to wait to file bankruptcy until after the divorce is complete, especially for debtors that may owe monetary obligations to their ex-spouse as part of the divorce decree. While child support and alimony (or maintenance, as it is sometimes called) that are based on the financial need of the other spouse are not dischargeable in bankruptcy, certain other financial obligations to one’s ex-spouse may be dischargeable in bankruptcy, including property settlements and other financial obligations that are not based on the financial need of the other spouse. Under some situations, these types of divorce decree obligations can be discharged in a Minnesota consumer bankruptcy filed under Chapter 13.

Another reason to wait to file bankruptcy until after a divorce is finalized: a divorce decree can slap a debt back on one spouse, effectively mooting the entire reason for filing bankruptcy. In Minnesota—which is not a community property state—one spouse typically cannot be held liable for debts incurred solely by their spouse unless both spouses signed the credit agreement (there are some exceptions, such as medical debts which can be enforced against one’s spouse under state statute). A divorce decree usually divides all debts amongst the spouses. For example, the husband may assume the entire responsibility for all joint  and individual credit cards in his name while the wife will take over the homestead and accompanying home mortgages and individual credit cards in her name. If the husband files bankruptcy before the divorce is finalized and discharges his legal responsibility to his credit card companies, the divorce decree can still subject the husband to responsibility to his wife for any payments she is forced to make on the joint credit cards that she will still owe in spite of his bankruptcy because she did not file with him. In this example, while the credit card companies could not sue the husband because of his discharge received in bankruptcy, however they could still sue the wife for the joint debts and the wife, in turn, can then sue her ex-husband for indemnification under the divorce decree if she is forced to pay on the joint credit card debts that were otherwise assigned to him. The point is that you never know how the debts will be divided until the stamp is dry on the divorce decree, and you don’t want to waste a bankruptcy discharge (which you can only get once every 8 years) on debts that may be re-assigned to you in the divorce.

Other issues to be considered when bankruptcy and divorce intersect: equity in a  homestead may not be exempt if it is no longer one’s homestead (a marital lien alone does not satisfy “occupancy” to obtain a Minnesota homestead exemption); child support and spousal maintenance counts as income for the purposes of qualification for Chapter 7 under the means test; an indemnification clause in the divorce decree may undermine the effect of a bankruptcy discharge; unless a full disclosure is made and the divorcing spouses are cooperative, the bankruptcy attorney may have conflict of interest issues that prevent joint representation of divorcing spouses.

Lynn Wartchow is a bankruptcy attorney located in Edina, Minnesota and representing clients in both Chapter 7 and Chapter 13 consumer bankruptcy proceedings throughout Minneapolis and St. Paul in Minnesota. 

Chapter 7 vs. Chapter 13 Bankruptcy: A Primer

Most often the people that come to me for help in bankruptcy do not initially know the difference between Chapter 7 and Chapter 13 bankruptcy, which Chapter may be better for them or even which form of bankruptcy protection they qualify for.

The similarities between these two Chapters are fairly straightforward: both are forms of consumer bankruptcy protection that can discharge debts such as credit cards, medical liabilities, home mortgage deficiencies, personal guarantees and even taxes. Both Chapter 7 and Chapter 13 require that a petition and schedules be filed with the U.S. Bankruptcy Court for the District of Minnesota, listing all assets, creditors and certain financial information for the last two years. Both require one mandatory appearance with a bankruptcy trustee at what’s called the “341 Meeting of Creditors”. Both Chapter 7 and Chapter 13 bankruptcy  are eligible for a discharge of some or all of the debtor’s debts.

The differences are distinct and some of the forms of protection afforded under each Chapter need to be understood. Chapter 7 is what’s called a “straightforward” or “liquidation” bankruptcy: once filed, your assets are reviewed to see if you have non-exempt assets which need to be turned over to the trustee, and within three months a discharge of the debts is ordered. Chapter 7 has income qualifications under the “means test”, in that you generally must be around or below the median income for the state of Minnesota in order to qualify. As of May 1, 2012, the median income in Minnesota for one person is $47,618 or $63,101 for a household of two, $74,050 for a family of three, $86,910 for a household of four, and so on. If your gross household income is above this threshold, you are generally steered toward Chapter 13 bankruptcy instead.

Chapter 13 is distinctly different than Chapter 13 in that it requires a monthly payment of three to five years to be made to the Chapter 13 trustee under a Chapter 13 plan. After the successful completion of all monthly payments made under the Chapter 13 plan, the debtor is then discharged of any remaining debt. Unlike most Chapter 7 cases where creditors usually receive zero money, Chapter 13 affords most creditors some fractional repayment of the total amount owed. Determining the monthly Chapter 13 payment is something that your bankruptcy attorney will need to help determine using Minnesota standard allowances and some actual expenses, such as mortgage and car payments, domestic support obligations and other monthly liabilities that are not necessarily discharged in bankruptcy.

Most recently, homeowners have been taking more advantage of Chapter 13 bankruptcy to strip a second or even third mortgage on their homes. This is relatively new law in Minnesota and as of the date of this post is still pending on appeal in the 8th Circuit. Nevertheless, most other states recognize second mortgage stripping and Minnesota is following that trend. Your bankruptcy lawyer can help determine when a mortgage may be strippable in Chapter 13 bankruptcy.

In order to understand what form of bankruptcy protection is right for you and what you want to achieve long-term, you should consult a bankruptcy attorney for assistance that is specific to your situation. Wartchow Law Office is an exclusive bankruptcy practice offering free consultations to analyze your circumstances and offer practical guidance on your options in both Chapter 7 and Chapter 13 bankruptcy and even on-bankruptcy alternatives.

Located in Edina, Minnesota, Lynn Wartchow represents clients in all Chapters of bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout
Minnesota.

Defined: The Bankruptcy “Trustee” and the “United States Trustee”

The terms “trustee” and “United States Trustee” sound similar and often encompass similar objectives, however the role of the trustee in bankruptcy proceeding is distinctly different than that of the United States Trustee.

The “United States Trustee” (also called the U.S. Trustee or “UST”) is essentially a federal office within the U.S. Department of Justice that oversees the administration of all bankruptcy cases in a certain district. Here in the district of Minnesota as in other districts, the office of the U.S. Trustee employs a group of staff attorneys, financial analysts and other professionals all charged with the responsibility to promote the efficiency and protect the integrity of the federal bankruptcy system. The Office of the US Trustee does not always directly engage in consumer Chapter 7 and Chapter 13 bankruptcy proceedings, however does monitor each case to determine whether legal action needs to be taken in order to enforce the requirements of the Bankruptcy Code and to prevent fraud or abuse. The UST often reviews petition and schedules filed with the Court to determine whether fraud exists or if an audit must be conducted to uncover more information. However in the majority of consumer Chapter 7 and Chapter 13 bankruptcy cases, the individual debtors will never hear from the United States Trustee or be subject to its action. In Chapter 11 cases, the Office of the US Trustee becomes a principal player in monitoring the business reorganization proceeding.

In contrast, the “trustee” (also called a “panel trustee” or a “standing trustee” in Chapter 13 cases) is often a private attorney charged with the responsibility to administer a bankruptcy, hold the meeting of creditors, and distribute any non-exempt assets to creditors. A bankruptcy trustee is appointed to every individual’s Chapter 7 or Chapter 13 consumer bankruptcy case. In the District of Minnesota, there are approximately 25 such attorneys that serve as Chapter 7 and Chapter 13 trustees. Unlike the US Trustee whose main objective is to ensure the integrity of the bankruptcy process, the role of the Chapter 7 trustee is to collect any non-exempt assets of the debtor, liquidates those assets, and then distribute the proceeds to creditors. In Chapter 13, the trustee additionally evaluates the debtor’s financial affairs, makes recommendations to the Court with regard to the Chapter 13 plan and ultimately administers a the Chapter 13 plan by collecting payments from the debtor and disbursing the funds to creditors. In Chapter 11, no trustee is initially appointed and the debtor effectively operates as its own trustee, i.e., the “debtor in possession”.

Lynn Wartchow is the founding attorney of Wartchow Law Office located in Edina, Minnesota and representing consumer and business clients in Chapter 7, Chapter 13 and Chapter 11 bankruptcy proceedings throughout the Minneapolis and St. Paul and surrounding areas.