Changes in Bankruptcy Filings during Pandemic – Part 2

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Hi Folks,

In my last post I talked about the changes that we have seen to the Bankruptcy process because of the Covid-19 pandemic. Clerk’s offices and Judge’s Chambers are harder to get information from, and trying to navigate complex court processes just over the phone can be challenging. In this unprecedented time of low Bankruptcy filings, we have another issue, which is our interaction with the Bankruptcy Trustee’s.

The Trustee is an arm of the United States Justice Department and they are tasked with making sure that debtors are complying with the Bankruptcy rules. There are two levels of Trustee that your case will interact with: the United States Trustee, and the “assigned” Trustee.

As a practical matter, most people will never hear from the United States Trustee. Their job is to oversee Bankruptcy filings and look for cases where “abuse” is taking place. “Abuse” is an odd term that is used to describe Bankruptcy cases that are either not justified under the circumstances, or where someone is taking advantage of the Bankruptcy system. As a practical matter for most people this usually has to do with people who make too much money to qualify for Bankruptcy, or people who have concealed assets from the Bankruptcy Court. Under normal circumstances, the United States Trustee’s office personnel are extremely busy with major cases, however, with Bankruptcy filings way down, this has given them the chance to spend time on garden variety cases…like yours. What that means in practical terms is that you can expect that the material that you provide to the Court will receive extra scrutiny and it would be really prudent to make sure that you are not making any inadvertent mistakes in your representations to the court.

The next area where this matters is the “assigned” Trustee. This is actually the Court personnel with whom you will interact with the most. Every case, whether Ch. 7 or Ch. 13 gets an “assigned” Trustee, and that person’s job is to scrutinize and administer your case. The way that this works is quite different in Ch. 7 vs. Ch. 13 cases, so I’ll go over both.

In a Ch. 7 case, the Trustee’s job is to examine your schedules and statements for truthfulness and if they think that there are any issues, then to refer the case to the United States Trustee for further investigation. Their second job is to go over your assets to see if there is anything that they can recover for the benefit of your creditors. While they get a small payment for looking over your case (in the Western District of Washington it is $15), this is not how they get paid for their job. When they find an asset that they can seize and liquidate for the benefit of creditors, they are allowed to charge for their time and bill that time against the proceeds that are realized when they sell your property. While some assigned Trustees do this type of work as part of another (larger) legal practice for which they derive their main source of income, some Trustees are full time Chapter 7 Bankruptcy Trustees. This means that when Ch. 7 case filings are down, there is less opportunity to find assets from people like you, and that each case becomes more important to scrutinize carefully. When Bankruptcy case filings are high, most Ch. 7 Trustee have plenty to keep them busy, but when Bankruptcy filings are low, their income drops significantly and assets that might not have seemed worth it in the past suddenly become very important. As a practical matter, this might mean that your case gets a lot more attention than you feel that it might deserve, and you might be wondering why the Trustee is taking such interest in ordinary assets and transactions that you might have engaged in prior to filing for Bankruptcy.

In a Ch. 13 case, the Trustee’s job is to receive your monthly plan payment and distribute it among your creditors. The Ch. 13 Trustee runs an entire law firm, with multiple attorneys, paralegals, and support staff. All of this is paid through the small percentage that the Ch. 13 Trustee takes as a surcharge for the money that you pay into your Ch. 13 plan. When Bankruptcy filings are down, the fees are down, but the expenses remain the same. Recently both of our local Ch. 13 Trustees have had to raise their fees and eliminate some staff. This has caused disruptions in the usually smooth Ch. 13 process. People have come to rely upon a well-staffed Ch. 13 Trustee’s office to answer inquiries on demand, and now people are having to wait for responses. In addition, the Trustee’s fees have increased which makes the process more expensive for debtors. Nobody likes this situation, least of all the Ch. 13 Trustees, but there is an economic aspect to court administration that is a hard reality.

So, as you consider filing for Bankruptcy, just be prepared for the changes that you might encounter as we are in this unprecedented time. Like every other “industry” the legal profession is having to adjust to the changes brought on by Covid-19, and the significant drop in Bankruptcy filings has created some unforeseen problems. Be safe out there.

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