While we all would prefer to consider the filing of a Chapter 7 or Chapter 13 bankruptcy in Detroit to be a private matter, there are, in fact, a host of characters involved in the process.
Generally, it is true that, if you don’t tell anyone that you filed for bankruptcy, the people around you will likely never know that you did.
However, the path leading from the door to the US Bankruptcy Court to the safety of your bankruptcy discharge is littered with “parties of interest,” as the US Bankruptcy Code calls them. These players in your bankruptcy drama are worth understanding in advance, when you may still be considering filing for bankruptcy.
This Article, in 2 parts, is introducing you to the different characters you will, or may, encounter in your Michigan bankruptcy process.
This 2nd part discusses the players the enter the picture once you file your case with the US Bankruptcy Court.
First up: your creditors.
Your Creditors and their Lawyers
It goes without saying that your creditors—and their lawyers—play an important role in your bankruptcy process.
However, it is often a less prominent role than you might think.
In the typical Chapter 7 bankruptcy case, for instance, none of the debtor’s property is actually liquidated and creditors are paid nothing. Their debts are simply discharged. They are not even allowed, in such cases, to file a “proof of claim” form with the court to provide evidence of the money owed to them.
This is the outcome for creditors in a typical “no-asset” Chapter 7 case, as they’re called, and the vast majority of cases filed in Michigan are no asset Chapter 7 bankruptcy cases.
They are simply provided notice of the filing—and that’s it. Nothing more for any of them to do unless they think that they can prove that you incurred the debt fraudulently (expect litigation, if so) or they hold one of the sorts of debt that are not dischargeable in bankruptcy, such as child support arrears.
The exception is for your secured creditors. That is, the servicers of your mortgage and car loan, or lease.
Secured creditors in Chapter 7 may ask you to sign something called a Reaffirmation Agreement. Discuss this with your bankruptcy lawyer.
In Chapter 13 bankruptcy, creditors play a slightly more active role.
Unsecured creditors again, have little to do in Chapter 13, except that, in Chapter 13, they must file a “proof of claim” form in order to be paid anything out of the Chapter 13 plan.
It is not uncommon for some percentage of your unsecured creditors to fail to do this and thus be paid nothing at all, their debts then entirely discharged as in a Chapter 7 bankruptcy.
Secured creditors will not only file proofs of claim, but they may actively oppose confirmation of your Chapter 13 plan if they do not appreciate the loving treatment they receive in your plan. This is one of the reasons you simply must retain an experienced bankruptcy attorney to represent you in a Chapter 13 if you hope to succeed in the process.
Your Chapter 7 and Chapter 13 Trustees
In the vast majority of bankruptcy cases, the Chapter 7 or Chapter 13 Trustee will be your primary adversary rather than your creditors.
The role of the Chapter 7 or Chapter 13 Trustee is, by letter of the Bankruptcy Code, to “administer the assets of the Bankruptcy Estate.”
What does this mean?
The Bankruptcy Estate is the fictional construct containing all of your assets and your income and your debt that is created by automatic function of law when you file a bankruptcy case. It is not too different than a Probate Estate created, again, by automatic function of law (although one must in that case be “opened”) when a Michigander dies without leaving a proper will or estate plan.
The Chapter 7 and Chapter 13 Trustees are the Trustee of that Estate. Your property legally belongs to the Trustee during the pendency of your case. You cannot sell, dispose, or transfer property without permission of the Trustee while the Estate is active.
In a Chapter 7, however, the Trustee’s actual day-to-day role is preside over the 341 Meeting of Creditors hearing and to review your petition and schedules and filed statements and to question you for the purpose of ensuring that you do not have any property of value that is not exempted from the Estate.
If you do have non-exempt property, the Chapter 7 Trustee will seize it, liquidate it, and then pay out the resulting funds to your creditors in a priority order mandated by the Bankruptcy Code.
The Chapter 7 Trustee wants to take your stuff and make a buck off of you, in other words. They are paid a percentage of what they manage to liquidate for your creditors.
They are highly “interested” parties.
Chapter 13 Trustees, on the other hand, do not liquidate property. That doesn’t happen in Chapter 13 bankruptcy.
However, in Detroit in particular, as opposed to Flint or Bay City, if a Chapter 13 Trustee can find a way to object to your Chapter 13 plan and have it dismissed, they’ll do it. It’s a modus operandi in Motown, for reasons unknown as they are paid a percentage of what is paid into the plan by debtors.
In theory, Chapter 13 Trustees will object to improperly filed creditors proofs of claim. But they rarely if ever do this. It’s up to your bankruptcy lawyer to police your creditors’ filings.
Another good reason to make sure you hire a bankruptcy lawyer with the bandwidth to actually do the job rather than just to rake in filings and fees.
The US Trustee
The US Trustee is not the same as the Chapter 7 or Chapter 13 Trustee.
The US Trustee is a functionary of the US Department of Justice tasked with maintaining the integrity of the bankruptcy process in the United States. It is an administrative office located in downtown Detroit that employs several attorneys, nearly all of whom are former creditors’ attorneys.
It is the US Trustee that reviews Chapter 7 Means Tests to ensure that only the eligible are filing for that Chapter of bankruptcy.
It is the US Trustee who will prosecute you for bankruptcy fraud or move to deny your discharge or dismiss your case if you engage in any improper lack of disclosure or false disclosure regarding income or assets.
Generally, you will not encounter the US Trustee in your bankruptcy case. However, if one of the assistant US Trustees shows up at your 341 Meeting, it is indication that something may be amiss or more complicated, at least, than you hoped it would be.
Another good time to have an experienced bankruptcy lawyer on your side rather than not, if this should occur.
If the US Trustee files a motion to dismiss your case or some other (potentially criminal) complaint against you, it is essential that you have a good bankruptcy lawyer working for you.
Your Bankruptcy Judge
If you’re surprised that your bankruptcy judge isn’t located higher up this list, it’s because, in the typical Chapter 7 or Chapter 13 bankruptcy case in Detroit, you never see or interact with your judge.
In a Chapter 7 bankruptcy in particular, you will only stand in front of your actual judge if a creditor, Chapter 7 Trustee, or US Trustee is contesting the dischargeability of a debt, your discharge generally, or the exemption of an asset (or other contentious issues).
Even in a Chapter 7 case in which property is being liquidated, there is often no reason to bring or defend a contested motion before your judge.
Obviously, there are many exceptions to this proposition, and that’s why you need to hire an experienced bankruptcy attorney.
But, otherwise, the Chapter 7 process is somewhat self-regulating—when all of the players are on the same page.
In a Chapter 13 bankruptcy, the judge is more present in the process, procedurally. The judge must sign an order confirming your Chapter 13 Plan (even where there is stipulated agreement as to its terms between the parties). The judge must rule on proof of claim objections and other such issues.
Still, it is the minority of cases that require you to personally stand at a podium.
This is vastly different from the active and overarching role played by judges in, for example, criminal cases.
Who’s Who In Detroit Bankruptcy Cases, Part 2: The Bottom Line
The bottom line is that a Chapter 7 or a Chapter 13 bankruptcy case, in most instances, runs very smoothly—if you have retained an experienced and aggressive bankruptcy attorney to assist you.
Smooth or otherwise, there will be a lot of eyes on the information you provide—or fail to provide—to the powers that be in the bankruptcy system. You will want to take every step to ensure that it is accurate and fully discloses every detail that needs to be disclosed.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully assisted thousands of Chapter 7 and Chapter 13 bankruptcy clients in Metro Detroit for over 30 years. He brings years of experience to the table—but also the customer service you need to ensure the successful discharge of your debt.
Contact us now to schedule your free initial consultation.