The US Trustee is one of the players involved in a Detroit Chapter 7 bankruptcy process that you hope not to have to interact with.
We have written about the role of the US Trustee in the Chapter 7 bankruptcy process in a prior article located here.
However, in short, the US Trustee’s Office is a division of the US Department of Justice tasked with the administration of the bankruptcy process in the US.
What does “administration” mean, exactly?
On one hand, the US Trustee’s Office “administers” the bankruptcy process by chartering the Chapter 7 and Chapter 13 Trustee’s who oversee the day-to-day flow of individual bankruptcy cases.
On the other hand, the US Trustee’s Office “administers” the bankruptcy process by ensuring that the Rules and Requirements of the US Bankruptcy Code are followed and that attorneys and other professionals working within the process adhere to professional and legal ethical standards.
The US Trustee also “administers” the bankruptcy process by actively working to punish debtors who file bankruptcy cases contrary to the rules.
If you hide assets or commit various shades of bankruptcy fraud, the US Trustee is the entity that will criminally prosecute you for the Federal felony crime of bankruptcy fraud, for example.
The Chapter 7 Trustee can seek to forcibly convert a Chapter 13 case to Chapter in cases of egregious asset-related fraud, also.
More commonly, the US Trustee can also seek to dismiss a bankruptcy case.
This article addresses the question of what to do when the US Trustee files a motion to dismiss your Chapter 7 bankruptcy case.
First, a quick review of the Chapter 7 “rules of the road” which underlie a US Trustee Motion to Dismiss in the majority of cases.
Chapter 7 Bankruptcy: Eligibility and Disclosure Rules
A Chapter 7 bankruptcy will wipe out all of your dischargeable debt and allow you to move forward to a new, debt-free future.
It is the most powerful means of escaping the confines of overwhelming debt available under US law.
Absent fraud on the part of the debtor, creditors have little to no voice in the process. They have no ability to contest your right to discharge (absent fraud). There is no need to negotiate with creditors in Chapter 7 bankruptcy.
At the end of a Chapter 7 bankruptcy process, you receive a discharge. This bankruptcy discharge is a “master injunction” under Federal law that prohibits your pre-bankruptcy creditors from ever attempting to collect those zeroed-out debts from you ever again. Your debts are discharged, in short—without need for payment. Without tax consequences.
There is, however, a price to pay for this enormous governmental benefit.
That price is your agreement to follow the rules of the Chapter 7 bankruptcy process codified in the US Bankruptcy Code. It is also your agreement to divulge an enormous amount of information about yourself, your debts, your prior transactions, and your assets.
This information is divulged for the purpose of enabling the US Trustee to determine whether yours is a Chapter 7 bankruptcy filed in “good faith” or not.
Only Chapter 7 bankruptcies filed in “good faith” are entitled to a discharge.
What is a “good faith” Chapter 7 bankruptcy?
It is a Chapter 7 bankruptcy that is filed:
- With a properly and accurately calculated Means Test
- Resulting in “below median” income relative to your household size
- And with all information disclosed as required
- And with all assets disclosed as required.
Particularly with regard to the Means Test, if these characteristics are not exhibited by your Chapter 7 bankruptcy filing, you can expect an Assistant US Trustee to appear at your 341 Meeting of Creditors to question you, potentially followed by a so-called 2004 Examination (extended deposition) and, possibly, to file a Motion to Dismiss your Chapter 7 Bankruptcy case.
A US Trustee Motion To Dismiss Has Been Filed. Now What?
You think you did a great job with your Chapter 7 case preparation, but, regardless, the US Trustee has now filed a Motion to Dismiss your case.
For purposes of this article, we are not going to specify a basis for the Motion to Dismiss. It could be that the US Trustee believes that you should have filed a Chapter 13 bankruptcy instead of a Chapter 7. It could be that the US Trustee believes that you have valuable assets hidden that you did not disclose.
It could even be that the US Trustee believes that you filed your Chapter 7 bankruptcy within 8 years of the filing of a prior Chapter 7, which is not permitted.
Regardless, a Motion to Dismiss has been filed. You think wrongly.
And that is the important point here: the attorneys of the US Trustee’s Office are just people. They are lawyers like the others involved in the bankruptcy process. In Detroit, they are largely lawyers that were formerly employed by law firms working for creditors.
That being the case, they are wrong just as often as anyone else—and they lose cases just as often as anyone else.
Your first step, therefore, is to talk to your bankruptcy lawyer. (Surely, your lawyer is the one who informed you of the motion’s filing.)
If you don’t have a bankruptcy lawyer, this is very likely why you’re receiving a Motion to Dismiss in the first place. You or your inexpert “petition preparer” completed and filed your bankruptcy petition and schedules and Means Test incorrectly.
If you have gotten this far without a bankruptcy lawyer, it’s time to get one.
The bad news is that many bankruptcy lawyers will not be interested in cleaning up a mess created by a non-lawyer or even another lawyer. Those that do will likely charge you more to do so than they would have charged you to file your case properly from the beginning.
Regardless, you now need help if you want to litigate with the US Trustee.
Litigation is, at this point, what we’re talking about.
The next step is for your bankruptcy lawyer to review the US Trustee’s Motion to Dismiss in detail and to review all cited case-law. Creditors’ attorneys, in particular, are notorious for citing a prior published case to bolster a single-sentence assertion that the cited case, read in entirety, does not actually support. Or the cited quotation taken out of context of a very particular, fact-specific decision.
Good lawyers do not take impressive-sounding motion citations for granted. They are often “misused,” to put it kindly.
Your bankruptcy lawyer will review your petition and schedules as they were filed for errors, omissions, and to assess the credibility of the US Trustee’s arguments.
If the arguments have merit, there remains the possibility of amending these pleadings immediately, before drafting a Response to the Motion.
You and your lawyer will gather any documentation that should have been provided to your Chapter 7 Trustee and which is now demanded by the US Trustee and turn it over immediately (properly redacted).
Your bankruptcy lawyer must then research and draft a Response to the Motion to Dismiss before the applicable deadline date.
Failure to meet the response deadline will result in a default order of the Bankruptcy Court dismissing your case.
Once your bankruptcy lawyer drafts the Response and files it, the Court will schedule a hearing on the Motion.
This is Oral Argument, before the judge, under oath with penalty of perjury, in which your attorney and the US Trustee’s Attorney will both make arguments. You may testify.
Or the judge may schedule a separate evidentiary hearing. That is, a trial as to the evidence.
At an evidentiary hearing, evidence will be produced and witnesses may be called. The arguments will be tested against the facts—and the judge will issue a decision.
If the decision is to grant the US Trustee’s Motion and dismiss your Chapter 7 bankruptcy, you will have a very short window to appeal to Federal Court or, in Detroit, the Sixth Circuit’s Bankruptcy Appellate Panel (BAP).
US Trustee Motions to Dismiss: The Bottom Line
The bottom line is that defending a Motion to Dismiss filed by the US Trustee in your Chapter 7 Bankruptcy case is no joke. It requires not only an experienced bankruptcy lawyer to defend but also one who is a seasoned litigator.
If you are considering filing for Chapter 7 bankruptcy, the best thing you can do to avoid the US Trustee’s intervention in your case is to retain the most experienced bankruptcy lawyer you can find to assist you with your filing.
It may be tempting to try and save money by filing a Chapter 7 without a lawyer, but none of what is described in this article comes cheap.
You’ll save much more by getting it done right the first time.
Attorney Walter Metzen is a Board-Certified Bankruptcy Expert who has successfully represented Chapter 7 and Chapter 13 clients in the Metro Detroit area for more than 30 years.
Do your Chapter 7 right, and contact us now to schedule your free consultation.