Who Does What in a Consumer Bankruptcy Case?
The bankruptcy process makes much more sense if you know the players in the process and what they do.
You—the “Debtor”
The debtor starts a bankruptcy case by filing a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” A “joint case” is filed by you and your spouse together.
You have quite a different role in a Chapter 7 case vs. a Chapter 13 one. Chapter 7 focuses on who you are financially at the moment your case is filed. Chapter 13 also looks at that moment for certain purposes but mostly focuses on your finances throughout the 3 to 5 years that your payment plan lasts.
Which of these two options is better for you depends on your unique set of circumstances. For example, if you unexpectedly started making much more money a year after your case was filed, that would usually have no effect on your case if you had filed a Chapter 7 one because of its focus on the time of filing. However, in a Chapter 13 case that income increase would likely increase what you’d have to pay your creditors, or at least require you to pay the same amount more quickly.
On the other hand, because Chapter 7 is usually done and closed within about 4 months, it doesn’t protect your future income or newly acquired assets from debts which could not be written off in the case, such as certain taxes and child support arrearage. In contrast, Chapter 13 does protect such future income and assets. It allows you to pay these kinds of special debts based on your budget instead of leaving you at the mercy of those creditors’ aggressive collection powers.
Your Potential Challenger—the Trustee
Under both Chapters 7 and 13 most likely the person you and your attorney have the most contact with is the bankruptcy trustee. These are carefully selected and supervised individuals who are assigned to your case to take care of certain tasks. The trustee reviews and oversees your case, and can raise certain kinds of challenges. Although sometimes the relationship is adversarial, most of the time you and your attorney simply deal cooperatively with the trustee to make your case go smoothly.
The Chapter 7 trustee’s most important task is to determine whether or not he or she has the right to take anything from you—in other word whether everything that you own is “exempt” and you can keep it all. Usually you can.
The Chapter 13 trustee has two main tasks: to raise any appropriate challenges to your proposed payment plan, and then, once a plan is approved by the bankruptcy judge, to distribute payments you make under that plan to the creditors as directed by the plan.
Your Adversaries—the Creditors
Under both Chapter 7 and 13, your creditors can get involved in your case, although most don’t. Often you and/or your attorney don’t hear from any of them or only from one or two. They may be able to challenge your ability to discharge (write-off) debts, as well as raise various other objections. Creditors heard from most often are usually either 1) secured creditors (secured by a lien on something you own, such as your home or vehicle) or 2) special “priority” creditors, such as a taxing authorities or support enforcement agency.
The Enforcers—the U.S. Trustee
This is an office under the U.S. Department of Justice which administers and oversees the whole system. The Office of the U.S. Trustee oversees the individual Chapter 7 and Chapter 13 trustees. Usually this office stays in the background. If you and your attorney do hear directly from them they are usually raising some kind of concern that needs to be resolved.
The Paper-Pushers—the Bankruptcy Clerk
Your attorney filed the bankruptcy documents, almost always electronically from his or her office, at the court clerk’s office. The clerk’s office sends out the official bankruptcy court notices, schedules hearings and calendars deadlines, and takes care of other administrative tasks of your case.
The Deciders—the Bankruptcy Judges
One bankruptcy judge is assigned to each Chapter 7 and Chapter 13 case, but mostly they work behind the scenes. You seldom actually meet the judge or go to his or her courtroom in either a Chapter 7 or 13 case.
In most straightforward Chapter 7 cases a judge is hardly involved, except at the end of the case signing the discharge order releasing you from your debts. If you are “reaffirming” a secured debt—agreeing to be remain liable in return for keeping the collateral—you may have to attend a very short reaffirmation hearing with the judge. And in the relatively unusual situation of a creditor objecting to the discharge of its debt, the bankruptcy judge would decide whether the objection meets the limited conditions for a debt not to be discharged.
In contrast, a judge is much more involved in even a straightforward Chapter 13 case. You and your attorney propose a payment plan, which the trustee and the creditors review and may object to. So the judge needs to decide whether any such objections are valid and how they can be resolved. The plan, often with changes to meet any objections, must then be approved by the judge at what is called the confirmation hearing. Your attorney attends this hearing but you almost never need to. Because of how long a Chapter 13 case lasts, in most cases issues arise later that need the judge’s attention. For example, you may amend your plan if your financial circumstances change, which the judge must review and approve.