Ok.  You’re considering filing for bankruptcy relief under Chapter 7 of the bankruptcy code.  You may have heard about the ‘means test’ and how the US Trustee can file motions or complaints under Section 707(b) to dismiss a case or force it to be converted to a Chapter 13.  You might then ask, how and why would this happen, and how can you avoid it happening to you? 

To address these concerns, it is useful to think in terms of what the US Trustee is looking for in your petition.  The answer is, in a word, income (In a later article we’ll consider what the case/interim trustee is looking for, which is something entirely different from the concerns of the US Trustee).  That is not to say, of course, that your petition can be inaccurate with such other information as assets and liabilities.  The US Trustee’s overriding focus, however, is the debtor’s income.  Let’s take a closer look at the process. 

When your attorney first files your petition, an electronic copy is forwarded to the office of the US Trustee for that district.  An initial screening is performed by a ‘bankruptcy paralegal’ or ‘bankruptcy analyst’ in the US Trustee’s office.  This screening will consist first and foremost of an examination of the debtor’s B22 means test calculation.  If the debtor’s annualized gross income calculation, as set forth in the petition, is well under the applicable median, then the US Trustee will probably never even bother to look at the petition himself. 

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If it’s a close call, however, i.e. if the debtor’s gross income is either above, or just under, the applicable median, then the US Trustee will conduct his own examination of the debtor’s B22 means test calculation to make sure that it is accurate.  That is, the US Trustee will make sure that the debtor’s computation of gross income is accurate, that the debtor has used the correct standard IRS expense deductions, and that there are no impermissible expense subtractions in calculating disposable income. 

If the US Trustee believes that the debtor’s calculation is inaccurate or even questionable, he will take a still closer look by sending to the debtor’s attorney a letter warning that the case is under consideration for possible action under Section 707(b), and that to assist in deciding upon such action he would ask that the debtor provide such additional documentation as paystubs, tax returns, bank statements, etc. 

If the additional documentation supports the debtor’s B22 calculation, indicating that there is no presumed abuse under Section 707(b), then the US Trustee will notify debtor’s counsel that no 707(b) action is currently intended.  Otherwise, get ready for some unpleasant consequences, inasmuch as in most districts the US Trustee prevails in the vast majority of 707(b) actions it files, succeeding in having cases either dismissed or converted to Chapter 13.  For this reason it is vital for debtor’s counsel to be knowledgeable of and very precise with his B22 means test income calculations, so that potential US Trustee actions under section 707(b) may be avoided before they happen.

Originally published here.

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David Romito

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When you file for bankruptcy, you are assigned a bankruptcy trustee to help handle your case. The trustee is the most important person that you will be dealing with while your bankruptcy is ongoing.

This is the individual who which you will go to for answers to you bankruptcy queries once your bankruptcy filing has been approved. This is the person who will take control of all your non-exempt property and put it up for auction or sale. And he is the one who will communicate with your creditors and pay them from the auction proceedings. And, lastly, the bankruptcy trustee is also the person who ensures that all of the paperwork that  you submit to the courts is complete and accurate.

So who does this bankruptcy trustee work for? Well, he works for a number of people – you, the courts, the creditors – but he ultimately reports to the U.S. Trustee Office. There are 21 regional U.S. Trustee offices throughout the country. Their goal is to oversee the bankruptcy trustees and ensure that all of the bankruptcy cases that enter the courts are being handled according to the various federal laws. Normally, you as the person filing, will have no direct contact with the U.S. Trustee unless there are some illegalities or other unusual circumstances involved.

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What kind of training is required to be a bankruptcy trustee? Well, there is no type of formal training involved. What normally happens is that a bankruptcy trustee comes from the ranks local bankruptcy lawyers in the area. Even though, being a lawyer is not a prerequisite to being a bankruptcy trustee. Normally, what happens, is that a few days after you file for bankruptcy, you will get a notice in the mail letting you know who your bankruptcy trustee is. You call him and from that point on, he is in charge.

One of the very interesting and generally unknown facts about bankruptcy trustees is that they are paid indirectly by you. They are paid by commission. They get paid by taking a percentage of the sales of your non-exempt items that are sold at auction or though other means. In theory, this gives him a monetary incentive to get as much as he can for your various items which is good for the creditors who are looking to be paid off. In actuality, however, most of the time they are looking for the quickest sale to avoid having to spend too much time on a particular bankruptcy.

From a legal standpoint, probably the most critical fact for you to understand is that once the bankruptcy trustee has been assigned to you, he is in control of all of your non-exempt assets. This means that, without his approval,  you cannot sell or get rid of any of it. He can take any or all of these items to sell as he pleases. If you violate these terms, it is likely that your bankruptcy case will be dismissed and you will not longer have bankruptcy protection for your exempt items.

Originally published here.

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David Hoyer

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