Chapter 7 Interim Administration
1.0 In General
Interim administration might be defined as what occurs between the first meeting of creditors and the obtaining of a discharge. This is usually the time when proofs of claims are filed by creditors, property may be abandoned or turned over to the trustee for liquidation, amendments made, petitions or adversary proceedings filed, and reaffirmations, redemptions, or surrenders completed. About two months will pass between your first meeting and the issuing of your discharge.
2.0 Trustee Requests
2.1 In General
In about 10% of all Chapter 7 cases, the trustee will request additional information at the first meeting of creditors. Most often this could have been avoided if the client had brought to the meeting those papers requested by the attorney. Although upon occasion, there will be unanticipated requests.
It is very important that you comply with any request made of you by the Trustee at the First Meeting of Creditors as quickly as possible. Local bankruptcy rules state that debtors must comply with trustee requests within 10 days. Failure to comply can result in your case being dismissed and/or penalties being assessed against you. If you have any questions about the trustees requests, be sure to consult with the Attorney.
2.2 Property Turnover
If the debtor has an item of property that the trustee believes could be sold to help pay the claims of unsecured creditors, he may direct that the property be taken to the court appraiser, Tom Erkelens at 430 W. 300 N., Salt Lake City, Utah 84103. Mr. Erkelens will appraise the property, provide the trustee with a written statement of value, and the Trustee will then make a final determination as to whether the value of the property warrants it’s sale. In many cases, the property is of such inconsequential value that the trustee abandons the property back to the debtor. On occasion Mr. Erkelens will be instructed to keep the property if it exceeds a certain value. If you take a car to be valued, make you have arranged to have someone take you home if he keeps the vehicle. If the trustee requests delivery of property to the court auctioneer that is titled, he will want you to deliver the title to the auctioneer at the same time.
If you have a large amount of cash in the bank on the date of filing, the trustee is likely to request turnover of that property to him. Trustees cannot accept cash, so it must be delivered as a check, cashiers check, or money order made out to “______________, Trustee”.
If the trustee determines that an item should be sold that you wish to keep, you may be able to purchase the estates interests from him. While the trustee prefers a lump sum payment, he may be willing to accept payments over a six month period. If you are in this situation, you should speak to the attorney.
2.3 Books and Records
If the debtor has operated a business, has investments, is owed money, is recently divorced, or is anticipating a large tax refund; the trustee is likely to request all of the documents the debtor may have in connection with the trustees area of interest. These documents should be delivered to the attorney within 6 days of the hearing so they can be provided to the trustee within 10 days of the hearing.
If you have unusually high budget expenses, have made recent large payments to creditors, or recently received a large sum of money that you no longer have; the trustee will request copies of your financial records to verify the disposition of these funds. In some cases he may ask that creditors or third parties refund the monies they received. If you have real estate with substantial equity or have recently sold a large item (like a house or car), the trustee may request copies of all documents relating to that property.
2.4 Tax Refunds
During the period of mid September thru mid July, the trustees will enquire whether debtors are entitled to receive a tax refund. If you are entitled to a tax refund that has not been received and spent prior to filing, the trustee will request that the funds, when received, be turned over. He will then distribute these funds to creditors. If a debtor fails to turn over tax refunds as requested, the Trustee can file a motion with the court requesting that the debtors discharge be denied and/or revoked. This means that the debtor has no protection from the bankruptcy filing and cannot file on these same debts at a future time.
3.0 Trustee Actions
Abandonment is governed by 11 U.S.C. 554. The trustee will ordinarily abandon property which is particularly burdensome or of inconsequential value to the estate. Property is ordinarily not abandoned to anyone in particular and thus reverts to the debtor. Abandonment in and of itself does not release property from the affect of the automatic stay. It only releases it from the direct control of the trustee. If a creditor has a particular interest in obtaining a certain piece of property, they will usually request abandonment along with a lift of the automatic stay. Otherwise the stay automatically terminates upon the issuance of a discharge, dismissal, or closure of the case.
3.2 Distribution to Creditors
If the Trustee thinks he will be able to obtain sufficient assets that a return can be made to creditors, he will notify the Bankruptcy Clerks Office. The Clerk of the Court will then issue a notice to each individual or company on the Debtor's mailing matrix and request they file Claims. Each creditor is required to complete the Claim form and return it to the Court if they wish to participate in the distribution. Debtor’s and the attorney for the debtor are generally prohibited from filing claims. If you have a question in your particular case, please feel free to contact the attorney.
Once the date for filing claims has passed, the Trustee will review each Claim for accuracy. He will then make a determination as to which claims are entitled to payment and how much your creditors should receive. He will then file a Motion with the Bankruptcy Court and obtain a Judge’s permission to sell and then distribute the proceeds to your creditors. In rare cases, the property may be worth more than the total amount of claims filed. In such a case, the Trustee may refund some of the money to you. As long as the Court is appraised of your current address, you should receive copies of all the documents the Trustee files with the Court.
Occasionally a creditor will file a proof of claim which is inaccurate or improper. As a general rule this will not be important in a no asset chapter 7. However, if the debtor has assets which are to be distributed to his creditors he may wish a fair distribution to be made. If a claim comes to your attention that is inaccurate you should immediately let your attorney know.
3.3 Random Audits
Under the new code the Office of the United States Trustee will be conducting random audits to verify information supplied by debtors on their statements and schedules. At a minimum one of every 250 cases will be audited. Failure to supply adequate proof can result in dismissal of the case.
4.0 Debtor Actions
4.1 Lien Avoidance
These actions are generally filed by the debtor and involve the removal of a lien or perfected security interest that may exist on certain of the debtors property. Section 522(f) provides that the debtor may set aside a creditor’s non-purchase money security interest in household goods, tools of the trade, professionally proscribed health aids, or the debtor’s homestead. If you would like the attorney to file such a motion you must request that he do so in writing. There is an additional fee for this service.
The new law has made a few changes to this section. First, judgement liens for domestic support orders may not be set aside. Second, household goods has been defined to mean: clothing, furniture, appliances, 1 radio, 1 television, 1 vcr, linens, china, crockery, kitchenware, educational materials and educational equipment primary for the use of minor children of the debtor, medical equipment and supplies, furniture exclusively for the use of minor children or elderly or disabled dependents of the debtor, personal effects (including toys and hobby equipment of minor dependent children and wedding rings) of the debtor and dependents of the debtor, and 1 personal computer with accessories. And third, household good do not include: works of art (unless by or of the debtor or a relative of the debtor), electronic equipment valued more than $500 (other than 1 tv, 1 vcr and 1 radio), antiques with a fair market value of more than $500, jewelry valued at more than $500 other than wedding rings, a computer (except as above), motor vehicle (including tractor or lawn tractor), boat, or a motorized recreational device.
Conversion occurs when a debtor changes from a Chapter 7 to a Chapter 13 bankruptcy. Most often this happens in order to protect non-disclosed assets or income from a Trustee who is attempting to seize and dispose of those items. A chapter 13 allows you to repay your creditors over time in order to keep items of property. The debtor has an absolute right to convert from 7 to 13, if the case has not already been converted from an 11, 12, or 13.
If you believe conversion is in your best interest, you should immediately make an appointment with the attorney to discuss the matter. Conversion is not always possible, and it must occur before your Bar date passes or your case is discharged, which ever comes first.
Occasionally a client will ask that their case be dismissed. Usually the court will not grant such motions if (a) the trustee objects or (b) the debtor cannot show that creditors would receive more money form the debtors handling of the debt on their own than they would receive if the trustee liquidated the debtors non-exempt assets. Trustees usually do not object in no asset cases, but if the debtor has substantial property, the trustee will almost always object.
4.4 Order to Show Cause
If a creditor acts in ways that are inappropriate, such as violating the automatic stay by garnishing wages or bank accounts post filing and refuses to return the funds, an attorney can file an action in the bankruptcy court asking the court to order the return of your property. In some case the judge will even impose court costs and penalties on the other side if their behavior offends the court. Our office does not handle these types of cases. You may wish to refer to the list of attorneys on page 64.
5.0 Undelivered Mail
Based upon a new procedure, the bankruptcy court lists the debtors attorney’s address as the return address on any mail sent by the court. If an address is incorrect, mail will be returned to our office. This generally means that this particular person did not receive notice of the bankruptcy filing. As a result, it is necessary to attempt re-delivery of this mail.
The first step will be to double check the file to see if the wrong address was inadvertently entered into the bankruptcy preparation software. If this is the case we will prepare a new envelope with the correct address and re-send it. If the address on the returned envelope matches the address provided to us, we will send you a letter asking you to forward the mail. Be aware that if a creditor is not served a copy of your bankruptcy notice they may still attempt to collect from you.
6.0 Tax Returns
It will be important under the new code to file any tax returns that come due after the date of filing. Failure to file such returns can result in an order of dismissal un 11 USC 521(f) and (j).
7.0 Pre-Discharge Hearing
New section 727(a)(12) now requires a hearing 10 days prior to the issuance of the discharge to determine if the debtor is in violation of 522(q)(1). This section deals with debts that include: (1) violations of securities laws, (2) fraud in connection with a security, (3) any civil remedy under 18 USC 1964 (racketeering), or (4) serious injury or death to another person in the last 5 years.. If any of these debts exist, a discharge will not be granted.