Published On: February 2, 2021
Every client deserves competent advice in order to plan their life, but they also need to be able to avoid unforeseen results. They also deserve to be treated with respect and compassion by everyone involved in the bankruptcy process.
Helping a client protect important assets before filing bankruptcy has always been seen as appropriate “pre-bankruptcy planning. To quote Ret. Bankruptcy Judge Sarah Curley “it is malpractice not to provide competent pre-bankruptcy counsel”.
A good friend of mine, Larry Karandreas, said “are we at a time that good advice = bad faith?”. This is a warning to all consumer debtor attorneys and their clients. The adage refers to the reality that the consumer bankruptcy world is changing. Reduced bankruptcy filings result in the bankruptcy trustees, their attorneys and the US Trustee’s Office having more time to spend nit-picking every bankruptcy case filed. What was good solid good faith pre-bankruptcy planning yesterday may result in a bankruptcy action alleging “bad faith” today.
When a bankruptcy case is filed a panel trustee is selected (by a computer, unless there is only one trustee in that county) to “over-see” that case.
The trustee’s job is to their best to make sure the debtor is being honest and to maximize the return of funds to the creditors. As with all groups of humans, some of the group are fair and balanced in their interpretation of their job, others not so much. If there is a predisposition for a trustee, or their attorney, to assuming that anyone who files for bankruptcy is a bad person, then that clouds how that trustee, or their attorney, treats honest debtors assigned to their oversight. There are trustee guidelines, but those guidelines are not equally followed by all trustees. Arizona has some great trustees, and their attorneys, who treat honest debtors with respect and compassion. Unfortunately, there are other trustees, and their attorneys, who treat honest debtors very differently. At the end an honest debtor has a different result depending on which trustee, or trustee attorney, is assigned to their case. But, the experienced debtor’s attorney is well aware to that significant difference and can help the debtor plan.
What are the Qualifications to be a Panel Trustee?
From the Handbook for Chapter 7 Trustees (page 2-1):
QUALIFICATIONS FOR PANEL MEMBERSHIP
The minimum qualifications for membership on the panel are set forth in 28 C.F.R § 58.3(b).
The panel member must:
1. Possess integrity and good moral character.
2. Be physically and mentally able to satisfactorily perform a trustee’s duties.
3. Be courteous and accessible to all parties with reasonable inquiries or comments about a case for which such individual is serving as private trustee.
4. Be free of prejudices against an individual, entity, or group of individuals or entities which would interfere with unbiased performance of a trustee’s duties.
5. Not be related by affinity or consanguinity within the degree of first cousin to any employee of the Executive Office for United States Trustees of the Department of Justice, or to any employee of the Office of the United States Trustee for the district in which he or she is applying.
Below are links to these and other documents:
- Handbooks and Reference Materials for Chapter 7 Trustees,
- Chapter 7 Trustees Play Important Role in Enforcement Against Bankruptcy Crimes
- The US Trustee’s Guidance to Chapter 7 trustee’s use of short sales.
- Update to Handbook for Chapter 7 Trustees
- LT Clifford White, Director of US TE re burdensome document requests (535 downloads)
How are the bankruptcy estate funds used?
The funds are paid first to the trustee, then to the trustee’s attorney and, lastly, to the creditors. The trustee is paid 25% of the first $5,000 collected, with a sliding scale from there. The trustee’s attorney (if any) is usually paid all of their fees and costs. How about the creditors? Once the trustee and their attorney are paid, the balance is distributed to creditors (in a pro rata fashion, depending on the type of debt). In some chapter 7 cases there is very little left to pay to the creditors.
Now don’t get me wrong, I believe that everyone, especially the hardworking panel trustees should get paid a decent wage (see link below to the US Trustees’ report of those fees). Currently a panel trustee is paid a menial fee $60 for a huge amount of work. Which is ridiculous and should be increased significantly, but when you look at the Professional Fee Report you will see a significant difference between the annual fee paid to some trustees and their attorneys ($120,000 compared to $1,000,000).
TIMING IS EVERYTHING
Unlike the majority of other states, Arizona law, as of this writing, does not protect tax refunds (including child care credit) from seizure by a bankruptcy trustee. It is only after filing the bankruptcy that the desperate person looking for protection from their creditors, finds out that the trustee is going to take a portion, if not all, of their tax refunds. Had that person talked to a good bankruptcy attorney before filing the case, they would have learned about this problem and been able to make an informed decision when, or if, to file for bankruptcy protection.
How much are the chapter 7 trustees and their attorneys paid?
See – Link to Professional Fee Report from 2012
How Can I Help You?
MUSINGS FROM DIANE:
We have several videos on this site. Such as the following:
- “The Chapter 7 Process”
- “The Chapter 13 Process”
- “Arizona Exemptions”
About the Author: Diane Drain
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
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You and Jay are the best attorneys I have ever had or needed and thank God for the Honorable Robert Gottsfield in recommending you folks – I would have never made it through the entire process without you and Jay and God Bless you both always and stay in touch as well. You folks are the BEST OF THE BEST in Arizona.
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