Written by attorney Brian David Lerner

Chapter 13 Trustee’s Duties regarding the Plan

Although not specifically required by the Code, Chapter 13 trustees frequently object to Chapter 13 plans where the plans contain errors or fail to commit sufficient projected disposable income to pay unsecured creditors. The objections also come due to the fact the Plan might not be feasible.

Generally, a Chapter 13 trustee should oppose granting the debtor a full compliance discharge where the debtor has not made all payments under the plan. Similarly, the Chapter 13 trustee should oppose the debtor’s motion for a hardship discharge unless the trustee believes the prerequisites to such a discharge have been met. Thus, if all the Plan payments are made and complied with, then there will be a compliance discharge. However, if the Plan is not completed, then it is certainly possible to submit for a Hardship discharge, but that would depend upon several factors and whether the Bankruptcy Judge grants such a discharge.

The Chapter 13 trustee is under a duty to examine proofs of claim and to object to improper claims only if there is a purpose for doing so. The Chapter 13 trustee may only object to claims that are not objected to by the debtor. The Chapter 13 trustee has no standing to object to the dischargeability of a particular claim under 11 USC § 523. If the individual debtor is engaged in business (sole proprietor), the Chapter 13 trustee must investigate the financial condition and operation of the business, unless otherwise ordered by the court. To assist the court in determining the advisability of continuing the business, the Chapter 13 trustee must file a written report of this investigation “as soon as practicable." The report must state the findings of the trustee’s investigation “including any facts pertaining to fraud, dishonesty, incompetence, mismanagement or irregularity in the management of the debtor’s affairs, or to a cause of action available to the estate." Copies of the report must be circulated to any entity the court designates.

The Chapter 13 trustee must keep a record of receipts and of the disposition of money and property received if the debtor is not engaged in business. The Chapter 13 trustee presides over the § 341(a) meeting of creditors. At the meeting, the trustee may examine the debtor concerning the regularity, sources and amounts of the debtor’s income, the reasonableness of the debtor’s expenses, and the value and types of the debtor’s assets and debts.

The Chapter 13 trustee is required to appear and has the right to be heard at any court hearing concerning the value of property subject to a lien. A valuation hearing may be required, e.g., where a creditor’s claim is partly secured and it is necessary to determine how much of the claim should be treated as unsecured.

The trustee must appear and advise the court and creditors at the hearing on confirmation of the debtor’s plan or any postconfirmation modification thereof. The Chapter 13 trustee is expected to advise on such issues as feasibility (i.e., whether the debtor is able to perform under the plan) and whether the proposed plan or modification meets the requirements for confirmation.

The Chapter 13 trustee has a duty to advise and assist the debtor in performing under the plan. Some examples would be the trustee’s assistance re plan performance includes advising debtor re reduction/suspension of plan payments, postpetition collection efforts by creditors, payment orders, postpetition credit problems and assumption/rejection of executory contracts. Keep in mind that the Chapter 13 trustee not required to advise debtors re possible ramifications of agreed order obligating trustee to seek case dismissal upon debtors’ failure to make plan payments.The Chapter 13 trustee must ensure that the debtor begins making plan payments in a timely fashion.

If there is a domestic support claim (family, spousal or child support) against the debtor, the Chapter 13 trustee must provide the written notice to the support creditor of the right to use the services of the state child support enforcement agency in collecting child support during and after the bankruptcy cases; notice to the state child support enforcement agency that the claim exists; and specified notice to the creditor and the agency if and when the debtor is granted a discharge under 11 USC § 1328.

The Chapter 13 trustee has a duty to retain payments from the debtor and, if the plan is confirmed, to disburse the moneys to the creditors in accordance with the plan (less the percentage withheld for the trustee’s own compensation and expenses). When required by the plan or confirmation order, the Chapter 13 trustee must monitor the debtor’s disposable income and, if warranted, file a motion to increase plan payments. The Chapter 13 trustee’s duties continue until the trustee prepares and files a final report and account regarding administration of the case following the trustee’s resignation or removal or entry of an order discharging the debtor or converting or dismissing the case.

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