Illinois Chapter 7 issue

[Od0976]

So, I filed chap 7 on 2/17 , had my 341 meeting about 30 days later ,Trustee was pretty rough in the questioning of some assets and especially home value .Attorney said I handled myself well considering trustee tough questioning .Trustee set up another 341 for 3 weeks after . I sent him tax return he requested, which were 2021 return and amount of refund . Now ,I get noticed of Trustee filing motion to retain counsel ,and allegedly based on possibly having equity over exemption on real estate, bank accounts and fraudulent transactions prior to bankruptcy. My attorneys says, this is standard procedure and not to worry about it and we will move to chapter 13 ,if trustee does attempt to sell house .Anyone have any experiences with hard nosed trustees .

[justbroke]

Welcome to BKForum.

I'm sorry it's not going as planned. The Chapter 7 Trustee's job is to find assets, and if there are assets to liquidate, recover, or distribute, then to administer those assets. It's interesting that your attorney says that it's standard procedure and didn't realize that there were some assets that were only partially exempted. It reads as though your home's equity exceeds the exemption amount and that has turned your case into a so-called asset case.

The motion to retain counsel sounds like they are trying to claw back some transfers of property. Those transfers could be that you paid an insider (friends, family, business associate) over the other creditors, and/or sold property for less than market value. This is exactly what the Chapter 7 Trustee is tasked with completing; find things that should be property of the bankruptcy estate, liquidate them, and then pay the creditors.

Your discharge will still come 30-days after the first scheduled 341 Meeting.

As your attorney mentioned, you could convert to a Chapter 13 to protect your equity and avoid a potential liquidation. You and your attorney will need to sit down and review what the Trustee believes they can recover and then formulate a plan. It may be worth the trouble to go into a Chapter 13 if you want to protect the home. Chapter 13s are precisely designed to protect property. On the other hand, Chapter 7s subject property to potential liquidation. It seems that the Trustee has found that there is non-exempt equity as well as other money that can be recovered.

I wouldn't say this is a hard-nosed Chapter 7 Trustee. If there is equity above exemptions, every Chapter 7 Trustee has a fiduciary responsibility to attempt to recover that money if it benefits the bankruptcy estate (the creditors).

[Od0976]

Appreciate your feedback.I guess the thing that really gets me ,is I wanted to file chapter 13 but my attorney said I had a good chance at Chapter 7 ,since not enough equity in home ,based allowed exemption and what CMA I received from realtor. After creditor meeting and my attorney kinda giving me a heads up of what he was seeking ,I agreed to give up all of my refund and my bonus I received just after filing for bankruptcy ,combined 10k ,which I would think would be suffice for trustee so just a bit upset that he would be seeking more especially home equity

[justbroke]

Tax refunds are interesting because they are easy pickings for the Chapter 7 Trustee and the bankruptcy estate. If you don't exempt all of a tax refund, then they would be part of the bankruptcy estate and the Chapter 7 Trustee would want that regardless. It's not something that appeases the Chapter 7 Trustee when they know that the estate is entitled to some or all of the tax refund.

Home Equity, in the context of a Chapter 7, is always a precarious thing. Some people will do a CMA (competitive market analysis) or a BPO (Broker Price Opinion). In either case, that doesn't mean that the Chapter 7 Trustee will use yet another valuation method or model and believe the value is higher than what is on the schedules. That is always the issue. If the exemption is barely protecting the home's equity, that's likely a case where the Chapter 7 Trustee looks closer and it appears that your Chapter 7 Trustee did look closer. If you think the Trustee is absolutely wrong on the valuation, then you could challenge it, but you'd likely need a licensed appraiser to perform an appraisal and be willing to testify under oath, at a hearing, to back up the valuation.

It reads as there are other issues as well, and now that the Trustee will be able to recover their expenses (they normally get about $60-70 per case), they can employ counsel. (They usually employ themselves, but the bankruptcy court must know if they are going to employ professionals. They will also "bill" the bankruptcy estate for the work that they do, or their counsel performs, in order to recover property.)

You can always convert to a Chapter 13, but I will tell you that everyone that I know that did a Chapter 13 wishes they had the expediency of a Chapter 7. Sometimes we just need a Chapter 13 to save or protect property from creditors. It's more rigid and there are people who can't or won't budget while in a Chapter 13.

I think you should sit down with your attorney and start thinking about conversion. At least explore it as an alternative to the Chapter 7 Trustee trying to sell your property.

[Od0976]

Thanks for feedback, reading the order , trustee is asking ,due to inflation to be paid 470 per hour, another attorney 250 hr and paralegal 175 hr ,at this point regret filing for bankruptcy ,just a bad financial nightmare getting worse

[despritfreya]

. . . trustee is asking ,due to inflation to be paid 470 per hour, another attorney 250 hr and paralegal 175 hr ,at this point regret filing for bankruptcy ,just a bad financial nightmare getting worse

Unless you convert to a Chapter 13 and are required to pay the administrative claims of the Chapter 7 Trustee through the Chapter 13 Plan, the fees are not charged to you. They are paid out of the funds the Chapter 7 Trustee c0llects from the liquidation/recovery of assets and/or any settlements that are made.

Des.

[Od0976]

Thanks for clarifying that ,I was freaking out at those rates per hour .

[justbroke]

Unless you convert to a Chapter 13 and are required to pay the administrative claims of the Chapter 7 Trustee through the Chapter 13 Plan, the fees are not charged to you. They are paid out of the funds the Chapter 7 Trustee c0llects from the liquidation/recovery of assets and/or any settlements that are made.

I never thought about how much the Chapter 7 Trustee could have earned before a debtor converts to a Chapter 13. Never thought about the Chapter 7 Trustee filing an administrative claim if they spent a bunch of time and effort trying to administer the Chapter 7 bankruptcy estate in an asset case.

[bornfree2]

Unless you convert to a Chapter 13 and are required to pay the administrative claims of the Chapter 7 Trustee through the Chapter 13 Plan, the fees are not charged to you. They are paid out of the funds the Chapter 7 Trustee c0llects from the liquidation/recovery of assets and/or any settlements that are made.

Des.

Since the 'assets of the estate' are basically assets of the debtor to begin with, is it accurate to say the fees are not charged to the debtor? Im wondering how much power a trustee has to dig into this 'fund' since its obviously not bottomless.

Say debtor has $1000 in non exempt assets thus assets of estate. The trustee employees him/herself or outside contractor to do some legal work on the case. They charge up $5000. Where does the difference come from? Does the trustee then object to exemptions to get at more funds? At a certain point there is no money right?

Im wondering what trustee can do then. Are there are some mechanisms they use to land a legal bill on the debtor outside of the 'estate funds'

[justbroke]

Since the 'assets of the estate' are basically assets of the debtor to begin with, is it accurate to say the fees are not charged to the debtor?

Yes, it is accurate. It means that nothing "additional" comes out from the Debtor's pocket that doesn't already belong to the bankruptcy estate.

Say debtor has $1000 in non exempt assets thus assets of estate. The trustee employees him/herself or outside contractor to do some legal work on the case. They charge up $5000. Where does the difference come from? Does the trustee then object to exemptions to get at more funds? At a certain point there is no money right?

Remember when I talked about the "smart Trustee." A smart trustee doesn't try to spend a lot of money to collect a little money. The Trustee can't object to exemptions after 30 days from the concluded 341 Meeting. In other words, the Trustee can't get way down the road and then say "I need more money... let me go try to object to some more exemptions." Just doesn't happen.

I will keep saying that a smart Trustee knows when there is money that can pay for the litigation necessary to recover property of the bankruptcy estate. I think that all Chapter 7 Trustees understand this. I think that maybe one or two of them, when they are new to the process, may make a costly mistake, but they learn quickly. In the case that appears in this thread, there may be significant assets that were fraudulently transferred or there are other significant assets that the Chapter 7 Trustee sees as recoverable.

I think that the Chapter 7 Trustee would normally not file an application to employ for a simple sale of the property. This case sounds more like there are fraudulently transferred assets and the Trustee is going to claw those back through litigation (or the threat of litigation).

[bornfree2]

Yes, it is accurate. It means that nothing "additional" comes out from the Debtor's pocket that doesn't already belong to the bankruptcy estate.

Remember when I talked about the "smart Trustee."

So what you are saying that anything above and beyond that estate fund the trustee will have to eat and thus knows what to pursue and what not to pursue. If so , then that is a fair system.

[justbroke]

So what you are saying that anything above and beyond that estate fund the trustee will have to eat and thus knows what to pursue and what not to pursue. If so , then that is a fair system.

Yes. That's why I always talk about the "smart" trustee. The "smart" trustee doesn't go on endless fishing expeditions because it can cost them money.

You have to approach it as "I get $70 for this case." If you find something by performing a simplistic check of the Statement of Financial Affairs (SOFA), the schedules, and property values and find something... then you can spend more time. At that point, when there are actually at least "something" that is a non-exempt part of the bankruptcy estate, the Chapter 7 Trustee can look more because they'll be paid for their work. Sure, sometimes they'll hedge a bet that there's something more and find something, but it's just not worth it in 95% of the cases.

Alas, I'm not saying that all Chapter 7 Trustees know when to pursue and when not to pursue. Some will hedge and negotiate. For example, your car is worth $4,000 but you only have $3,000 in exemptions and the Trustee catches it. The Trustee may say "hey, why don't you just give me $750 so I don't have to sell your car" ... even though at auction it might only fetch $3,000! That may be a smart move for the Trustee.

[Od0976]

Appreciate feedback about trustee . This is one of those situations where a person is better off filing a chapter 13 instead of a 7 right out of the gate. Spoke to 3 different attorneys and all 3 stated house wouldn't be an issue and chapter 7 would be best route. My attorney said , the fraudulent transfer of assets , has to do with me putting all of my bonus into my roth ira ,and not disclosing my tax refund I received this year , which more than 3/4 of it is due to child credit and I did send it to my attorney so I feel my attorney set me up to fail on that one .

[justbroke]

Moving bonus money into a Roth IRA shouldn't really be a fraudulent transfer. People have done such things and have gotten past the Chapter 7 Trustee many times. If your tax refund is mostly child tax credit, that portion is able to be exempted (did your attorney exempt it?). Is your attorney planning to fight the Roth IRA issue as well as the tax refund (child tax credit) issue? Or are they just saying convert?

As for the value of the home, that is always a tough things to gauge. If you're close to the exemption amount, especially with the ludicrous housing market, that could have caused the Trustee to look closer.

I hope that your attorney is providing you answers on the refund and Roth issues.

[Od0976]

So far still waiting on my attorney to respond . Hearing to appoint counsel is next Thursday, which more than likely will be approved by Judge. Prior to filing ,attorney said ,house would have to be valued at 215k for it to be worth going after for a trustee .CMA I received valued house at 191k , but I am thinking trustee can easily find realtor to appraise house at way above 215k amount .