Explaining the differences between Chapter 7 and Chapter 13 bankruptcy can be difficult. There are the obvious ones: Chapter 7 doesn’t involve payments to creditors, and Chapter 13 does. And you can cure your mortgage arrears in Chapter 13 but not in Chapter 7.
And there are many others.
But what about the differences in the Chapter 7 and Chapter 13 trustees?
I found myself explaining this to a client the other day, and it just came out: “A Chapter 7 trustee is like a hungry wolverine,” I said. “He only gets paid $60 a case, which might be enough to pay a staff member’s salary and nothing more. To make money, he’s got to find assets so he can get a commission when those assets are distributed. If he doesn’t he can’t make any money.”
The Chapter 7 trustee: The Wolverine
My wolverine metaphor sprang from watching the National Geographic documentary, “The Phantom Wolverine.” The wolverine covers a large territory–up to 15 miles in a day–can kill animals several times its size, and has the ability to smell food through several feet of snow. Yep, that’s our Chapter 7 trustee. He’s paid by the case, and if he doesn’t find assets, he starves.
This underscores the need to do your homework before you are in sight of the wolverine–err, I mean Chapter 7 trustee. Once you file, it’s sort of like the mob, there’s (almost) no gettin’ out. And this hungry animal will be all over your case. Sniff, sniff.
The Chapter 13 trustee: The Koala?
I wanted to have this nailed down prior to writing this post, but I don’t–hence, the question mark. So far, though, I’m leaning toward the Koala as the Chapter 13 trustee. He stays in place, feeds off eucalyptus leaves, and doesn’t need to roam around for his food. In short, he stays in his office and is fed a diet of close to $200,000 regardless of how many cases he administers or whether he finds assets. His job is the dream job of the bankruptcy system. (I’m now day dreaming about it…)
But of course he can bite, so don’t play games with him, either. Ever seen an angry Koala?
Why do I care?
You care because you might have a case where you have more assets than you can exempt (keep). In Chapter 13, as long as you pay in that amount, less administrative costs of sale and the hypothetical Chapter 7 trustee’s fees and commissions, you can keep your kill–your assets, that is. Chapter 7 offers no similar option. Pay up or the wolverine is going to take it from you.
And then there’s the practical aspect of dealing with the Chapter 13 trustee. She doesn’t have any personal stake in your assets. She’s not getting a commission or attorneys fees when she finds them or administers them. She wants you to pay in what’s required, and she’ll leave you alone. Most importantly, if you don’t like the deal she’s proposing, you can get out–dismiss your case. (See “Chapter 13 Bankruptcy and the ‘Mulligan Rule'” for more information this.)
Being in bankruptcy for five months instead of three to five years is appealing, but you need to keep in mind the differences between the chapters and, perhaps most importantly in many cases, the difference between the trustees.
Latest posts by Russell DeMott, Charleston Bankruptcy Lawyer (see all)
- Running on Empty: “What If I Can’t Make My Chapter 13 Payments?” - December 3, 2013
- 5 Things You Must Understand About Filing Bankruptcy - November 3, 2013
- Calling Your Bankruptcy Lawyer - October 3, 2013
- Filing Bankruptcy? Then Know Thyself! - September 4, 2013
- Reverse Mortgages as an Alternative to Bankruptcy - August 7, 2013
Last modified: July 3, 2011