It sure help in understanding the two main bankruptcy options if you know the cast of characters in each one.
You—the Debtor
When you file a Chapter 7 case you are actually looked at quite differently than a person filing a Chapter 13 one. Focusing here on one main difference, Chapter 7 fixates on who you are financially at the moment your case is filed. Chapter 13 focuses on that moment, too, for some purposes, but then also pays attention to your finances throughout the three to five years that your payment plan lasts.
This difference is not necessarily good or bad for you. As with everything in choosing between these two, it depends on which is better for your particular set of circumstances. For example, if you started earning a higher income a year after your case is filed, that would have no effect if you had filed a Chapter 7 case. But in a Chapter 13 case that income increase would likely increase what you’d have to pay your creditors. On the other hand, because Chapter 7 pretty much doesn’t get involved in your future, it also doesn’t protect your future income from certain potentially dangerous debts which are not written off, such as certain taxes and child and spousal support arrearage. Chapter 13 does protect such future income. It allows you to pay these kinds of special debts based on your budget instead of leaving you at the mercy of those creditors’ aggressive collection powers.
Your Primary Challenger—the Trustee
In both Chapters 7 and 13, most likely the person you would have the most contact with would be the trustee. They are carefully selected and supervised individuals who are assigned to your case to take care of certain tasks. I called them your “challengers” because that’s their primary job, but most of the time your attorney and you will work cooperatively with them.
The Chapter 7 trustee’s most important task is to determine whether or not he or she has the right to take anything from you—in other word whether everything that you own is “exempt,” meaning that you can keep it all, as is usually the case. The Chapter 13 trustee’s two primary tasks are to raise any appropriate challenges to your proposed payment plan, and then, once a plan is approved by the bankruptcy judge, to distribute to creditors payments that you make under that plan.
Your Adversaries—the Creditors
Under both Chapter 7 and 13, your creditors can play a major role but often don’t. They can challenge your ability to discharge (write-off) their debts, and can raise a variety of objections. Often, we don’t hear from them at all, but if we do it’s usually a secured creditor (one who has a right to collateral such as your home or vehicle) or a special “priority” creditor—a taxing authority or support enforcement agency. How the various kinds of creditors are handled in Chapter 7 vs. 13 will be discussed in future blogs.
The Enforcer—the U.S. Trustee
This is an office under the U.S. Department of Justice which administers and, to a large degree, oversees the whole system, including the Chapter 7 and Chapter 13 trustees. You will usually not hear directly from them, and if you do it’s usually not good news, indicating that you or your paperwork are not following the rules.
The Paper-Pusher—the Bankruptcy Clerk
This is the office where we file the bankruptcy documents (which is virtually all done electronically, not by paper being physically delivered anywhere). They send out the official bankruptcy court notices.
The Deciders—the Bankruptcy Judges
A bankruptcy judge is assigned to every Chapter 7 and Chapter 13 case, but mostly they work behind the scenes. You will almost never actually go to the judge’s courtroom in a Chapter 7 case, and seldom in a Chapter 13 case.
In most Chapter 7 cases, a judge is hardly involved, except in signing the discharge order releasing you from your debts at the completion of your case, assuming that it proceeded appropriately. In the relatively unusual situation of a creditor objecting to the discharge of its debt, the bankruptcy judge would decide whether the objection meets the relatively limited grounds for a debt not to be discharged.
In contrast, a judge is always involved in a Chapter 13 case, at the very least in the approval of your payment plan at what is called the confirmation hearing. But again, you almost never need to attend this hearing, which is taken care of by your attorney. Because of the length of a Chapter 13 case, it’s more likely than in a Chapter 7 case that issues will arise that need the judge’s attention—changes in your plan if your circumstances change, challenges by creditors if you are not meeting the terms of your plan, and such. Stay in close communication with your attorney throughout your case so that you know whether issues are being put before your judge and how he or she is deciding them.