Chapter 7 vs. Chapter 13 Bankruptcy Meetings of Creditors
In the meeting of creditors, the bankruptcy trustee's questions will likely focus on different things depending on whether you file for Chapter 7 or Chapter 13 bankruptcy.
When you file for Chapter 7 or Chapter 13 bankruptcy, the court will appoint a bankruptcy trustee to review your file, administer your case, and ask you questions about your financial affairs at a mandatory hearing called the meeting of creditors (also called the 341 hearing). While Chapter 7 and Chapter 13 meetings of creditors are very similar, there are certain differences in what the trustee will focus on at the hearing. Read on to learn more about the differences between Chapter 7 and Chapter 13 meetings of creditors.
For more information on the 341 hearing process, see our topic area on The Meeting of Creditors.
Difference Between Chapter 7 and Chapter 13 Bankruptcy
In both Chapter 7 and Chapter 13 bankruptcy, one of the trustee’s responsibilities is to get as much money as possible for your unsecured creditors. A Chapter 7 bankruptcy trustee pays back your creditors by finding and selling your nonexempt property. This is why Chapter 7 bankruptcy is commonly referred to as a liquidation bankruptcy. (Learn more about Chapter 7 bankruptcy.)
In Chapter 13 bankruptcy, you can keep all of your property including your nonexempt assets. But in exchange for keeping your property, you pay back a portion of your debts through a repayment plan. The amount you must pay to your nonpriority unsecured creditors (such as credit card companies) in Chapter 13 bankruptcy depends both on your nonexempt property and your disposable income. (Learn more about Chapter 13 bankruptcy.)
This means that a Chapter 7 trustee will be more interested in whether you own any nonexempt property while a Chapter 13 trustee will focus his or her questions on your income and expenses.
The 341 Hearing in Chapter 7 Bankruptcy
At your Chapter 7 bankruptcy meeting of creditors, the trustee will verify the information in your bankruptcy papers and examine you under oath about your financial affairs. The trustee will typically ask you questions regarding your income and expenses to make sure that you qualify for Chapter 7 bankruptcy. (To learn more about whether you can file for Chapter 7 bankruptcy, see our topic area on The Means Test and Chapter 7 Eligibility.)
The trustee is primarily interested in selling your nonexempt property to pay back your creditors. This means that most of the trustee’s questions will concentrate on the assets you own and their values. Because of this, before going to your 341 hearing, review your bankruptcy papers carefully to make sure you disclosed all of your assets and valued them correctly. If the trustee believes that one of your assets is worth more than you think, be prepared to answer questions regarding the property’s condition and how you calculated its value.
For more information on how your property is treated in Chapter 7 bankruptcy, see our topic area on Your Property in Chapter 7 Bankruptcy.
The 341 Hearing in Chapter 13 Bankruptcy
As we discussed, you are allowed to keep all of your property in Chapter 13 bankruptcy. But you must pay back some or all of your debts through a bankruptcy repayment plan. For the most part, the amount you must pay your nonpriority unsecured creditors depends on:
- how much nonexempt property you own, and
- the amount of disposable income you have.
In Chapter 13 bankruptcy, you must pay your unsecured creditors at least an amount equal to the value of your nonexempt assets because this is the amount they would have received in Chapter 7 bankruptcy (this is referred to as the best interest of creditors test). Because the value of your assets affects the amount you have to pay your unsecured creditors, the trustee will question you about how much your property is worth just like in a Chapter 7.
However, the amount your unsecured creditors will receive depends primarily on your disposable income. This means that in a Chapter 13 meeting of creditors, you can expect the trustee to ask you detailed questions regarding your monthly income and expenses. If the trustee believes that you are not paying all of your disposable income into your Chapter 13 plan, he or she will object to your plan and argue that you should be paying more.
To learn more about which debts you must pay back in Chapter 13 bankruptcy, see our topic area on The Chapter 13 Repayment Plan.