Cite as: Keith M. Lundin, Lundin On Chapter 13, § 40.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
Perhaps the right place to start a discussion of the powers and duties of the Chapter 13 debtor is the fundamental notion that Chapter 13 is voluntary adjustment of debt that won’t work without earnest cooperation from the debtor. This duty to cooperate is mandated by § 521(3) of the Code: “if a trustee is serving in the case . . . cooperate with the trustee as necessary to enable the trustee to perform the trustee’s duties under this title.”1 There is a trustee serving in every Chapter 13 case.2 And the trustee’s duties include investigating and understanding every aspect of the debtor’s financial life during the three-to-five-year duration of the case.3 The Chapter 13 trustee can’t do these things without unconditional cooperation from the debtor.
Chapter 13 debtors are bound by a duty of care to account for estate property and to use that property—including the debtor’s income—consistent with the Bankruptcy Code and Rules. The quid pro quo for remaining in possession and control of the estate in a Chapter 13 case4 is that the debtor must cooperate with respect to that property in ways that are not familiar outside bankruptcy. It has been said that the duty of cooperation imposed by § 521 includes the duty to inform the trustee of financial developments during the Chapter 13 case that might affect the trustee’s responsibilities or the rights of creditors.5 This duty to provide information during a Chapter 13 case may be completely counterintuitive for debtors accustomed to a very different relationship with their creditors.
Counsel must impress upon Chapter 13 debtors the seriousness of the undertakings: debtors must attend the meeting of creditors, they must commence making payments, they must preserve and protect estate property, they must work with the Chapter 13 trustee and creditors and they must approach the plan and confirmation as important events. The postpetition use and control of the estate by the debtors is conditioned upon proper care for the assets of the estate, performance of all the debtor’s duties and cooperation with the trustee, creditors and the court.6
If the debtor misbehaves and breaches these duties, confirmation may be jeopardized, the case may be converted or dismissed and any claims against the debtor that result may be nondischargeable in a subsequent Chapter 7 or 11 case.7 Debtors should be warned that misconduct during a Chapter 13 case can have criminal implications.8
1 11 U.S.C. § 521(3).
2 See § 58.2 [ Who Will Be the Trustee? ] § 53.2 Who Will Be the Trustee?.
3 See §§ 58.1 [ Know the Trustee’s Operating Procedures ] § 53.1 Know the Trustee’s Operating Procedures–62.1 [ Review Claims, Object to Claims and File Proofs of Claim ] § 53.15 Review Claims, Object to Claims and File Proofs of Claim.
4 See § 44.1 [ Debtor Has Exclusive Control of Estate Property ] § 45.1 Debtor Has Exclusive Possession and Control of Estate Property.
5 Midkiff v. Stewart (In re Midkiff), 342 F.3d 1194, 1201 (10th Cir. 2003) (Citing § 521, Chapter 13 debtors “retain their duty to inform their trustees of relevant developments in their financial situations, including tax refunds due for periods governed by their plans.” Plan that committed tax refunds imposed obligation on debtors to inform trustee of an impending tax refund when the debtors requested payoff figure to complete plan.).
6 See, e.g., In re Anderson, No. 05-19632-B-13, 2008 WL 821655 (Bankr. E.D. Cal. Mar. 27, 2008) (unpublished) (Lee) (Debtor has duty to cooperate with trustee and creditors, and to comply with plan term requiring turnover and accounting for prepetition accounts receivable; material breach of plan requires debtor to compensate estate for lost accounts.).
7 See In re Weber, 99 B.R. 1001 (Bankr. D. Utah 1989); Green River Prod. Credit Ass’n v. Alvey (In re Alvey), 56 B.R. 170 (Bankr. W.D. Ky. 1985).
8 See 18 U.S.C. § 152. See, e.g., United States v. Archibald, No. 06-11882, 2006 WL 3521896 (11th Cir. Dec. 6, 2006) (unpublished) (Chapter 13 debtor’s conviction for knowingly and fraudulently concealing assets and making false oath under 18 U.S.C. § 152(1) and (2) is affirmed based on evidence that debtor scheduled adult entertainment club with current market value of $2,000 when actual value was closer to $4 million.).