Chapter 7 Personal or Business Bankruptcy
Meet your Trustee – what to expect at the Trustee hearing/meeting of creditors and what happens next
When investigating chapter 7 bankruptcy – you may have heard of a “Bankruptcy Trustee” that is involved in your case. Who is this person, what do they do, why are they involved in your case?
When a chapter 7 bankruptcy if filed in federal Bankruptcy Court, one of the first things done after assigning a case number is the preliminary appointment of a chapter 7 Trustee. This is called preliminary as it will not become final until your “Meeting of creditors” or “Trustee meeting” (different names for the same required meeting) is held. At the meeting, the Trustee asks each debtor a set of standard questions to fulfill case review requirements under the law. These questions may be expanded as circumstances require depending on assets, answers to questions or other relevant information.
A chapter 7 Trustee is appointed to a regional panel of Trustees and is then selected at random to cases in rotation in their division with other appointed Trustees. A Trustee usually has certification as a certified public account or attorney (sometimes both) with experience in bankruptcy or liquidation practice. The Trustee receives a set amount of money (approximately $75) from the filing fee paid to conduct a meeting of creditors as required under the bankruptcy code. Creditors may appear and ask the debtor questions about financial affairs and their debt. Most Trustees want creditors to focus on potential assets – this assists the Trustee in “administering” the case in the event an asset exists above what can be protected.
Majority of Chapter 7 Cases Filed Are “No Asset” Cases
Most chapter 7 cases filed end up being what is called “no asset” cases – meaning that while the person who files bankruptcy may own things (real estate, cars etc.) there is no value/equity above and beyond what can be protected under applicable federal or state law exemptions (property protections). Where there are assets ABOVE what can be protected, these are called “Asset cases” where the Trustee will then administer the asset – which usually means the Trustee SELLS it and put the money into a trust account to allow creditors to make claims. The Trustee is paid on an asset case as they are paid a percentage of the assets they administer.
With over 26 years’ experience in practicing almost exclusively in personal bankruptcy law – I have sat through thousands of Trustee examinations. They are usually conducted in a room with those awaiting their turn sitting in attendance. (COVID update – these hearings are now conducted via telephonic appearance or Zoom or other video conferencing allowing remote appearance.) This is an administrative hearing – conducted under oath and recorded – but is not a “court hearing” like you would see on television. It is more like a deposition – again, referring to what most people would only experience through movies or television. Each Trustee is a little different in how they conduct their meetings and what information they require. At a minimum, a Trustee requires the last filed complete federal and state tax returns, government issued identification and proof of a valid social security number. These are provided well in advance of the hearing.
A Trustee may request additional information in advance of the meeting or after. If the Debtor has operated a business, they must be prepared to present financial information and details to satisfy the Trustee inquiry. Balance sheets, income statements, operating reports (budgets) and bank records must be available. It is recommended that this information be prepared and presented PRIOR to filing the case.
Bankruptcy Trustees are Seasoned, Savvy and Street Smart
It has been my experience that Trustees are experienced and smart. They have heard it all and seen it all. The overwhelming majority are very polite and respectful of the individuals filing for bankruptcy – they are not there to humiliate anyone or make moral judgments. Some Trustees go on to become Bankruptcy Court Judges – and we in the bankruptcy community benefit from their real-world experience.
What I counsel clients or even potential clients is that they must not think the Trustee will just pretend to do their job to get $75 bucks. These are experienced, motivated professionals who make money when they find assets. I have seen – while sitting waiting for my case to be called – examinations that go very wrong because the Debtors think they can outwit the Trustee. These Trustees can and have sold just about everything you can imagine, from racehorses, airplanes, dental practices, operated and sold restaurants, even patents, copyrights and other intellectual property. They have found and liquidated (sold) Ferraris’, Rolex watches, expensive jewelry, valuable art works and just about anything that could be sold or exchanged.
My point in discussing this is to drive home that ALL ASSETS must be disclosed. Do not think a bankruptcy Trustee will not ask, investigate, or research whatever they need to find and go after an asset. DO NOT state you have no jewelry and then appear to your examination while wearing Jewelry. I have seen cases – not mine – where the Debtor stated “none” under “clothing” – and the Trustee remarks they are glad the Debtor wore clothes that day – but where did they come from? Only funny to those not sitting at the Trustee table at the time.
Thankfully, most Debtors disclose everything, it is rare for a creditor to appear, and the hearing “concludes” after the basic questions are answered. After such a “boring” hearing (which is my goal for clients) there is a 60-day waiting period required by the bankruptcy code to see if any creditors file written objections. After this period runs – and if no objections on file and the Debtor(s) did their second counseling class as required – the court will process the bankruptcy discharge and formally close the case.
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