Filing for bankruptcy can be a challenging process. You need to gather and submit a great deal of information about your finances, and you need to interact with several people who play various roles in the process. One of the most important roles in that process is the bankruptcy trustee.
Your guide to the legal process from an experienced bankruptcy attorney
The trustee is a government officer appointed by the bankruptcy court to review the paperwork, conduct investigations, and perform other important tasks. It’s an important role, but if you have the right legal counsel, you don’t have to worry too much about dealing with the trustee.
Who are bankruptcy trustees?
Bankruptcy trustees are officers of the United States Department of Justice (DOJ) who work in the office of the U.S. Trustee. In every bankruptcy case, whether filed under Chapter 7 or Chapter 13, the court appoints a trustee. Trustees need significant legal and financial knowledge; many, though not all, are attorneys, accountants, or both.
Bankruptcy trustees are appointed by the court and can only act with the court’s permission. That said, bankruptcy judges tend to give the trustees’ findings and recommendations a lot of weight, so in practice, they have a lot of power over how the process goes.
What do bankruptcy trustees do?
The trustee’s role varies a bit depending on the type of bankruptcy, but broadly speaking, they are responsible for:
- Reviewing all documents filed in the bankruptcy case.
- Investigating the assets and income of the person filing for bankruptcy.
- Looking for red flags that may affect your eligibility for bankruptcy or even indicate bankruptcy fraud.
- Overseeing certain steps in the process, such as the 341 meeting.
- Making a recommendation to the court as to whether the case should go forward.
- Administering the case, including any sale of assets (in Chapter 7 only) and any payments to creditors.
- In Chapter 7 bankruptcy, determining whether the creditor qualifies based on the means test.
- In Chapter 13 bankruptcy, overseeing the repayment plan, collecting payments, and notifying the court if you miss a payment.
The trustee is a neutral party appointed by the court; they don’t represent you and they don’t represent your creditors. That said, a key part of the trustee’s job is making sure the creditors get paid as much as possible for what they are owed.
What do bankruptcy trustees look for when investigating cases?
- Non-exempt property: in Chapter 7 cases, non-exempt property means assets that aren’t protected by bankruptcy exemptions, such as second vehicles, second homes, certain types of investments, and musical instruments (if not needed for your job).
- Recent transactions: if you purchased a luxury item on a credit card, gave a significant gift to a friend or relative, or made a transfer of property that favors one creditor over another, the trustee may find that transaction is reversible or voidable, or even see it as evidence of fraud.
- Omissions on bankruptcy forms: while leaving something off a form may just be an honest mistake, it may also indicate that something is being hidden from the trustee.
- Hidden assets: property that is left out entirely, undervalued, or otherwise hidden from the trustee.
How to avoid trouble with the bankruptcy trustee
There are a few steps you can take to make sure dealing with the trustee is smooth throughout the process. First, be honest and thorough in preparing your bankruptcy forms. Again, mistakes happen, but do your best to keep them to an absolute minimum. Do your due diligence to make sure all your assets are accounted for so that you don’t inadvertently hide something from the trustee that could jeopardize your bankruptcy or even expose you to legal liability.
Second, communicate. If an issue comes up with a repayment plan or another aspect of your bankruptcy case, it’s your responsibility to contact the trustee (or have your attorney do so) in order to resolve the problem. In our experience, most trustees recognize that bankruptcy is a difficult process and are willing to work with debtors to solve problems, but you have to start that conversation.
Finally, and most importantly, get an experienced bankruptcy attorney. We understand how to deal with the trustees, the judges, and others involved in the bankruptcy process, and we know how to present your case to minimize difficulties and maximize the chances of a positive outcome. If you are dealing with overwhelming debt and considering bankruptcy, contact us online or give us a call for a free consultation with a bankruptcy lawyer.