When you file for Chapter 7 or Chapter 13 bankruptcy, you must appear at a mandatory hearing called the meeting of creditors (also called the 341 hearing). At the meeting of creditors, the appointed bankruptcy trustee will question you about the accuracy of your bankruptcy papers and look for information that may benefit your unsecured creditors. Read on to learn more about what the trustee will be on the lookout for at your meeting of creditors.
(Get more information on bankruptcy's 341 hearing.)
Prior to your meeting of creditors, the trustee reviews your bankruptcy papers and compares them against your supporting documents such as tax returns and paystubs. At the hearing, the trustee will question you about any discrepancies between your bankruptcy papers and your supporting documentation.
In addition to reviewing your bankruptcy, the trustee’s role is to maximize recovery for your unsecured creditors. This includes finding nonexempt assets in Chapter 7 or increasing your plan payment in Chapter 13 bankruptcy.
(Learn more about the role the bankruptcy trustee plays in your bankruptcy case.)
Since the trustee is charged with verifying the information in your bankruptcy papers and maximizing recovery for your unsecured creditors, he or she is mainly interested in your assets, income, and expenses. Below, we discuss some of the most common things the trustee will be on the lookout for at the meeting of creditors.
Whether you are filing for Chapter 7 or Chapter 13 bankruptcy, the value of your assets affects how much unsecured creditors get paid in your bankruptcy. In a Chapter 7 bankruptcy, the trustee can sell your nonexempt assets to pay your creditors. In Chapter 13 bankruptcy, you must pay unsecured creditors at least an amount equal to the nonexempt value of your assets.
At the meeting of creditors, the trustee will question you about your assets and what they are worth to make sure all of your property is disclosed and properly valued.
To qualify for Chapter 7 bankruptcy, your disposable income must be low enough to pass a means test. If your income is too high, you will typically have to file for Chapter 13 bankruptcy and pay back a portion of your unsecured debts through a repayment plan. Generally, the higher your income, the more you will have to pay back. (Get comprehensive information on the Chapter 7 bankruptcy means test.)
Since the trustee must maximize the payout to your unsecured creditors, he or she will review your paystubs to make sure you are not understating your income on your bankruptcy petition.
In addition to reviewing your income, the trustee will also review your expenses to make sure they are not excessive. Your expenses must be reasonable and necessary to support you and dependents. If your expenses are not reasonable, the trustee can argue that you are not eligible for Chapter 7 bankruptcy or that you should be paying more to unsecured creditors through your Chapter 13 plan.
Bankruptcy law requires you to treat all creditors fairly. This means that you are not allowed to pay off preferred creditors (such as family members) prior to filing for bankruptcy so that other creditors don’t receive anything. In certain circumstances, the trustee can avoid preferential payments and recover that money to distribute among all your creditors.
In your bankruptcy petition, you typically must disclose any large payments (over $600 in aggregate) to creditors made within 90 days of your filing date (or within one year for payments to insiders such as family members). At the meeting of creditors, the trustee will be on the lookout for preferential payments he or she may be able to avoid and recover.
(Learn the details of the preferential payment rules in bankruptcy.)
If you transfer property out of your name prior to filing for bankruptcy, you may be committing bankruptcy fraud. Bankruptcy fraud may be actual (transferring property with intent to defraud your creditors) or constructive (transferring property for less than fair market value while you are insolvent).
If you make a fraudulent transfer, the trustee may be able to challenge your discharge or avoid the transfer and get the property back. So the trustee will also be looking for recent transfers of property that may be deemed fraudulent.
(Learn more about fraudulent transfers of property in bankruptcy.)