Some of the many duties performed by the trustee include reviewing the bankruptcy paperwork, verifying Chapter 13 qualification, assessing the proposed plan for compliance with bankruptcy laws, collecting plan payments and distributing funds to creditors, and otherwise carrying out the terms of the Chapter 13 plan.
It’s the Chapter 13 trustee’s job to oversee your matter, and you’ll interact primarily with the trustee and the trustee’s staff during your case. The bankruptcy court will appoint the Chapter 13 trustee soon after you file and mail a notice with the trustee’s contact information.
The trustee doesn’t receive a salary but a percentage of payments sent to creditors. The system rewards trustees who ensure creditors receive all they’re entitled to by law, which should put filers on notice that the trustee looks out for creditor interests above filer interests.
Learn more about how Chapter 13 bankruptcy trustees are paid.
Not hearing from the trustee until the 341 meeting of creditors wouldn't be unusual. However, some trustees provide instructional information early in the process.
For instance, the trustee might require you to upload financial documents to a secure platform. Also, receiving instructions for paying your monthly payments is common because the first payment is due within 30 days of filing.
Most trustees maintain a website with procedural information that proves to be a valuable resource for Chapter 13 filers. Get more tips that can help you survive your Chapter 13 case.
The Chapter 13 trustee has many responsibilities. For instance, the trustee could be checking identification one day and arguing motions in court the next. The following steps in a Chapter 13 case describe the more typical interactions between a Chapter 13 filer and the trustee.
The trustee will compare the income, monthly expenses, assets, and debt information in your bankruptcy forms and schedules to your tax returns, paycheck stubs, bank statements, and other financial documents. Some trustees will contact you or your bankruptcy lawyer before the 341 meeting of creditors to resolve a discrepancy, but not always.
Your proposed Chapter 13 repayment plan outlines how you intend to repay debts, and one of the trustee’s tasks is to ensure it’s fair to your creditors. Plan problems are typically discussed at the creditors meeting and resolved informally. If you can’t reach a consensus, the trustee will file a motion with the bankruptcy court asking for a resolution.
Your creditors can also object to your plan by filing a motion. Either way, you can respond to the motion before the judge makes a decision.
You’ll attend a Chapter 13 creditors meeting about a month after filing your case. The trustee will review your identification at the hearing unless the meeting is virtual. In that case, you’ll likely provide it a day or two before the hearing.
After the trustee places you under oath, you’ll answer the trustee’s general questions about the accuracy of the petition and if you anticipate receiving additional assets shortly. You’ll also respond to any issues the trustee might have with the bankruptcy paperwork, supporting documents, or plan. Your creditors will also have an opportunity to ask questions.
If more information, documentation, or investigation is needed, the trustee will continue the meeting to another date. Otherwise, the trustee will conclude the meeting. Find out what happens after the creditors meeting.
You’ll interact with the trustee and the trustee’s office staff for the case’s duration. Most bankruptcy filers rarely see a bankruptcy judge during the case. For instance, if you have a problem making a payment, you or your bankruptcy lawyer will want to contact the trustee to see if alternate arrangements can be made. Learn about the options available when you can't make your Chapter 13 payment.
The trustee will attend the confirmation hearing and tell the judge whether the trustee believes the plan is feasible and meets all requirements. The judge will decide whether to “confirm” or approve the plan. If the plan is faulty in some manner, the judge will likely give you time to correct the issue.
Within 30 days of filing your Chapter 13 case, you must begin sending monthly payments to the bankruptcy trustee according to your proposed plan. Until the court approves your repayment plan, it remains proposed, and the trustee holds most funds in trust for your creditors.
After court approval, the Chapter 13 trustee begins distributing the funds to your creditors under the plan terms. If the court doesn’t approve the plan, you’ll receive the funds paid to the trustee with a few exceptions.
The trustee will forward payments to your creditors during the three- to five-year Chapter 13 plan period.
Creditors who want to receive Chapter 13 funds must file a proof of claim with the court within 70 days of filing (government creditors have 180 days). The proof of claim states the amount owed to the creditor. It will include a copy of the contract or agreement as documentation.
The Chapter 13 trustee reviews the creditor claims and objects to any improperly filed claims or claims lacking the correct documentation. Other parties can object, as well. Learn more about objecting to a proof of claim in bankruptcy.
The Chapter 13 trustee is also responsible for keeping track of creditor payments, alerting the court if you fail to comply with the plan, and providing the court with status reports. Sometimes, the trustee must hire accountants, appraisers, lawyers, and other experts, and oversee bankruptcy litigation.
Detailed procedural information, reporting requirements, and guidelines are on the Chapter 13 Handbooks and Reference Materials webpage.
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]]>You'll also learn that the Chapter 13 trustee receives a portion of your monthly plan payment and the maximum percentage the trustee can take.
You won’t wait until the court approves or "confirms" your plan to start making your proposed plan payment. You’ll start paying the Chapter 13 trustee within a month after filing.
Although it might seem odd to make payments before plan approval, the rule makes sense because it accomplishes the following:
Keep in mind that the trustee will take action to dismiss your bankruptcy case if you fall behind on your payments.
An easy way to ensure you pay the trustee on time is this: After the court sends you the trustee’s name, check the trustee’s website for payment instructions (or call the office). You’ll want to know:
The court will also send you the date for the 341 meeting of creditors shortly after you file. If the court schedules the hearing less than a month later, the trustee will likely explain the payment procedure at the meeting. For instance, you might get payment address stickers or receive other instructions.
After you file your plan, the trustee and creditors can object to the provisions. In most cases, you’ll try to work out any issues informally. If you can’t, you’ll respond to the objections by filing a pleading with the court and serving it on the trustee and interested parties. The bankruptcy judge will decide whether to approve or "confirm" your plan at a Chapter 13 confirmation hearing.
Once the court confirms your plan, you’ll pay the amount approved by following the procedures in your district. You'll likely continue to mail payments to the Chapter 13 trustee or pay online. If you’re working, the court might order your employer to withdraw the amount from your paycheck and forward it to the Chapter 13 trustee through a wage deduction order.
The first payments will likely be limited to your attorney’s fees and secured claims—such as your mortgage and car loan—until the court confirms your plan. This policy protects the interests of the secured creditors and can help you avoid falling farther behind important bills, like your house or car payment. After confirmation, your payment will include unsecured creditors—those holding debts such as credit card balances, medical bills, and personal loans.
To determine the amount to pay on each debt, the trustee will review the proof of claim forms submitted by your creditors. You, the trustee, and other creditors will have an opportunity to object to claims as part of the process. Find out about the different types of creditor claims in bankruptcy.
Most Chapter 13 trustees maintain a website filers can use to see an accounting of the payments made by you to the trustee and the disbursements made to your creditors. If you can’t find the accounting online, contact the Chapter 13 trustee’s office for help. You’ll find the contact information on the initial notices sent by the bankruptcy court.
Unlike Chapter 7 trustees, Chapter 13 trustees don’t sell property and receive a percentage of sales proceeds dispersed to creditors. Instead, Chapter 13 trustees receive up to 10% of the monthly amount paid to creditors each month. Learn more about how trustees get paid in bankruptcy (scroll down the page for Chapter 13 specifics).
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]]>Read on to learn how to recognize avoidable preferences, and the bankruptcy trustee's process to undo those transactions.
An avoidable preference payment involves a payment made before filing for bankruptcy that prefers one creditor over others similarly situated. Preference payment rules ensure all creditors have an equal chance to get paid instead of one creditor getting all or a disproportionate share of a bankrupt debtor's assets.
Almost any transaction has the potential of being a preference payment. The transaction can be voluntary or involuntary. A preferential payment is voluntary if you take steps to pay a particular creditor. A creditor garnishing your bank account could be an example of an involuntary preference payment.
The look-back period, or time the trustee can unwind these transfers, is ninety days for general creditors and one year for insiders. Insiders are relatives or someone with a close or influential relationship with you (see more below).
The bankruptcy law sets minimum amounts to avoid preferential transfers. The amounts change periodically, and you'll find the figures for consumer and "business" bankruptcy cases in the official "SOFA" form discussed in detail below.
When you complete Your Statement of Financial Affairs for Individuals Filing for Bankruptcy (sometimes called "SOFA"), you’ll disclose whether you’ve paid on a debt owed to an insider or paid an insider’s debt during the year before you filed your bankruptcy case. In bankruptcy, an insider is someone close to you, such as a family member, a business partner, or a relative of a business partner.
What’s the purpose of SOFA? SOFA is one of the forms that the bankruptcy trustee—the official tasked with managing your case—will review for fraud and unfair practices. The trustee has the power to unwind transactions and recover funds for the benefit of creditors. Anyone who received money or property that should have remained in the bankruptcy estate will have to return it. You’ll also disclose debt payments made to creditors over the established limits on this form.
Family members and business associates have avoided creditors by transferring assets to each other for as long as courts have recorded case law—and it’s still a common occurrence. It’s considered unfair to give insiders payment priority over your other creditors, and creditors must receive payment according to the priority ranking system outlined in bankruptcy law. As a result, you’ll have to disclose such transactions when you complete your paperwork.
You can expect the trustee to take steps to get the funds or property back if it has occurred. If you hide a transaction, however, and the trustee later discovers it, the trustee will not only unwind it, but you’ll be subject to fines and penalties of up to $250,000, 20 years in prison, or both. If you believe you’ll have to report an insider transaction on your statement, it’s best to consult a bankruptcy attorney before moving forward.
The rationale behind these avoiding powers is that all creditors similarly situated should be treated the same. Once the trustee collects all of your money or property and liquidates (converts to cash) the property, the trustee can redistribute the funds equally among similarly situated creditors and per the disbursement schedule set out in the bankruptcy law.
To learn more about avoidable preferences, see Payments Made to Creditors Before Bankruptcy: Can the Trustee Get the Money Back?
While the trustee is granted these strong-arm powers under bankruptcy law, the transfers' recovery is not automatic. The trustee must demand the money or property return, but the creditor has no legal obligation to return the funds until the trustee obtains a judgment from the court. A creditor can use this period to investigate and work out a settlement for less than the total amount with the trustee. Here’s how this works.
In the first step of the process, the trustee will look for any avoidable transfers by reviewing your bankruptcy schedules and statements and any bankruptcy documents you must provide before the 341 meeting of creditors.
Depending on the circumstances, the trustee might ask questions about transactions occurring before you file for bankruptcy at the 341 (meeting. Because multiple bankruptcy filers usually attend the creditors' meeting, the trustee will have only a few minutes to conduct the initial inquiry before moving to the next case. So if the trustee suspects transfers, you can expect the trustee to continue the meeting so the trustee can spend more time on the case. Also, the trustee might request that you provide additional documentation to the trustee’s office.
To learn more, see The Meeting of Creditors in Chapter 7 Bankruptcy.
Even if the trustee doesn't request additional documentation at the creditor's meeting, a trustee who suspects transfers will likely request other documentation or information later. The trustee will probably phone your lawyer, but the trustee could send a letter or take more extreme measures.
When a trustee suspects a serious problem exists, the trustee (or someone else involved in the matter) can set a type of deposition called a 2004 examination to obtain more formal testimony and document production. The trustee is looking for the following:
A trustee's action to recover a transfer is often called a "clawback" suit. It starts when the trustee files an "adversary proceeding" or lawsuit after determining the following:
The person sued can respond to the trustee’s action and present defenses explaining why the transfer wasn't preferential. For example, these defenses might include:
After considering the evidence, the court will decide the outcome. A person who receives a transfer must return it but they can file a claim for the transfer amount in the bankruptcy proceeding.
For more information, see Adversary Proceedings in Bankruptcy.
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]]>Learn more about trustee duties, powers, and the bankruptcy trustee.
In a Chapter 7 case, the trustee has two potential income sources.
The trustee receives no administrative fee if the court waives the filing fee because the filer’s income meets fee waiver guidelines.
In addition to the standard $60 fee, the trustee also receives a commission on the money collected if the trustee sells assets and makes payments to creditors. You don’t pay the Chapter 7 trustee’s commissions. It's deducted from the sales proceeds.
The amount of the trustee’s commission depends on the funds disbursed to interested parties (professionals and creditors). The sliding scale is as follows:
The trustee must apply for compensation with the bankruptcy court to receive payment. All creditors and interested parties receive notice of the amounts requested. The court holds a hearing on any objections filed, reviews the trustee’s fee application, and awards a reasonable fee.
Bankruptcy trustees usually receive the maximum allowed. However, the bankruptcy court might award a lesser fee if the commission is large and required little work or if the trustee’s office unreasonably delayed the estate administration.
The Chapter 7 trustee can also recover costs for expenses, such as professional accounting fees. Again, the trustee files a fee application with the bankruptcy court requesting reimbursement costs.
Most Chapter 13 trustees are "standing trustees," meaning that serving as a Chapter 13 trustee comprises all or a large part of their business. With few exceptions, all Chapter 13 cases filed in the district are assigned to these standing trustees.
The compensation to standing trustees is part of the plan payment you make every month under Chapter 13. The compensation varies by trustee, and although the trustee doesn’t need to obtain a court order before receiving payment, oversight for the fee exists.
Under bankruptcy law, 10% is the maximum plan percentage a Chapter 13 trustee can be compensated. The trustee must use these fees for costs incurred in the case and for running the trustee’s office.
The yearly salary of the Chapter 13 trustee is limited by law, and the trustee must file operating budgets with the Office of the United States Trustee for compliance review. These budgets include the costs of operating the trustee’s office, and employee salaries, including professional salaries for attorneys and accountants. Once a budget is approved, the trustee can collect up to 10% from the plan payments.
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Updated March 24, 2023
]]>In Chapter 7, the trustee also looks for property to sell and signs the case should be converted to Chapter 13. In Chapter 13, the trustee will check whether you should pay more to creditors than you’ve proposed.
Most trustees will compare the information in the bankruptcy petition and schedules (the paperwork you file with the court) to other financial documents you turn over, such as paycheck stubs, tax returns, and bank statements.
If anything appears unusual, the trustee might request additional items or wait to ask questions at the 341 meeting of creditors—the hearing that all filers must attend (more below).
Here’s what the bankruptcy trustee checks when reviewing your schedules.
You can exempt (keep) a certain amount of property in bankruptcy. The trustee will likely be particularly on the lookout for these things:
In Chapter 7, if the trustee finds property you aren't entitled to keep, the trustee will sell it for the benefit of your creditors. In Chapter 13, you’ll have to pay the value of any nonexempt assets the trustee finds through your Chapter 13 plan.
Find out more by reading What Is Nonexempt Property in Bankruptcy?
If you've repaid creditors or transferred money out of your name recently, the trustee might be able to get the money back. These items might signal transfers that the trustee can reverse and bring back into the estate:
Find out more about what the trustee will look for by reading The Bankruptcy Trustee and Preference Claims.
Finding assets isn’t always straightforward. The trustee also looks for signs that something is amiss. Here are a few examples.
The following items in your schedules might lead the trustee to hidden assets:
Learn why you should never try to hide property in bankruptcy.
The trustee will look at the following to help determine whether your claims of exemption (the law that allows you to protect property you’ll need to maintain a household and workplace) are proper:
In addition to the other items, the Chapter 13 trustee will consider some of the following things to determine whether the judge will confirm (approve) your plan:
Learn more about your obligations under the Chapter 13 repayment plan.
Shortly after filing for bankruptcy, the trustee will review your bank statements, paycheck stubs, tax returns, and other documents you must provide. These documents are known as “521 documents” after the bankruptcy code section detailing the financial paperwork necessary to verify the information provided when completing your bankruptcy paperwork.
The trustee will examine your bank statements for evidence of unreported income and property transfers. The trustee might also compare the amount paid toward monthly bills to the amounts reported in your schedules. Learn more about completing bankruptcy forms.
Learn more about bank accounts, automatic payments, and utility payments in bankruptcy.
If the trustee questions something in your paperwork, you’ll likely be asked about it in the meeting of creditors. But the trustee has other investigative tools available, too.
Everyone who files for bankruptcy must go to the bankruptcy courthouse at least once to attend a creditors' meeting. You’ll be placed under oath, and the trustee will confirm your identity.
Then the trustee asks each filer the same set of standard questions, such as whether you:
The trustee will also ask you specific questions about particular issues in your petition. Once complete, creditors in attendance can ask questions about your financial situation; however, it’s unusual for a creditor to appear.
If the trustee isn’t satisfied, recourse exists. For instance, a trustee who needs more time can reschedule the meeting for another day, reserving an hour or two for your case.
A trustee or a creditor who needs more information can also set up a 2004 examination. It’s much like a deposition, but they’re rare, so it’s unlikely that you’ll need to go to one.
The trustee isn’t limited to asking questions. The trustee can also:
You’re expected to comply with any reasonable request.
It isn't necessary to tell the bankruptcy trustee why you filed, and it would be unusual for the trustee to ask. The trustee isn't making a moral judgment but rather ensuring your petition complies with bankruptcy laws.
So you don’t need to worry about your case being dismissed because you ran into an unexpected financial situation or even mishandled your money. Those are common reasons that people file for bankruptcy.
For instance, people often find themselves filing for bankruptcy for one of the following reasons:
Learn when it's a good idea to wait before filing for bankruptcy.
If the trustee finds a particular transaction suspicious, explaining what caused your financial problems might help the trustee understand your motivation for filing. But don't worry about being caught off guard at the 341 meeting of creditors.
Often, a bankruptcy attorney can predict what the trustee might find questionable, prepare you for the same, or even handle the problem by discussing it with the trustee soon after filing the case.
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]]>But this is a small fraction of what the trustee will do, and, if you're like most filers, you won't appear before a Chapter 7 bankruptcy judge. The trustee will be your primary contact throughout the case.
Table of Contents:
A bankruptcy trustee manages your property in bankruptcy. Although many types of trustees exist in different areas of law, all trustees share the same legal responsibility to hold and administer assets in a particular way.
The Chapter 7 bankruptcy trustee is needed because you lose ownership of your possessions when you file. The trustee holds your property in a “bankruptcy estate" while your case remains open.
The primary duty of the Chapter 7 trustee is to locate and sell assets for the benefit of your creditors. To do this, the bankruptcy trustee reviews the property listed in your bankruptcy paperwork, including “exempt” assets you claim you can keep by law.
The trustee will sell assets that aren't exempt and distribute the sales proceeds to creditors (although many filers keep all or most of their property). However, if you and the trustee disagree about the exemption status of a particular item, the bankruptcy judge will decide the outcome.
In addition to selling property, the Chapter 7 trustee’s responsibilities include the following:
You'll also have duties. Your primary responsibility will be to work with the trustee and accommodate reasonable requests for additional financial information.
Important note about bankruptcy property. Be sure you understand what will happen to your property before filing for Chapter 7 because you can’t dismiss a Chapter 7 case without permission from the bankruptcy judge. The problem? Many judges won’t dismiss your case because you didn’t realize the trustee would sell your property. Consult a bankruptcy lawyer if you're unsure how to interpret your state's bankruptcy exemptions and other bankruptcy laws.
Although the trustee receives a small fee for most bankruptcy cases, a large part of a Chapter 7 trustee’s income comes from selling your property.
Chapter 7 Case Type |
Chapter 7 Bankruptcy Trustee’s Pay |
"No Asset" Case - Debtor Keeps Property |
|
"No Asset" Case - Court Waives Filing Fee |
|
"Asset" Case - Trustee Sells Property |
|
The chart above illustrates that the trustee gets a percentage of all funds paid to creditors, giving the trustee incentive to scrutinize your property. Although the trustee must be fair to you, don't expect the trustee to look out for your best interests. That's the job of your bankruptcy lawyer.
You’ll disclose personal and financial information about your debts, property, income, and financial affairs in your bankruptcy schedules and paperwork. The bankruptcy trustee will review your filing and verify the information by comparing it to other documents you’ll provide, like paystubs, tax returns, and banking statements.
For example, suppose you state that you make $3,000 monthly in your bankruptcy papers. To ensure accuracy, the trustee would compare that figure against your paystubs and tax returns.
Approximately a month after you file your case, you must attend the 341 meeting of creditors in front of the bankruptcy trustee. The bankruptcy trustee’s job is to conduct the 341 hearing and ask questions about the information contained in your bankruptcy documents while you are under oath.
Although your creditors ask you questions during the hearing, they rarely attend these hearings unless they feel you are hiding assets or want to determine whether they should ask the court to declare your debt nondischargeable.
Another way the bankruptcy trustee finds money for creditors is by evaluating payments and property transfers made to creditors before filing. The trustee can recover many that occurred during the 90 days before bankruptcy if the transfer meets threshold amounts.
The look-back period increases to a year when the creditor is a family member, business associate, or another "insider." This rule exists because people typically repay those close to them when money is tight. However, paying some creditors and shortchanging others is unfair and not new (some of the oldest legal cases on the books involve transferring money to family members).
A trustee who finds a "preferential transfer" will direct the creditor to return the money or property to the bankruptcy estate.
If you owe a friend or family a debt secured by collateral, expect the trustee to investigate the claim. Here's why.
Car loans and mortgages are typical examples of secured loans. The buyer gives the lender a lien on the purchased property or other collateral in secured transactions. The lien ensures you can’t transfer the property title without first paying the loan. Because this type of lien right survives bankruptcy, the bankruptcy trustee must pay a secured lender’s loan after selling the property with the lien on it.
The problem? Friends and family often fail to prepare loan documents properly or record the lien. And when done incorrectly, the trustee can sell the property and disregard the lien, meaning the lender doesn't get paid. Fortunately, this situation rarely occurs. Find out more about liens in Chapter 7 bankruptcy.
Yes, and it’s often a good idea. You or your attorney can resolve many issues by contacting the trustee by phone or email before the 341 meeting.
Don’t be surprised if a disgruntled ex-spouse or an angry business partner comes to the meeting of creditors to accuse you of stealing or failing to disclose property in your bankruptcy paperwork. It happens more often than you might think.
Assuming you’re the innocent party, you might be able to minimize potential damage by explaining the situation to the trustee sooner rather than later. But that isn’t the only concern you might want to discuss privately. Here are a couple of others:
Discussing issues beforehand and providing needed documentation will make it more likely the trustee will conclude the 341 meeting after one appearance. If the trustee needs additional proof or more time to evaluate the case, you’ll have to return another day.
Before talking with the trustee, you’ll likely want to consult an attorney to ensure the call is in your best interests (always seek legal advice about potential bankruptcy fraud accusations). When you call, you might want to do the following:
Depending on the property type, the trustee might give you particular instructions, such as to forward rental property or trust fund payments, or might arrange to set up a time to view the property. You might also find out the trustee will abandon the property, and you can keep it. In most cases, calling is worthwhile. You’ll either be relieved to learn your property is not at risk, or you’ll have time to acclimate to the trustee selling it.
After you file your case, the court will send a notice called the Notice of Chapter 7 Bankruptcy Case. The trustee’s name, address, phone number, and email address will appear at the bottom of the first page of the form.
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]]>In this article, you'll learn when you might:
You can learn more about the property you can keep using property exemptions in Chapter 7 bankruptcy. If you don't want to worry about losing property, consider filing for Chapter 13 bankruptcy. You'll be able to keep everything you own.
Most people understand that when you file for Chapter 7 bankruptcy, you might have to give up unnecessary or extravagant property. In most cases, you’ll make arrangements to turn the property over to the bankruptcy trustee, who will sell it and distribute the proceeds to your creditors. In exchange, you’ll receive a Chapter 7 discharge erasing qualifying debt.
However, receiving a report that you failed to list assets or reduced a property’s value due to needed repairs might cause the Chapter 7 trustee to decide that a home visit is warranted. Keep reading to learn about the Chapter 7 process and when the trustee or the trustee's representative might visit you.
Before the court discharges your debt, you must provide a clear financial picture. Part of your disclosures will include listing everything you own on bankruptcy schedules when you fill out the official bankruptcy forms.
The state that you live in will determine the property you can keep. Your state might require you to use the state exemptions (laws that protect certain property from creditor claims and keep the property out of the trustee's reach) or allow you to choose between the state and federal exemptions.
In many Chapter 7 bankruptcies, the filer can claim all property as exempt, and the trustee takes nothing. But, even so, everything you own must be listed in your bankruptcy schedules. Learn more about the information you’ll disclose when completing the bankruptcy forms.
The trustee will review your bankruptcy paperwork carefully to ensure you’ve made full and forthright financial disclosures as part of the trustee’s duties to:
The trustee will ask you about any discrepancies in your paperwork. It’s not unusual for the trustee to request additional documents or ask you questions at the 341 creditors meeting (the one court appearance all filers must attend) to clear up any concerns the trustee has after reviewing your schedules.
If the trustee isn’t satisfied with the information you provide, or there has been conflicting information provided by a creditor or third party, the trustee can inspect your property.
Any number of things can raise suspicion, such as:
Also, the trustee will want to examine storage spaces, safe deposit boxes, and other locations.
The only requirement is that the trustee must make prior arrangements with you to conduct the inspection. Courts have determined that it’s not permissible for a trustee to show up unannounced to demand a surprise inspection of the contents of your house.
The trustee can do the inspection personally, but it’s more likely that a representative or an appraiser will inspect the property. Often they will take photographs or videos as part of the process.
The trustee cannot just take things from your home if there is a disagreement about whether it’s part of the bankruptcy estate. If you have claimed the exemptions, the trustee must object to the exemptions and have the matter determined by the court. If you haven’t claimed the property as exempt and believe that there’s some valid reason it shouldn’t be taken by the trustee, either you or the trustee can bring the matter before the court. In most instances, the trustee would file a motion to compel (force) the property's turnover.
If you and the trustee agree that the assets are property of the estate, the trustee or the trustee’s representative might come to your house to collect those assets at an agreed-upon time. It’s also possible that the trustee would request that you deliver the items. All trustees handle these things differently. It generally depends on your trustee’s procedures and the arrangements you have made with the trustee.
There aren’t many valid reasons to support not turning over assets that you didn’t claim as exempt. If you’re in this situation, you should check with an experienced bankruptcy attorney in your area. There could be serious ramifications if you refuse to turn over the property.
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]]>I put my car in my brother's name so the bankruptcy trustee couldn't take it. What happens if the Chapter 7 trustee finds out about the property transfer?
If you give away any property before you file for bankruptcy, you must disclose it in your bankruptcy paperwork. The bankruptcy trustee can take action to recover the property you transferred if the transfer occurred within two years before you filed your bankruptcy.
Here’s what would happen if you transferred the vehicle title to a relative so the Chapter 7 bankruptcy trustee couldn’t sell it for your creditors’ benefit:
Find out about other things that can go wrong in What Is Bankruptcy Fraud?
When you file for bankruptcy, one of the many documents you must submit is the form entitled Your Statement of Financial Affairs for individuals Filing Bankruptcy. Bankruptcy lawyers often refer to it as the “SOFA” form.
You’ll provide information about past financial dealings on the SOFA form, including:
If you sold or transferred your car to another person during the two years before filing for Chapter 7 bankruptcy, you must disclose it in your paperwork.
Additionally, every person who files bankruptcy must attend a meeting of creditors where the trustee will ask questions about your property and finances. The trustee will ask you if you have transferred or sold any property within the past few years.
Learn more about common bankruptcy trustee questions.
If you intentionally leave information out of your bankruptcy paperwork or are untruthful at any time, you can lose your bankruptcy "discharge," the order that erases your obligation to pay debts. Worse still, you risk fines and jail time.
Learn more about the consequences of failing to disclose a property transfer and hiding assets in bankruptcy.
Filers in Chapter 7 who transfer property before bankruptcy should know the Chapter 7 trustee has many powers. One of the trustee's powers is legally “avoiding” or canceling certain transfers, such as the vehicle transfer to your brother. The avoidance allows the trustee to recover the transferred property.
The trustee starts the process by filing a bankruptcy lawsuit against your brother to retrieve the car, alleging that the transfer was fraudulent. Your brother will have to respond to the complaint and defend the lawsuit. If he fails to respond by filing an answer or an objection to the suit, the court will enter a default, and the trustee will obtain a judgment.
The Chapter 7 trustee will have two ways to win a fraudulent transfer action. The trustee can prove either actual or constructive fraud.
Actual fraud. Actual fraud occurs when the debtor transfers property with the true intent to hinder, delay or defraud creditors, which would likely be the case if you signed the car over to your brother to hide it from the trustee.
Constructive fraud. Even if the trustee can’t prove you intended to defraud your creditors, the trustee can still sue under a theory of constructive fraud if:
Under a constructive fraud theory, even if you weren't trying to hide assets, your brother still might have to give the car back.
Your brother's options in either actual or constructive fraud are to:
Many bankruptcy filers don’t want the person in possession of the property to be burdened and take it upon themselves to negotiate with the trustee. Learn more about how the trustee can bring an action to get the property back using adversary proceedings in bankruptcy.
You don’t want to run into a problem when filing for bankruptcy. Talking with a bankruptcy attorney can help if you're dealing with a complicated issue. A bankruptcy lawyer will help you achieve your goal within the bankruptcy laws or, when not possible, explain appropriate alternatives to bankruptcy.
Did you know Nolo has been making the law easy for over fifty years? It’s true—and we want to make sure you find what you need. Below you’ll find more articles explaining how bankruptcy works. And don’t forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.
]]>This article explains more about bankruptcy and tax returns, including why you’ll turn over:
You’ll also learn that tax returns are part of the “521 documents” provided to the trustee in bankruptcy. Find out what happens to tax refunds in bankruptcy.
Yes, you’re required to turn over tax return filings in bankruptcy because it’s part of the financial documentation required by law. Trustees use the tax documents and other financial papers to verify the information provided in your bankruptcy petition when the trustee is reviewing your bankruptcy filing for fraud.
Bankruptcy law requires you to provide the trustee with the documents at least seven days before the 341 meeting of creditors, the hearing all bankruptcy filers must attend (or file them with the court, depending on local practices).
Here’s a minimal list of what you’ll send over:
Most trustees will ask for additional documents, such as:
You’re obligated to comply with reasonable document requests. Learn more about the documents you must provide to the bankruptcy trustee or court.
Most people are somewhat uncomfortable giving out tax information, and understandably so. But you must submit certain tax documents to the bankruptcy trustee. Here's what the law requires.
If you file for Chapter 7 bankruptcy, you must provide the bankruptcy trustee with a copy of your tax return for the most recent and likely the previous year. In other words, plan on giving the trustee two most recent returns.
If you weren’t required to file a tax return, perhaps because you receive SSI exclusively, let the Chapter 7 trustee know. Many trustees will be satisfied with a written statement of explanation.
A trustee needs more in a Chapter 13 case to determine whether you owe taxes because you must pay recent income tax in full through the Chapter 13 plan. So, in a Chapter 13 bankruptcy, you’ll need to show that you’ve filed returns for the four previous years.
If you don’t timely provide your tax return, your Chapter 13 case can’t move forward. The trustee can reschedule the 341 meeting to give you time to obtain your tax returns or ask the court to dismiss your bankruptcy case altogether.
In both cases, you’ll need to provide the returns to the trustee at least seven days before the 341 meeting of creditors.
If the Court, United States Trustee, your bankruptcy trustee, or another party in interest requests it, you must provide copies of any tax returns filed while your bankruptcy is pending. This rule includes:
This requirement is only triggered if someone makes a formal request. In most cases, no one will file a request, and you won’t have to turn over post-bankruptcy tax returns.
Trustees commonly request that debtors provide additional tax documents for the trustee’s review. The trustee must investigate the debtor's financial affairs, and the debtor must cooperate and turn over all financial records to the trustee.
Tax documents, such as personal income tax returns, business income tax returns, W-2s and 1099s, and depreciation schedules may provide the trustee with information on:
In a Chapter 13 bankruptcy, you must contribute all disposable income to the Chapter 13 plan for three to five years. Your income will likely change over this period. The trustee uses the returns to monitor it and determine whether your Chapter 13 plan should be modified to include additional post-petition income not anticipated at the plan confirmation.
The procedure varies by court and trustee. Some trustees make case-specific requests for the returns, some include language in the confirmation order requiring yearly returns, and, in some areas, you’ll find the requirements in the local rules.
Learn more about the Chapter 13 repayment plan.
Did you know Nolo has been making the law easy for over fifty years? It’s true—and we want to make sure you find what you need. Below you’ll find more articles explaining how bankruptcy works. And don’t forget that our bankruptcy homepage is the best place to start if you have other questions!
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]]>If you’d like to start with the basics, start out by reading our bankruptcy fraud overview article, What Is Bankruptcy Fraud?
One of the primary roles of the bankruptcy trustee is to protect the interests of creditors, and the trustee takes steps to do so at every stage of the bankruptcy process.
The trustee assigned to the matter reviews the bankruptcy paperwork the debtor fills out and files with the court and compares it to the financial documents the filer must supply. Often called “521 documents,” the financials include bank statements, paycheck stubs, and tax returns.
However, a filer must provide anything the trustee needs if it’s reasonably related to the debtor’s finances. Expect to turn over retirement account statements, profit and loss statements, monthly mortgage and car loan statements, your marital settlement agreement, and more.
The trustee fulfills many responsibilities related to identifying fraud at the 341 meeting of creditors, the hearing all filers must attend. As part of verifying the debtor’s identity and ensuring the accuracy of the petition, the trustee will ask whether the debtor:
While these are standard questions all trustees ask, the trustee will ask more specific questions related to the case. In most instances, a bankruptcy lawyer can predict a trustee’s questions and, when appropriate, handle potential issues before the 341 meeting of creditors. Learn what happens after the 341 meeting of creditors.
Creditors can also attend the meeting and ask questions. Creditors will appear at 341 meetings when considering filing an “adversary proceeding” or bankruptcy lawsuit asking the court not to “discharge” or erase the debt owed to the creditor.
For instance, a lender might want information about:
The lender might know or suspect criminal activity, too. These situations can often tip off a trustee to potential fraud and provide the trustee with additional information.
Often, a bankruptcy trustee will learn about fraud from a third party not directly involved in the bankruptcy. For instance, the state attorney general might be pursuing the debtor in another court or want to inquire about the financial practices of a company owned by the debtor.
It’s also not uncommon for a former business partner to surface, claiming a mishandling of funds or business property. Or an angry ex-spouse might report a failure to list assets or income in the bankruptcy petition.
When allegations of fraud enter into a bankruptcy matter, the next step usually involves obtaining information informally and through discovery. Once the trustee or a creditor has enough evidence, the case will move into litigation.
If a creditor or someone else appears at the 341 asking questions, expect the trustee to continue the 341 meeting to another day. Most trustees will give the creditor an hour or more to explore financial wrongdoings.
The trustee can also request additional financial information, photographs, and property appraisals. Some trustees will conduct property inspections and inventories of homes, businesses, storage spaces, and safe deposit boxes.
A trustee who suspects fraud but doesn’t have sufficient evidence to bring the matter before the court can compel testimony and document production from just about anyone through a Bankruptcy Rule 2004 examination. The scope of the examination is broad enough to allow inquiry into any action that could be considered fraud in a bankruptcy case.
For instance, Bankruptcy Rule 2004 authorizes the bankruptcy trustee to examine:
The Rule 2004 examination process resembles a deposition proceeding in state court.
Sometimes the trustee learns a debtor is actively depleting assets, and nothing will remain when the case finishes in bankruptcy court. If the trustee can show the debtor is depleting assets belonging to creditors, the trustee can ask the court to issue a restraining order or injunction to stop the activity.
In most cases, the bankruptcy court will hold a hearing before issuing an order. However, in emergencies, the order will let the trustee recover the property without first telling the person possessing the assets.
A trustee with evidence of fraud can file an adversary proceeding or lawsuit against the appropriate party in bankruptcy court. The point of an adversary proceeding is to gain money for creditors instead of prosecuting a crime (more below).
The trustee can use an adversary proceeding to do many things.
The trustee can also use the process to ask the bankruptcy court to deny or revoke the discharge of a bankruptcy debtor engaging in wrongdoing.
Adversary proceedings are similar to lawsuits filed in other courts. They can proceed to trial more quickly, depending on the particular case. An adversary proceeding begins by serving the initial pleadings by first-class mail, eliminating the need to chase down someone avoiding service.
The trustee can sue anyone involved in the matter, not just debtors and creditors. Find out more about adversary proceedings in bankruptcy.
Sometimes the fraudulent activity rises to the level of criminal activity, punishable by fines and incarceration. When a bankruptcy trustee suspects criminal fraud, the trustee refers the case to the Office of the United States Trustee before being assigned for investigation to the United States Attorney, Federal Bureau of Investigation (FBI), or another appropriate federal agency.
Examples of bankruptcy crimes include:
Like other federal crimes, the United States Attorney prosecutes these cases in the federal courts.
A trustee will retain counsel to handle contested matters before the bankruptcy court. So if your trustee has hired an attorney, the trustee will likely initiate litigation against you.
If you paid your bankruptcy lawyer a flat fee to complete your bankruptcy, it likely doesn’t include litigation. Check your retainer agreement. Then decide whether you’re comfortable with your bankruptcy lawyer handling the issue or if you should retain a lawyer specializing in bankruptcy litigation.
Did you know Nolo has been making the law easy for over fifty years? It’s true—and we want to make sure you find what you need. Below you’ll find more articles explaining how bankruptcy works. And don’t forget that our bankruptcy homepage is the best place to start if you have other questions!
Our Editor's Picks for You |
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Articles You Might Enjoy |
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Helpful Bankruptcy Sites |
We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.
]]>If I get a cash gift after I file for Chapter 7 but before the case closes, can the bankruptcy trustee take it?
If someone who isn’t under any obligation to give you anything gives you a gift after you file for bankruptcy, it will be yours to keep. By contrast, a Chapter 7 trustee could take a cash gift you received after you filed for bankruptcy if you became entitled to receive it before you filed the case.
You can learn how Chapter 7 works in A Chapter 7 Bankruptcy Overview.
The general rule is that anything you earn or acquire after you file for Chapter 7 bankruptcy is yours to keep and doesn’t become part of the bankruptcy estate. So, if you’re given a birthday gift a month after you file, you won’t need to worry that the trustee will take it (unless there’s some concern about bankruptcy fraud).
Under the bankruptcy law, there are certain things that the Chapter 7 trustee can take even if you acquire them or become entitled to acquire them within 180 days after you file your bankruptcy case. These include:
Of course, a filer doesn’t give up property that’s covered by an exemption. If your state exemptions would have protected any of the property above, and you claimed the exemption when filling out your bankruptcy paperwork or amended your schedules to claim the item as exempt, you’d be able to keep it.
If you own property before filing for bankruptcy but don’t receive it until after you file, it will be part of the bankruptcy estate. You’ll have to be able to protect it with an exemption to keep it.
Some examples of things that you might receive after bankruptcy and still might not be able to keep include:
Find related information about bankruptcy trustee powers and duties and bankruptcy trustee compensation.
]]>The documents you’ll need are the same whether you are filing a Chapter 7 bankruptcy or Chapter 13 matter, with slight variations. However, for exact documentation requirements, be sure to check the guidelines provided by your district and your specific bankruptcy trustee. Not only do some trustees require more proof than others, but the particular evidence you'll have to produce will also be determined by the facts of your case.
Below are the most commonly required documents in bankruptcy.
You’ll usually need to provide copies of your tax returns or tax transcripts for the last two years in a Chapter 7 case, and four years in a Chapter 13 matter. If you have unfiled returns because you weren’t required to file—for instance, your only income source was nontaxable disability benefits—you’ll need to explain why. A short letter of explanation will usually work.
If you merely failed to file, you can expect the trustee to require you to do so and provide copies before concluding or approving your case—especially in a Chapter 13 case.
If you’re an employee, you’ll need copies of pay stubs for the six-month period before the bankruptcy and your last two W-2s. You’ll also need proof of other income sources such as Social Security funds, disability, or rental properties.
If you’re self-employed and filing for bankruptcy, you’ll probably need to provide a year-to-date profit and loss statement, as well as for the two full years before filing. Also be prepared to present business bank statements to verify the profit and loss amounts.
If you own real estate, you’ll likely need to provide proof of the property’s fair market value. You might choose an online valuation, a broker’s price opinion, or a full appraisal, depending on the potential amount of equity or the guidelines of your district.
Also, plan to provide mortgage statements showing current loan balances and payment amounts. Some trustees also require the deed of trust and proof of home insurance.
If you have a car, you'll need to provide proof of its value. Most trustees will accept an online printout from nada.com or kbb.com.
If you have a car loan, you’ll need a recent loan statement showing how much you owe and what your monthly payment is to prepare your paperwork. You might need to produce it along with copies of your registration and proof of insurance, depending on the particular trustee.
Recent bank and retirement account statements must be provided to the bankruptcy trustee for all accounts.
When you go to your hearing with the trustee, you will be asked to show valid photo identification such as a driver’s license and proof of your social security number.
If you have other circumstances affecting your bankruptcy, such as being required to pay alimony, child support, or another unusual expense, you’ll need to show proof of these costs. For instance, it’s common to provide a copy of a child support order. If you’ve divorced recently, you might need to produce an order or marital settlement agreement documenting a property distribution.
Most of the information you’ll need to fill out your bankruptcy paperwork will be in those documents, including asset value and income information. For example, you’ll use the income documentation to calculate your average monthly income. Similarly, you’ll look to your real estate and car documentation to fill in the parts regarding the value of these assets, your lenders, and monthly loan payments.
However, you’ll need to gather more information to fill out the rest of your bankruptcy petition, including creditor, co-debtor, expense, and pending lawsuit information. Start by finding loan statements or bills so that you can list each of your creditors in the bankruptcy. Alternatively, you can obtain a credit report that shows all your debts; however, be aware that you’re required to list the creditor’s billing address, and that address rarely shows up on your credit report. So it’s best to use the credit report as a tool to verify that you’ve listed all of your debts only.
You should also look at your utility bills and other expenses to determine accurate figures for your monthly utilities and expenses, such as food, dry cleaning, and transportation to name a few. Usually, you won’t be required to send these documents to the trustee (unless your expenses are higher than usual, in which case you might trigger a bankruptcy audit).
In addition to the documents above, the law requires that you complete a credit counseling class and obtain a certificate before you can file for bankruptcy. These courses can usually be completed online in under a couple of hours.
(To learn more about this requirement, see Credit Counseling & Debtor Education Requirements in Bankruptcy.)
]]>Your priority unsecured debts, such as outstanding taxes and support obligations, will be paid first. Any remaining creditors with nonpriority unsecured claims will receive a pro rata share (percentage) of any funds left after the trustee pays the priority creditors in full.
Here's what to expect if the trustee sells your home in the bankruptcy.
Under most circumstances, the bankruptcy trustee will take the same steps to sell your house as you would. The trustee will list the property for sale with a real estate broker and negotiate a price with a buyer.
The trustee must go through a few additional hoops too, including:
The sale could delay the closure of your bankruptcy depending on the real estate market and how long the trustee wants to keep the house listed. For instance, in a down market, it would be unusual for it to take a year or more to sell a vacation home.
You’ll still receive your bankruptcy discharge (the order that erases qualifying debt) after three to four months, assuming all proceeds normally. But the bankruptcy case will remain open until the trustee sells the assets or relinquishes them.
Find out more about how long Chapter 7 will take to complete.
Removing all of the liens from the property and selling it with a clear title can speed up the sales process. A lien lets a lender take the house, sell it at auction, and pay off the mortgage if the purchaser fails to pay the loan.
To circumvent the liens, a trustee might get a court order allowing the liens to attach to the sale proceeds. This approach retains the lender’s right to the funds, and if any disputes arise between the various lien holders regarding payment order or the amount, the issues can be sorted out by the court afterward without delaying the sale.
If there are no disputes, the trustee pays lien holders and any exemptions you claimed. The remainder is used by the trustee to pay the other creditors in your bankruptcy case.
Learn more about the Chapter 7 bankruptcy process.
]]>It’s likely that you’ll be able to protect (exempt) at least some of the proceeds for yourself. If, however, you can’t claim the potential lawsuit recovery as exempt, the trustee will take the money you win in the personal injury lawsuit and pay your creditors in the bankruptcy.
You don’t lose everything you own when you file for bankruptcy. In both a Chapter 7 or a Chapter 13 case, you’ll be able to protect property that your state believes you’ll need for a fresh start.
For instance, state exemptions usually allow you to protect things such as:
Some states allow you to choose either the state or federal exemption set—whichever will work best for you.
The exemptions available for a personal injury recovery varies widely from state to state. There is also a federal exemption available for proceeds from personal injury lawsuits but, like most of the state exemptions, it’s for a limited amount.
You might have a wildcard exemption available to exempt additional portions of the proceeds. A wildcard exemption can be used on any property of your choosing.
For more information on exemptions, including how they work, see Bankruptcy Exemptions.
Even if you can claim the proceeds as exempt, you still must list the personal injury judgment, lawsuit, or claim (if the lawsuit has not been filed as of the date you file for bankruptcy) in your bankruptcy schedules. (To learn more about the bankruptcy schedules, see Completing the Bankruptcy Forms.)
What will happen next will depend on the type of bankruptcy you file.
Find information on the role of bankruptcy trustees and bankruptcy trustee fees.
]]>Don’t be surprised if a family law action instituted by a disgruntled ex-spouse, or a lawsuit filed by an angry business partner, spills into your bankruptcy case. Even though bankruptcy can help clean up such messes, filing won’t stop a vindictive individual from stirring up trouble with the trustee. In fact, it provides a convenient place to do that very thing.
Assuming that you’re the innocent party, you might be able to minimize potential damage by explaining the situation to the trustee sooner rather than later—and certainly before the offended party makes an unresolved grievance known at the 341 meeting of creditors (the appearance that all filers must attend). But that isn’t the only concern you might want to discuss privately. Here are a couple of others:
It’s self-explanatory why you ought to discuss the first issue privately. Talking to the trustee about high expenses beforehand can streamline the process, because it allows you time to provide proof in the way of receipts or other documentation. If you resolve all of the trustee’s issues before the meeting of creditors, the trustee will conclude the meeting. If the trustee needs additional proof, or more time to evaluate the case, you’ll have to return to the court on another day.
When you file for Chapter 7 bankruptcy, you’re only allowed to exempt (keep) a certain amount of assets. The trustee’s primary duty is to investigate the finances of bankruptcy filers and find property to sell for the benefit of the creditors.
Although it would be a waste of resources for a trustee to investigate the finances of a destitute filer, if you have valuable nonexempt property that you must give up, such as a failing bakery (the equipment will have value) or a summer home on the coast, it’s another matter. And your instincts are likely correct—the trustee will be sniffing around for additional stuff.
One way to lessen a trustee’s suspicion (and make your life easier) is to contact the trustee and make it clear that you’re willing to work with the trustee by amicably turning over the property. Again, this is a conversation that’s more comfortable to have over the phone instead of in front of a group of strangers at the meeting of creditors.
After you file your case, the court will send out a notice called the Notice of Chapter 7 Bankruptcy Case. The trustee’s name, address, phone number, and email address will appear at the bottom of the first page of the form.
Before you talk with the trustee—especially if you suspect an accusation of fraud might be coming your way—you’ll likely want to consult with an attorney. Once you’re sure that making the call is in your best interests, you can get the conversation started in the following way:
Depending on the property type, the trustee might give you particular instructions, such as to forward rental property or trust fund payments, or might arrange to set up a time to view the property. It also isn’t unheard of for a trustee to quickly decide that your dance studio or mobile glass repair business is of no value to the bankruptcy estate (and abandon the property). This type of advanced information might afford you the relief of knowing your property is not at risk or give you time to acclimate to the trustee selling it.
Also, if after speaking with the trustee you learn that the trustee wants to retain the property and sell it for the benefit of the creditors, you can ask if you can buy it back at a discounted price. Not only will the trustee likely be happy to sell it to you, contacting the trustee shortly after filing your case might give you the additional time you need to figure out how to get the necessary funds to do so (such as borrowing the money from friends or relatives). (Learn more by reading How to Buy Back Your Property From the Bankruptcy Trustee). [LINK]
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