It's understandable that you might be worried about losing property or your business after filing for Chapter 7 bankruptcy—or, even worse, worried that the bankruptcy trustee (the court-appointed official who oversees your case) might inquire about seemingly questionable conduct. Instead of worrying, consider taking a proactive approach by contacting the trustee. Doing so accomplishes several things: It establishes your forthrightness (which is important in bankruptcy) and gives you insight into what the trustee might do. If you're not sure whether contacting the trustee is in your best interests, seek out advice from a bankruptcy attorney.
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]