One of the primary duties of the bankruptcy trustee appointed to oversee your case is to find money to repay creditors. In both Chapter 7 and 13 cases, the bankruptcy trustee will:
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.
Did you know Nolo has made the law easy for over fifty years? It's true—and we want to ensure 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.