One of the primary duties of the bankruptcy trustee—the official appointed to oversee your case—is to find money to repay creditors.

In Chapter 7, the trustee looks for property to sell or additional income that will justify converting the case to Chapter 13. In Chapter 13, the trustee checks whether you could—or should—be paying more to creditors than what you’ve proposed.

In both cases, the bankruptcy trustee will:

• review the exempt property list to determine whether you can keep all of your assets
• compare your income to the financial documents provided
• inspect your budget for reasonableness, and
• look for signs of transferred or hidden assets.

The Trustee Will Review Your Schedules

Most trustees will compare the information provided 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).

What the Trustee Will Look For in Your Schedules

Here’s what the bankruptcy trustee wants to find in your schedules.

Property You Aren’t Entitled to Protect

You’re allowed to exempt (keep) a certain amount of property in bankruptcy. In Chapter 7, the trustee sells nonexempt property for the benefit of your creditors. In Chapter 13, you’ll have to pay the value of nonexempt assets in your plan.

The trustee will likely be particularly on the lookout for these things:

• income producing assets such as investment real estate, oil and gas leases, business interests
• pending claims or lawsuits filed by you
• nonexempt (unprotected) real estate
• personal property not claimed as exempt
• liens that may reduce value of assets to the estate
• tax refunds
• divorce settlements, and
• partially exempt assets.

You can find out more by reading What Is Nonexempt Property in Bankruptcy?

Transactions the Trustee Can Undo

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:

• excessive gifts (in value or number)
• transfers for less than full value
• transfers that prefer one creditor over others, and
• payments to relatives or others close to you.

Find out more about what the trustee will look for by reading The Bankruptcy Trustee and Preference Claims.

Red Flags in Your Schedules

Finding assets isn’t always straightforward. The trustee also looks for signs that something is amiss. Here are a few examples.

Hidden Assets

The following items in your schedules might lead the trustee to hidden assets:

• undervalued assets (you claim your property is worth less than its value)
• assets not in line with income levels (you own expensive artwork or multiple luxury cars)
• debts or expenses for assets not listed in the schedules
• a claim of a property loss from theft with no police report, or a casualty loss with no insurance claim
• missing financial records
• closed financial accounts (how much was in the account and where did the money go)
• safe deposit boxes (indicates a need to safeguard small valuables, such as jewelry or property ownership records)
• property you claim that your keeping for someone else (it might be yours)
• money owed to you such as trust income, probate interests, insurance claims, or refunds due, and
• income from sources not listed.

Learn why you should never try to hide property in bankruptcy.

Issues With Property You Claim You Can Keep

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:

• the value of the property
• prior addresses and moves (to determine which state’s exemptions apply), and
• marital status (the rules can get complicated if only one spouse files for bankruptcy).

Chapter 13 Plan Issues

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:

• your marital status and your spouse’s income (your spouse’s income gets included)
• debt that exceeds statutory limits (you won’t qualify for Chapter 13)
• excess income not included in your plan, and
• whether you transferred assets shortly before filing to try to avoid paying creditors what they’re owed.

Learn more about your obligations under the Chapter 13 repayment plan.

Some of the Trustee’s Investigative Powers

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.

The Trustee Will Question You at the Meeting of Creditors

Everyone who files for bankruptcy must go to the bankruptcy court at least once to attend the meeting of creditors. You’ll be placed under oath and your identification will be reviewed.

Then the trustee asks each filer the same set of standard questions, such as whether you:

• reviewed the petition before signing it
• need to change (amend) your paperwork
• reported all of your income and assets, and
• expect to receive money from any source.

The trustee will also ask you specific questions about any unusual issues in your particular petition. Once complete, creditors in attendance will be invited to ask you questions about your financial situation; however, it’s rare for a creditor to appear.

You Might Be Questioned at a Longer Proceeding

If the trustee isn’t satisfied, other recourse exists. For instance, a trustee who needs more time to question you can do so by setting 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 Can Inspect Your Property

The trustee isn’t limited to asking questions. The trustee can also:

• inspect property
• take inventory of the items in houses and businesses
• tour a storage facility
• review your safe deposit box contents, and
• initiate other relevant investigations.

You’re expected to comply with any reasonable request.

Explaining Why You Filed for Bankruptcy

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.

And, even if the trustee finds a particular transaction suspicious, explaining what caused your financial problems might help the trustee understand your motivation for filing.

Here are a few common reasons that people find themselves filing for bankruptcy:

• job change or loss
• medical bills
• not enough money to pay reasonable debt (although excessively large debt might suggest fraud), or
• a failed business.

Often, a bankruptcy attorney will be able to predict what the trustee might find questionable and 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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