There are a lot of rules and regulations that come with filing Chapter 7 or Chapter 13 bankruptcy. These rules are often enforced by the bankruptcy trustee. The trustee is a neutral party that can help with resolving bankruptcy cases and administering assets or monthly payments to satisfy creditors.
Trustees can review your case documents, tax returns, and bank statements when you file for bankruptcy, and it is their job to investigate a debtor’s financial affairs. In some cases, they will pursue legal action when they believe a debtor has committed an act in violation of bankruptcy laws. A bankruptcy lawyer from our firm could help you avoid running afoul of a trustee and otherwise navigate filing for bankruptcy.
What Does the Bankruptcy Trustee Do?
If you have never filed for bankruptcy before, you are probably wondering what a bankruptcy trustee does. Whether you have filed for protection under Chapter 7 or Chapter 13, a trustee could be highly involved in your case. The trustee is involved in liquidating assets and paying creditors in some cases, specifically for Chapter 13 bankruptcies.
Another big part of what a bankruptcy trustee does is look for evidence of fraud. This can come in many forms, from identifying hidden assets to noting fraudulent transactions made prior to the bankruptcy filing.
Even when a bankruptcy trustee investigation begins, the outcome is never guaranteed to be harmful to your case. Often, your attorney can show the trustee that the transactions in question are in compliance. Having the guidance of an attorney is crucial when dealing with a trustee. They can avoid complications and prevent any errors from impeding the bankruptcy process.
What Trustees Investigate in Chapter 7 Cases
Trustees in Chapter 7 bankruptcy cases have a lot of things to keep track of. While they do not manage monthly payment plans for debtors like in Chapter 13, these trustees are more likely to be tasked with liquidating assets or reviewing whether the debtor is eligible for bankruptcy in the first place.
Can the Debtor Pass the Means Test?
Chapter 7 bankruptcy is means tested, meaning an applicant will not qualify for protection under the bankruptcy code if they have too many assets. This investigation involves reviewing the court filings and financial records provided by the debtor, as well as any asset transfers that occurred shortly before filing for bankruptcy.
If the trustee determines a debtor does not pass the means test, they have two options. They could move to have the case dismissed or that the case be converted to a Chapter 13 bankruptcy.
Is the Debtor Barred from Filing Chapter 7?
There are certain individuals who are not allowed to file for Chapter 7 bankruptcy at a given time. For example, a person that has recently had their bankruptcy case dismissed under certain circumstances must wait at least 180 days to file again. If the debtor files too soon, the trustee could move to have the case dismissed.
Are There Non-Exempt Assets?
Most people going through Chapter 7 bankruptcy rely on exemptions to protect their assets from liquidation. From your home to your clothing, these exemptions often cover everything a debtor owns. However, trustees are tasked with looking for non-exempt assets. When they find them, they can liquidate them to satisfy creditors.
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What Trustees Investigate in Chapter 13 Cases
Chapter 13 bankruptcy is very different from Chapter 7. There is no means test to determine eligibility and there are no requirements that you face specific debts to qualify. For that reason, trustees in these cases are primarily looking at different things compared to Chapter 7 trustees. Of course, there are many signs of fraud that are identical across both types of bankruptcy cases.
Looking for Ability to Repay Debts
Because Chapter 13 is not means tested, these trustees are not tasked with determining if the debtor makes too much to qualify. Instead, they focus on the debtor’s overall financial situation and how much they can afford to repay in a chapter 13 payment plan. They also will investigate evidence of fraud or wrongdoing, as necessary.
Evaluating a Case at the Meeting of Creditors
One of the aspects common to both Chapter 7 and Chapter 13 bankruptcy is the meeting of creditors held within 30 to 45 days after the bankruptcy petition is filed. At the meeting of creditors, the trustee meets with the debtor and their attorney to review the case information and discuss any questions the trustee may have. This is often informal, but the trustee is looking to confirm specific details about the debtor’s situation as well as the authenticity of their bankruptcy documentation.
How Trustees Deal With Suspected Fraud
Bankruptcy trustees have several tools available when they suspect fraud. Some of these tools are useful for developing evidence of fraud, while others can be used to penalize debtors.
Investigating with Rule 2004 Examinations
Trustees have the option to use something known as a Rule 2004 examination. This is used when the trustee believes that fraud exists, but they need more information or testimony from the debtor to determine or prove the suspected fraud. In a Rule 2004 examination, the trustee can compel a debtor to testify about their finances. They can also require the debtor to provide documents related to their bankruptcy. During the examination, the trustee can question the debtor about their financial matters related to the bankruptcy estate.
Filing Adversary Proceedings Against the Debtor
When there is a strong case for fraud, the trustee has the power to file something called an adversary proceeding. This is a type of litigation that occurs within a bankruptcy case. If successful, the trustee could be granted significant authority by the court to unwind fraudulent transfers or secure hidden assets.
Objecting to the Discharge of Debt
Another recourse the trustee has is filing an objection to discharge. This is common when the trustee determines that the debtor is not entitled to discharge their debts due to fraud or some other reason. The team at Farmer & Morris Law, PLLC could work with the trustee to defend against such objections. We can also work to remedy your financial situation and help you get a fresh start.
Talk to an Attorney About Bankruptcy Trustee Investigations
The bankruptcy trustee is tasked with investigating every debtor, but that does not mean they will cause problems in your case. With our bankruptcy law firm, you could navigate these investigations and secure the fresh financial start you deserve. An experienced bankruptcy attorney will be able to evaluate your case and determine in advance what problems may be likely to arise with a trustee. Reach out to the team at Farmer & Morris Law, PLLC today to discuss your situation. Everything you share stays within the confines of your attorney-client relationship, and we can offer legal advice throughout our partnership.