A bankruptcy trustee is an independent contractor who is not an employee of the bankruptcy court. A bankruptcy trustee is essential to the operation of the bankruptcy system because they oversee a bankruptcy case. In California, trustees come in handy in all bankruptcy cases except Chapter 11 and Chapter 9 bankruptcy cases. The duties of a trustee will vary depending on the type of bankruptcy they are appointed to oversee. When you file for bankruptcy under Chapter 7 or Chapter 13, a trustee will play an important role in the case. The court requires bankruptcy trustees to treat debtors fairly. However, this is not always the case. When filing for bankruptcy, a trustee should not be your primary representative. You should also have a competent bankruptcy attorney to oversee your bankruptcy case. While filing for bankruptcy, you can count on the Los Angeles Bankruptcy Attorney for the best legal representation.
The Role of a Trustee Under Chapter 7 Bankruptcy
When you file for bankruptcy under Chapter 7, the court selects a trustee responsible for administering your bankruptcy case. Under Chapter 7 bankruptcy, a bankruptcy trustee has numerous responsibilities. The trustee will examine all your paperwork and ensure it is accurate. A trustee will also sell the property that you are not qualified to keep and distribute the money to your creditors.
The trustee will receive a small payment for going through your paperwork to ensure it is correct. A trustee also receives a payment for selling any of your properties. With this payment incentive, the trustee is compelled to analyze the debtor's property, including the property to be transferred before bankruptcy filing and property to be sold.
Even if a bankruptcy trustee must be fair to you, their aims and interests may not always be aligned to yours. The level of assistance a trustee offers may vary from one trustee to the other. Some of the specific duties of a bankruptcy trustee under Chapter 7 bankruptcy are:
Examining Your Bankruptcy Petition
When filing for bankruptcy, you have to complete some paperwork, including the bankruptcy petition. In the paperwork, you will disclose crucial details, including your financial information. You will also provide information regarding your property, debts, income, and other financial affairs. You may also have to provide additional information like your tax returns, information on your assets, and your paystubs.
The role of the trustee is to review the paperwork and verify the authenticity of the information therein. For the trustee to verify whether the information you have provided is reliable, they will evaluate your financial forms and other discrete and independent information sources. If you have outlined your monthly income in your paperwork, the trustee will examine your payslips to determine if your provided financial information is accurate.
Arranging the Creditor’s 341 Meeting
After about one month after filing for bankruptcy, you have to attend the credit 341 meetings in the bankruptcy trustee's presence. During this meeting, creditors will ask you questions, especially if they feel you could be hiding assets. However, in most cases, creditors do not attend the hearing. The bankruptcy trustee's role is to oversee the meeting and interrogate you regarding the bankruptcy documents’ information.
Both the creditors and the bankruptcy trustee will interrogate you under oath during this meeting. You also have to prove your identity at the meeting of creditors. Therefore, you have to provide two forms to prove who you are, usually the driver's license or a passport or military identification card. You could also use your social security card to verify your identity at the hearing.
Other bankruptcy filers may be scheduled the same hour at the meeting of creditors. If your case does not come first, you will observe other filers and understand the process because all the cases follow the same pattern. The bankruptcy trustee will invite all your creditors though most creditors rarely show up for the hearing. Creditors will have a limited time to ask you questions. Thus, most of them do not find creditors' meetings useful.
How will you learn about the creditor's meeting? The court will send you a notice to inform you about the hearing, which outlines important information, including the place, time, and date of the meeting. The document will also notify you of your case number and the filing date. The court's notice will also outline the name and the contact information of your bankruptcy trustee.
You will go up to the bankruptcy trustee desk at the hearing, and they will examine under oath. Under Chapter 7 bankruptcy, the trustee has the mandate to sell you non-exempt assets to pay your outstanding debts. Therefore, the majority of the questions at the meeting will revolve around your assets.
If you are working with a bankruptcy attorney, the attorney will have information regarding what the bankruptcy attorney is likely to ask beforehand. Therefore, the attorney will help you resolve any issues that are likely to arise at the meeting beforehand.
If creditors choose to attend the 341 hearing, they will also have time to examine you under oath. However, the bankruptcy trustee only allocates limited time to the creditors because time is limited. The creditors may seek to know about the type and the location of your assets.
After asking all the necessary questions, the bankruptcy trustee will conclude the meeting if they do not require further information from you. You will not have to attend another hearing after the trustee concludes the meeting of creditors. However, the trustee may set another hearing if they require further information from you. The trustee may also set an additional meeting if they want to give your creditors additional time to examine you. If all the trustees require further documentation, they might take the consecutive meeting off the calendar if you provide the requested documentation on time. However, you will have to attend an additional hearing if the bankruptcy trustee has more questions.
Selling/Disposing of Your Assets
The bankruptcy trustee also has the role of selling the property you can't protect, also known as the non-exempt property. After selling your non-exempt properties, the trustee will distribute the proceeds to your creditors. Under Chapter 7 bankruptcy, some of your assets will be exempt, meaning that the bankruptcy trustee can't sell them. Some of the property that may qualify as exempt property include:
- A viable retirement account
If you have non-exempt property beyond or above the level allowed by California bankruptcy law, the trust will sell it to pay creditors. Therefore, before filing for bankruptcy, it is important to ensure you understand its impact on your assets. Most judges will be reluctant to permit you to apply for an automatic stay when you realize that the bankruptcy trustee is about to sell your assets.
If you do not have non-exempt assets, the bankruptcy trustee will write a report outlining that you do not have non-exempt assets. In this case, the bankruptcy trustee will not make any payments or distributions to your creditors. At times, you might disagree with the bankruptcy trustee regarding the exemption of some of your assets. In this case, the judge will come in to determine which assets are exempt or no-exempt.
If you have some assets that you need to surrender or turnover, you, your bankruptcy attorney, and the bankruptcy trustee will make the necessary arrangements.
Preventing Improperly Executed Security Interests
The court grants the bankruptcy trustee powers to prevent preferential or improper property transfers and execution of security interests. For instance, you might have paid certain debts, especially to your relatives, before filing for bankruptcy. It is evident that you prefer certain creditors over others, and you made preferential payments, the bankruptcy trustee has the power to undo such payments. After undergoing the preferential payments, the bankruptcy trustee will recover money to distribute among all the creditors.
The bankruptcy trustee will also consider the liens and security interest creditors have placed on your property. If the trustee learns that a creditor did not place the lien properly, they may avoid the lien and dispose of the property as if no lien existed. The trustee may sell property despite the lien's existence as long as the creditor did not prepare proper loan forms or due to poor lien recording.
Some of the transactions that a bankruptcy trustee can reverse include:
- Excessive gifts in number or value
- Transfers you made in less than their full value
- Transfers you made to one preferred creditors and left out other creditors.
- Transfers you made to your relatives, friends, or other members close to you
The Role of a Bankruptcy Trustee Under Chapter 13 Bankruptcy
If you are planning to file for Chapter 13 bankruptcy under California law, you should understand the role of a bankruptcy trustee in your case. A Chapter 13 bankruptcy might take between 3 and 5 years to conclude. The judge assigned to your bankruptcy case will play a smaller role and only intervene in a dispute the bankruptcy trustee can't resolve.
Under Chapter 13 bankruptcy, the trustee is independent. The trustee does not represent either the person filing for bankruptcy or the creditor but is responsible for the estate. The primary duties of a bankruptcy trustee under Chapter 13 bankruptcy in California are:
- Being accountable for the property received during bankruptcy
- Investigating the debtor's financial affairs
- Ensuring that debtors perform the debtor's intention
- When necessary, the trustee opposes the discharge of the debtor.
- Examining the proofs of claims and object when necessary
- Availing the necessary information regarding the estate and its administration as per the request of a party in interest
- Making a final report and filing a definitive account with the court and the United States Trustee outlining the administration of the estate
- The trustee will appear at all the hearings regarding your property value subject to a lien. The trustee will be there to confirm the payment plan and modification after its confirmation.
- If there is a claim for domestic support obligation, the bankruptcy trustee will provide the relevant notice to the claim holder and the applicable child support enforcement agency.
The bankruptcy trustee will have additional duties under Chapter 13 Bankruptcy if the debtors engage in business:
- The trustee has the role of investigating the debtor’s acts and their financial condition, assets, and liabilities.
- The trustee will also assess the debtor’s business’s desirability or suitability and the business's continuance. The trustee will consider any information relevant to the bankruptcy case.
- After completing the investigation, the bankruptcy trustee will file a statement outlining the findings of their investigation.
Even under Chapter 13 bankruptcy, the debtor still meets with the creditors in the 341 hearing. The trustee and the debtor will ask the debtor about his/her financial affairs and assets at the hearing. However, unlike in Chapter 7 bankruptcy, the trustee has no right to sell the debtor's property or assets. Instead, the trustee offers financial counseling and management and helps the debtor design an appropriate repayment plan. Even if the trustee is responsible for distributing payments to creditors, they may withhold the payment if creditors cannot prove their debts.
The trustee will help you to administer your Chapter 13 payment plan. Under Chapter 13 bankruptcy, you will propose a payment plan to your creditors over three to five years. You will not make the payment directly to your creditors. Instead, you will make the payments to your bankruptcy trustee, who will then distribute the payments to your creditors who have valid claims. The trustee will determine whether the repayment plan suggested by the debtor is viable and ensure the claims filed in the case are in order. A trustee aims to ensure that a debtor devotes their disposable income to the payment of outstanding debts.
A trustee can make your case wrap up quickly and without any hitches. However, a bankruptcy trustee could also make your bankruptcy case drag for a lengthy period. The most important thing is to cooperate with the bankruptcy trustee in every aspect of your bankruptcy case. Ensure you provide all the information the trustee requires. You should also ensure you only provide honest information to the bankruptcy trustee.
The Limitation of a Bankruptcy Trustee
Despite the many roles that bankruptcy courts assign to trustees, trustees have some limitations and can't undertake certain activities, including:
- A bankruptcy trustee can't play the role of a bankruptcy attorney
- The trustee will not provide you with legal advice. You should not rely solely on the bankruptcy trustee to advise you on what to do
- A trustee can't answer legal questions on your behalf
The role of a bankruptcy trustee is mainly administrative. However, a bankruptcy trustee is critical, and the court must assign one to manage your bankruptcy case. A bankruptcy trustee has a significant impact on the progression of your bankruptcy case.
What You Should Know About a Bankruptcy Trustee
It is crucial to understand several factors about a bankruptcy trustee to ensure that your case runs carefully and smoothly:
- A bankruptcy trustee is not your enemy. You should not view a bankruptcy trustee as someone interested in taking your money or selling your property. Most bankruptcy trustees in California are honest and reasonable. They are professionals who are just trying to do their job as required by the court.
- When handling your bankruptcy case, a trustee must do an accurate listing of your assets because inaccurate disclosures might lead to the trustee's criminal prosecution. False disclosures might also make the trustee lose the discharge.
- A bankruptcy trustee is not the only aspect of bankruptcy that you should know about. If you are considering filing for bankruptcy in California, you will need a bankruptcy attorney who fully understands California bankruptcy laws.
- Your bankruptcy attorney works for you and will provide the best legal guidance and represent you in court. Your bankruptcy attorney aims to present you in the best way and take care of your interests.
- A bankruptcy trustee has to ensure your case runs smoothly. However, a trustee is more concerned about the bankruptcy process and not your interests. The trustee will focus on making payments to your creditors while ensuring your bankruptcy case complies with the law. The trustees want everyone in the bankruptcy, including debtors and creditors, to receive fair treatment. Therefore, they will not focus on your well being as an individual but on how the case runs.
- Most legal experts argue that despite being considered natural, bankruptcy trustees work for your creditors. They are usually attorneys or accountants who also serve as officers of the court. Even if trustees ensure that everyone is treated fairly, they mainly work to gather money for the creditors.
Find a Los Angeles Bankruptcy Attorney Near Me
A bankruptcy trustee will play a significant role in your bankruptcy case, whether you file for Chapter 7 or Chapter 13 bankruptcy. However, it is essential to note that a bankruptcy trustee works for both you and the creditors. Therefore, unlike a bankruptcy attorney who focuses solely on your case outcome, a trustee focuses on the proper administration of the bankruptcy case. It is crucial to work with a bankruptcy attorney alongside a trustee. The Los Angeles Bankruptcy Attorney provides the best legal representation for bankruptcy cases in California. Contact us at 424-285-5525 and speak to one of our attorneys.