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What is a Bankruptcy Trustee in a Chapter 7 Case?

When an individual debtor files for Chapter 7 Bankruptcy, the court will appoint a bankruptcy trustee to administer the bankruptcy.  The job of the trustee in a Chapter 7 bankruptcy is to gather and sell all non-exempt (for a list of exempt assets see O.C.G.A. § 44-13-100) assets, distributing the income from the sale to the creditors.

Who Pays the Trustee?

The trustee is paid a small administrative fee and a commission by the court based on how many assets can be seized and sold to pay creditors. The commission scale is as follows:

  • 25% of the first $5,000 disbursed
  • 10% of the next $45,000
  • 5% of the next $950,000
  • 3% of anything over $1,000,000

This means the more assets a debtor has to sell, the more interest the trustee is likely to show in the case. Furthermore, if a debtor is attempting to hide assets or defraud creditors, there is financial incentive for the trustee to investigate any suspicious information. All creditors receive notice of the amounts requested by the trustee for the commission. Following a hearing on any objections asserted, the court reviews the trustee’s fee application and enters an order of a fee. The fee may be less than the trustee’s fee application if the amount of work required was much less than the commission that is being claimed. In some case, a trustee may even be able to recover some costs from the debtor’s estate. Trustees are supervised by the United States Trustee’s Office.

Which Documents Will the Trustee Need?

The bankruptcy documents, once filed with the court, will be examined by the trustee. These documents will include statements of: (1) assets (including real and personal property); (2) debts; and (3) income. The trustee will likely need additional information beyond what is filed with the court. This may include: pay stubs, tax returns, and further information about your assets. The trustee will closely examine these documents to ensure that all figures are accurate.

What is the 341(a) Meeting?

In Chapter 7 bankruptcy proceeding, the debtor will not have to go to court. Instead, 341(a) Meeting of Creditors will take place about a month after the bankruptcy petition is originally filed. The meeting is essentially a hearing in which the debtor answers questions under oath, asked by the trustee. The only people who may attend the hearing are: the trustee, the debtor, the debtor’s attorney, any creditors, and a representative from the United States Trustee’s Office. Creditors and the United States Trustee’s Office are not likely to attend. Creditors will attend if they suspect fraud. Otherwise, the hearing is not worth their time.

What is Happens in the 341(a) Meeting?

The meeting will begin by swearing in the debtor. The debtor will need to show identification so it’s important to bring your drivers license and social security card to the meeting. The trustee will then ask questions relevant to the bankruptcy documents that were filed. Some questions may be as simple as, “Is this income accurate?” Questions of this nature are not meant to be accusatory and are not an indication that something is wrong. The purpose of the meeting is not to “trip up” the debtor but rather to clarify any unresolved issues and to get the debtor’s answers recorded under oath. The trustee may request even more additional documents at the meeting so it is helpful to bring items such as: the most recent pay stub, most recent bank statement and mortgage statement, and current proof of insurance on properties.

Does the Trustee Have the Power to Deny my Case?

The trustee submits a report to the court and the court will rule on whether to discharge the debts. While the trustee does not have the power to deny the bankruptcy, the trustee does have certain administrative powers that are influential over the case. If the trustee finds evidence of fraud he has the right to object to the court’s discharge of the debt. Similarly, the trustee has the ability to avoid any transfers that could be considered preferential, for example any properties transferred to family members. If the trustee is able to avoid a transfer, he is able to get the property back and then distribute the value among the creditors. Further, if the trustee finds non-exempt assets that haven’t been asserted, he has the power to liquidate those non-exempt assets.

Should I Hire a Bankruptcy Attorney?

A debtor-trustee relationship can be complicated. A trustee is not an advocate for the debtor. The trustee is an employee of the court. Additionally, the United States Trustee’s Office conducts random auditing of bankruptcy petitioners. For these reasons, it is best to hire a bankruptcy attorney who clearly understands the role of the trustee to act as your representative.

If you are needing to file bankruptcy and want to know more about the process and the trustee’s role in your case, call us at 770-609-1247 to talk with one of our experienced attorneys.

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