The bankruptcy trustees investigate red flags found in bankruptcy documents. A bankruptcy trustee is responsible for overseeing a bankruptcy filing. They also play a key role in determining whether a case will proceed or not.
The bankruptcy judge will appoint a trustee to search for assets that can be used to repay creditors. This includes examining your finances in depth if you have filed for bankruptcy.
Although trustees are neutral, they have a primary duty to ensure that creditors are paid the maximum amount possible. The trustee will check your income, assets, and property to see if you have hidden assets.
The trustee’s specific search depends on whether you filed a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. These are the two most popular types of bankruptcy. The trustee will compare the paperwork (legally called “the schedules”) you submitted with your financial records and any other relevant information.
A bankruptcy trustee has the experience to spot red flags which can lead to dismissal or fraud charges. It makes sense that if you declare bankruptcy, you should be honest with your debts and assets. It is often crucial to the success of your case.
What is a Bankruptcy Trustees? Explained!
Officially, the trustee is an officer of the U.S. Department of Justice under the Office of the U.S. Trustee.
No matter which chapter is filed in a bankruptcy, the bankruptcy court will appoint a trustee who will assess the estate. The trustee reviews the case and makes a recommendation on whether to proceed. If so, he administers the estate.
Trustees do not represent the parties who have declared bankruptcy. It means that the trustee’s job is to conduct an independent investigation into the bankruptcy case and to litigate any issues that are not following bankruptcy law. They also administer funds according to the orders of the bankruptcy court.
Bankruptcy Trustees must have legal and financial expertise to understand the bankruptcy process. Many bankruptcy trustees do have a law degree, even though it is not required.
What is a Bankruptcy Trustee’s Job? And How Does It Matter
The role of a bankruptcy trustee varies depending on the type of bankruptcy. In both cases, they examine all documents filed and investigate a person’s income and assets. The trustee makes a recommendation as to whether or not the case should be taken forward. They will then administer the case and make payments to creditors if it is approved.
All people who file for bankruptcy are required to disclose all financial information including income and assets.” Both Chapter 7 trustees as well as Chapter 13 trustees verify the accuracy of the information in the bankruptcy schedule and plan. This investigation helps to maintain the integrity and fairness of the bankruptcy system.
The meeting with creditors is a major component of the investigation. This hearing, known officially as a 341 Hearing, is regarded as an important part. In both Chapter 7 bankruptcy and Chapter 13 bankruptcy, the trustee facilitates this meeting. He reviews all debts and documents and decides what creditors will receive.
The trustee is appointed by bankruptcy courts and can only act if the court approves. However, their recommendations are very important.
A Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as “liquidation bankruptcy” is so-called because in theory the assets will be liquidated to pay unsecured debt. Most people who file Chapter 7 retain most of their assets. This includes their home, their car, and any other items necessary for their daily lives. In 2022, nearly 70% of personal bankruptcies will be Chapter 7.
It stated that Chapter 7 trustees are responsible for finding assets. According to a court order, assets are sold and the proceeds are paid to creditors.
The Chapter 7 petitioner must pass the means test to determine if they can pay off their unsecured debts (credit cards and medical bills). If they pass the means test, the non-exempt property is sold, and the proceeds are used to pay the trustee, administrative fees, and creditors. The trustee will determine what property is exempt, and then investigate to ensure that all assets and non-exempt items are listed.
A Chapter 13 Bankruptcy
That Chapter 13 trustees don’t sell assets. According to a court order, Chapter 13 filers make monthly payments to a trustee. The funds are then distributed to their creditors. This repayment plan allows people the opportunity to keep their homes, cars, and other assets.
Chapter 13 bankruptcy is a payment plan that the bankruptcy court sets up. After the plan has been completed (which only half of those filing Chapter 13 do), the remaining unsecured debt will be discharged. In 2022 29% of those filing for bankruptcy will choose Chapter 13. Most people file Chapter 13 when they do not pass the Chapter 7 test. During the meeting with creditors that is part of the bankruptcy investigation, the trustee will look for any signs of this.
A Chapter 13 trustee:
- The person who filed the tax return must have the ability to pay the taxes.
- The amount determined by the court is the same as if it was a Chapter 7 filing involving non-exempt assets
- Monthly payments are collected from individuals
- Paying creditors
What Does the Trustee Look for in Bankruptcy Schedules?
The bankruptcy trustee will investigate every aspect of the debtor’s financial history to determine how much money is available for payment. The trustee examines the bankruptcy schedules (the official term for the documents filed by the debtor) and compares them to tax forms, pay slips, bank statements, and any other evidence of money or property. The trustee will review the budget of the debtor to ensure that money is not being spent on items that might be owed to creditors.
Also, they look at previous bankruptcy filings. If a case is dismissed, a person can file for bankruptcy within 180 days. However, if their debts are discharged through bankruptcy, they will have to wait longer. If a person’s debt was discharged by a Chapter 7 bankruptcy, they must wait up to eight years before filing Chapter 7 again. They will also have to wait four years to file Chapter 13 if their debt has been discharged. After completing a Chapter 13 bankruptcy, a person must wait six years before filing Chapter 7 and another two years for Chapter 13.
The trustee will be looking for completeness in the schedules before the bankruptcy is allowed to proceed.
A Non-Exempt Property
Exempt property in a Chapter 7 bankruptcy is any asset you have, including income that is essential for you to survive and get back on your feet after the bankruptcy. These assets are exempt from being liquidated. Exemptions from bankruptcy can include your home, car, equipment for work, pension payments, and Social Security. Chapter 7 bankruptcy cases are often “non-asset” cases. This means that there is no non-exempt property and the individual filing does not lose anything.
Non-exempt goods are those that are both unnecessary and valuable, and which can be sold or used to pay off debt. When deciding whether liquidating items is worth it, then the trustee will weigh their value. You might keep a painting of your grandmother that is on the wall in your living room. It has sentimental value but would not sell well. It’s likely that if it is by Picasso, it would be included in non-exempt property.
Examples of Nonexempt Properties Include:
- Cash in Bank Accounts
- Stock Investments
- Second home
- Second car
- Boats, ATVs, and snowmobiles are recreational vehicles
- Collections of coins, stamps, or other memorabilia
- Musical instruments (if you are not a professional musician).
- The family heirlooms
- Artwork of value
- You can also find out more about the following:
- Designer clothing and accessories
Reversible Transactions
The trustee will examine recent financial transactions to determine if they are voidable, reversible, or claw-back transactions. These are financial transactions that can be canceled so that money can be returned to an estate for payment to creditors. They could be payments made to creditors or money or goods given to relatives or friends. Some people file bankruptcy to conceal assets. The trustees can review any transactions made within 90 days of the bankruptcy filing to determine if they apply. The trustees can also review certain property transactions or payments made to friends and family a year before the bankruptcy filing. If trustees suspect fraud, they may go back as far as necessary if they believe it is needed.
Reversible Transactions Can Be Classified Into:
- Give large gifts, especially to friends or relatives, of a high value or quantity
- Transfers at less than the full value
- Transfers in favor of one creditor
Still, finding out what the bankruptcy trustee is looking for when they investigate?
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