Every bankruptcy case has three parties: debtor(s), creditor(s), and trustee. A trustee in Bankruptcy is a person who is appointed by the United States Department of Justice or by the creditors involved in a bankruptcy case. Although creditors rarely participate let alone appoint a trustee in a typical consumer case.
When a Chapter 7 case is filed a bankruptcy estate is formed. The bankruptcy estate consists of everything the debtor owns at the time of filing including all personal and real property as well as equitable and contingent interests in legal claims and property such as insurance claims and even divorce settlements. The bankruptcy estate also draws in all community property even if only one spouse files. Because under California law all property acquired during marriage that is not a gift or an inheritance of one spouse is considered community property and hence indivisible until death or divorce. The bankruptcy estate, however, is limited to those assets and interests the debtor(s) had on the day of filing, with the only exception being an inheritance, property settlement, or divorce settlement that comes in within 180 days of filing. Therefore, if get a big raise, start a business, get a big tax refund in future years, become a reality star, or win the lottery post filing, those items are all yours free and clear of any creditor claims that were discharged in your bankruptcy.
The overarching duty of the chapter 7 trustee is to collect and liquidate the property of the estate and to distribute the proceeds to creditors. This statement may sound very scary in a vacuum, however, very few cases actually have a liquidation, because most of the assets that the majority of debtors have are typically exempt from liquidation. When you file for bankruptcy my job as your attorney is to prepare and submit your petition along with other papers with the court disclosing your personal and financial information. Your bankruptcy papers include information about your income, assets, debts, and the state of your financial affairs. In addition to filing your papers with the court, I must send the bankruptcy trustee certain documents such as pay stubs, tax returns, and bank statements that verify the information listed in your schedules. It is then the trustee’s job to review your bankruptcy petition and verify the information and calculations using your financial documents and other independent sources. For example, if you state that you make $4,000 a month in your bankruptcy papers, the trustee will compare that against your paystubs to make sure the figure is accurate.
Approximately a month after you file your case, my client(s) and I will attend a hearing in front of the bankruptcy trustee. This is called a §341 meeting of creditors because your creditors are free to come and ask you questions during the hearing. In my experience creditors only come to the hearing if they feel that you are hiding assets, committed fraud in obtaining the debt, or if the creditor is a lay person such a family member, former business partner, or an ex-spouse who does not understand his or her rights and is there to complain about your fresh start and the unfairness of them about discharge of his or her debt. The bankruptcy trustee’s job is to conduct the hearing and ask you questions while you are under oath about the information contained in your bankruptcy documents. The entire process when creditors are not present typically lasts between two to five minutes and the trustee routinely goes through ten to fifteen cases per hour on the hour.
Lastly the trustee is given certain powers in order for him to act as a fiduciary to the bankruptcy estate. In other words to be fair to both you and your creditors. For example, the trustee is able to avoid preferential and fraudulent conveyances. Most commonly avoided preferential payments are those debts that were paid back to family members within a year of filing; payments to unsecured creditors in excess of $600.00 in the 90 days prior to filing; and the sale, mortgaging, or transfer of assets within 2 years of filing where little to no consideration was given for the debtor’s interest. When the trustee exercises his avoidance powers the transfer, sale, payment, or lien is undone and the amount collected is then distributed evenly to all creditors in accordance to their preference order. Here at OneDayBK my job is guide you through this process to make sure you get through the process as smoothly, quickly, and reasonably possible under circumstance.