Everyone who files for Chapter 7 or Chapter 13 bankruptcy must answer questions at a "341 meeting of creditors" or "creditors meeting." During the meeting, the bankruptcy trustee appointed in your case will ask questions about your assets, including income and expenses, previous property transfers, and future inheritances. Knowing the following information will help you prepare for your 341 meeting:
You'll also learn why the trustee asks questions at the hearing and how to avoid problems commonly encountered with bankruptcy trustee questions.
Most trustees ask all filers the same set of basic questions and a smaller number of questions tailored to the specific case. Here are some common questions you can anticipate being asked at your bankruptcy hearing:
You'll notice the general theme involves verifying the bankruptcy petition's accuracy and finding additional assets. Learn more about what to expect at your 341 meeting of creditors hearing.
The answer is simple: The trustee is responsible for verifying your identity and finding as much money for creditors as possible. Part of this investigative task involves asking questions to determine whether you correctly reported financial information in your bankruptcy petition.
For instance, the trustee's questions at the 341 meeting might uncover unreported income, hidden or forgotten property, and other disclosure failures that could prevent creditors from receiving the payments they're entitled to by law. Also, in some cases, omitting information could be bankruptcy fraud.
Learn about hiding assets and property in bankruptcy.
Before the 341 meeting of creditors, the trustee will review your bankruptcy paperwork. The trustee will look for discrepancies between the information in the bankruptcy petition, schedules, and supporting financial documents, such as tax returns and pay stubs.
You'll be asked about any issues the trustee discovers at the 341 meeting. The trustee might also want to visit a property or inventory a residence, business, or storage facility, although doing these things is rare.
Trustees are motivated to find assets because the more creditors receive, the more trustees get paid. A Chapter 7 trustee's payment includes a percentage of the funds paid to creditors. A Chapter 13 trustee gets a portion of the monthly Chapter 13 payment.
Learn the specifics of how bankruptcy trustees are paid.
The bankruptcy trustee will look for red flags that could benefit your creditors or indicate you're abusing the bankruptcy process. Signs of omitted or undervalued assets, undisclosed income, and fraudulently transferred property will be of particular interest to the trustee.
For the most part, no. Bankruptcy forms—and how filers attempt to hide money when completing them—are very similar in both chapters. So the trustee's questions won't differ much, regardless of whether you file for Chapter 7 or 13.
The exception? If you file for Chapter 13, the trustee might ask additional questions about your proposed Chapter 13 plan.
Trustees review the monthly income and expenses reported in your petition to ensure you don't have disposable income you could use to pay creditors. A trustee who suspects you're trying to hide income by exaggerating expenses will ask you to present receipts proving the actual amounts spent.
In Chapters 7 and 13, the trustee will also examine your property and bankruptcy exemptions. In both chapters, creditors benefit if the trustee finds undisclosed assets, like property, actual income, or money hidden through inflated expenses. In all cases, the funds go to the creditors.
Keep reading to learn how trustees pay creditors in Chapters 7 and 13.
Although the questions the trustee will ask will likely be similar in Chapters 7 and 13, payment involves a different process. For instance, suppose you can't provide proof supporting your monthly budget, or the trustee finds an asset you aren't entitled to protect with an exemption. Here's what you could expect to happen.
A Chapter 7 trustee sells nonexempt property and distributes the funds to creditors. This will likely occur if the trustee finds nonexempt property, assuming the filer cannot protect the property with an exemption.
However, if the discovered asset created extra income in a Chapter 7 case, the trustee could ask the court to switch or "convert" your matter to Chapter 13 because you could repay creditors through a repayment plan. Find out about converting a Chapter 7 case to Chapter 13.
The Chapter 13 trustee doesn't sell property. If the trustee finds nonexempt property you didn't disclose, you can expect your monthly Chapter 13 repayment plan amount to increase. You'll likely pay an amount equal to the property's nonexempt value through your Chapter 13 plan. Learn how to calculate a Chapter 13 plan payment.
The trustee might also take extra steps to determine whether the disclosure failure was accidental or fraudulent, which could result in additional penalties. The bankruptcy court could even deny your bankruptcy discharge, leaving you responsible for repaying your debts, or recommend criminal action.
When filing for bankruptcy, you should assume all aspects of your financial situation are fair game. Lenders typically ask questions about the accuracy of applications completed when applying for credit.
Other creditors, such as previous business partners and ex-spouses, often inquire about assets you might have disposed of and misused business or marital funds. Trustees pay close attention to these creditors because they have information only an insider would possess—information the trustee can use to recover valuable assets.
You can't prevent questioning, but transparency when completing your bankruptcy paperwork will help minimize the number of questions asked. Specifically, you'll want to avoid lying on your bankruptcy petition, concealing assets, or otherwise committing bankruptcy fraud. Less than candid actions could lead to an uncomfortable examination, bankruptcy court hearings, a denial of discharge, and criminal prosecution.
Also, if you've made an error in your paperwork, correct it promptly and bring it to the trustee's attention. Being forthright rather than waiting for the trustee to find the issue would be the more prudent approach.
We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.