Once we file a bankruptcy for a client, inevitably the biggest source of stress for our clients is the 341a/Trustee meeting. They receive the notice from the Court and the notice is entitled “First Meeting of Creditors.” For obvious reasons, the client becomes filled with anxiety thinking that all of their creditors will be at this meeting to ask questions or worse yet, to yell at them for not paying their debts. They stress over the questions the Trustee is going to ask them, whether the Trustee is going to judge them or be angry at them for not being able to pay their debts. Let me stop you right there, these fears are totally unfounded; understandable but unfounded!
WILL CREDITORS APPEAR AT MY 341a HEARING?
The short answer is NO, they will not. A creditor has the right to appear and question you about your financial condition and the debt that you owe to them, but it is extremely rare for a creditor to appear. The bottom line is that most people’s creditors are large banks, credit card companies, utility companies or medical doctors/hospitals. These creditors have been served with bankruptcy notices thousands of times. They understand that it is basically pointless for them to appear at a Trustee hearing and that it makes no financial or business sense for them to pay an attorney to appear on their behalf as there is virtually no point in doing so. The Trustee’s role is to administer each bankruptcy case, to make sure the debtor has properly filed his schedules, has filed the appropriate chapter under the bankruptcy code and will make sure the Debtor is paying back what is required under the Code (chapter 13) or whether the Debtor has any assets that may be liquidated and used to pay a dividend to creditors (chapter 7). Thus, there is virtually no reason for a creditor to appear.
Besides these creditors are normally enormous multi-million or billion dollar corporations or banks, the few thousand dollars you may owe them is peanuts and hardly worth a second look on their part. The debt may seem like a lot of money to you and me, but trust me, it is nothing to them. So don’t waste another second stressing over having to face your creditors at your Trustee hearing, it is NOT going to happen.
WHAT QUESTIONS WILL THE TRUSTEE ASK ME AT THE HEARING?
Since I practice in the District of New Jersey, I can only speak with personal knowledge of the Trustee’s in New Jersey, but I would assume that on a general level most of these questions would be the same no matter what State you are filing your case in. The questions differ slightly depending on what chapter you are filing, for the obvious reason that the Trustee’s role is different depending on the Chapter you are filing, with a Chapter 13 being a Reorganization and a Chapter 7 being a Liquidation, so I will first go over the basic questions that are similar in both chapters and then explain the differences between the questioning.
Initially in either a chapter 7 or 13, the Trustee will request proof of your identity. Crazy as it seems that someone would want to impersonate someone else to file a bankruptcy, apparently, this happened once, so now it is a requirement that you provide the Trustee a picture ID, valid drivers license or passport will suffice and proof of your Social Security number, your social security card, a W-2 or 1099 form, or any official document that was not prepared by you and that contains your full Social Security number.
Once, the Trustee is satisfied that you are who you say you are, he will swear you in and then have you identify your signature on the petition. He will then ask if you reviewed the petition with your attorney before you signed it and if the petition contains are accurate account of your financial condition, does it contain all of your assets, all of your liabilities and do you have any changes or amendments that need to be made at this time. They will ask you if you have ever filed bankruptcy before and if so, when.
After that, the questions become slightly different depending on whether you have filed a chapter 7 or a chapter 13.
The Chapter 7 Trustee’s focus is mainly on your assets, since a Chapter 7 is a liquidation, he is focused on what you own and how much it may be worth. They will start with asking about your major assets. They will ask if you own any real estate. If so, when did you purchase it and how much did you pay for it (we generally have our client’s provide us with a copy of their Deed so that we can provide it to the Trustee prior to the hearing). Generally, if you own real estate, the Trustee will have required that proof of its value be submitted prior to the hearing, usually in the form of a Comparative Market Analysis prepared by a Realtor. The Trustee will then ask you f you agree with the value provided and if what you believe similar homes are selling for in your area. He will ask if you own any other real estate and if you have owned any other real estate in the last 4 years. If you have, he will ask what happened to the property. If it was sold, he will want to know if there were any net proceeds and if so, how much and what did you do with the proceeds.
After going through questions about your real property, the chapter 7 trustee will ask questions regarding your personal property. The questions will be very similar to the questions that you had to answer for your bankruptcy attorney prior to filing your petition. In general, the Trustee is mostly interested in assets that may have significant cash value, above what can be exempted. Thus, the questions will center around vehicles that may not have a lien encumbering it, a life insurance policy that has a large cash surrender value(meaning how much the policy is worth right now, not how much it is worth to a beneficiary upon your passing); a personal injury suit that you may have pending; an inheritance that you may be receiving, etc.
Next, a chapter 7 trustee will question you regarding any transfers of assets or payments of creditors of closings of accounts that have taken place in the last year or two. The purpose of this line of questioning is to determine if there are any transfers that he may reverse, to pull those funds back into your bankruptcy estate. For example. if you have paid any of your creditors a large sum of money just prior to filing your bankruptcy petition, this may be what’s called a preferential transfer. The Trustee could use the “strong arm” powers that he has under the Bankruptcy Code to make that creditor return those monies so that the Trustee can split the funds up evenly among all of your creditors. If you have a good bankruptcy attorney, the ramifications of any transfers you have made would be explained to you before filing your petition.
Finally, the Trustee will ask you what caused your financial difficulty. A short answer is all that is needed. It could be a divorce, a loss of a job or income, an illness or disability, some unforeseen large expense that occurred or simply that you overextended yourself with credit and couldn’t meet the monthly payments any longer.
The Chapter 13 Trustee’s focus is different than a Chapter 7 Trustee. A Chapter 13 is a Reorganization, thus the Trustee cannot sell any of your assets, instead he is focused on your plan of reorganization and insuring that your plan complies with the applicable Chapter 13 statutes and is a plan that can be confirmed by the Court. Thus, the chapter 13 Trustee will still be interested in the value of your assets and will ask similar questions regarding your real estate and other potential large value assets as we set forth above. However, the chapter 13 Trustee’s purpose for these questions is to determine if you have any non-exempt equity in any of your assets. His purpose, unlike a chapter 7 Trustee, is not to liquidate these assets but to determine how much must be paid to your unsecured creditors through your chapter 13 plan. The Bankruptcy Code provides that you cannot confirm a plan unless, you provide to pay your unsecured creditors what they would have received in a chapter 7 liquidation. This discussion is involved and I can address it more intricately at another time, but suffice it to say, if you have hired a competent, experienced bankruptcy attorney, your attorney would have already calculated all of this and it is incorporated into your plan. Thus, the Trustee’s questions are just to verify the numbers contained in your petition and plan.
After the chapter 13 Trustee asks about your assets, they will have questions about your income and expenses. The Trustee will inquire about what sources of income you have, if you work, then how often you get paid; does anyone else contribute to the household income, etc. The Trustee’s staff would have reviewed your file prior to the hearing, so they may have flagged some of your expenses that they think may be above the normal standards that the Trustee will question you about. It is OK for some of your expenses to be slightly higher than the norm as long as you can verify the expense with documentation and explain the need for it or the reason behind it.
The Chapter 13 Trustee will ask you if you have filed all of your tax returns that are required to have been filed. He will ask if your insurance is in place on your home and your vehicles; and whether you are required to pay alimony or child support. He will then go through your plan with you and ask if you have started to make your monthly plan payment to him.
Those are the basic questions that you are going to be asked at the 341a meeting. The hearing itself should last 5 to 10 minutes tops. The longest part will probably be sitting around in the hearing room waiting to be called by the Trustee. My best advice is to answer the questions honestly and succinctly. If you don’t know an answer to a question, it is OK to say I don’t know, he information can always be provided after the fact. If you don’t understand a question don’t answer it, the Trustee will repeat it or your attorney can help you out with it. Overall, just stay relaxed, it’s not so bad, especially if you have an experienced attorney there with you at the hearing.