Bankruptcy trustees are the folks responsible for reviewing each bankruptcy case filed and finding out whether there are going to be any assets with which to pay creditors.
We file most of our cases in the bankruptcy courts in Oakland, San Francisco, and San Jose. Each of these courts has a list of about eight “panel trustees.” These trustees are usually attorneys or accountants although that is not a requirement. When we file your case, a computer randomly assigns your case to one of these trustees.
The trustee receives an electronic copy of all the documents we file in the case and his job is to look it over to determine whether you have assets that can be used to pay creditors. Now before you panic about this, keep in mind that most cases are what we call “no-asset chapter 7 cases.” A no-asset chapter 7 case is one where the trustee looks it over and concludes that there are no assets there that can be collected and used to pay creditors. If the trustee makes this determination, his job is pretty much done.
One the most important events in your bankruptcy is what is called the meeting of creditors or the 341 meeting. This is a reference to section 341 of the Bankruptcy Code. That’s the section that requires all debtors to show up at the local federal building with their attorneys on particular day and answer a short list of questions asked by the trustee. The trustee asks these questions in order to decide whether there are assets to go after. He’s already reviewed your paperwork. Now he just wants to tie up any loose ends.
This meeting with the trustee usually lasts about three to five minutes. Following the meeting, the trustee will usually file a “Report of No Assets” which means that he’s done his research and rummaging and has determined that there are no assets for him to get a hold of. At this point, the trustee usually does nothing further in your case.
So what if the trustee happens to locate an asset in your case that can be used to pay creditors? Again, this is very rare. I have been filing cases for clients for over a decade and I can probably count on one hand the number of “asset” chapter 7 cases. In all but one of those cases, we knew going in that there were assets for the trustee to liquidate. In the one case that came as a surprise, it was when the client decided not to tell me about huge tax refund he was getting. The trustee questioned him about the refund and then went after it. The lesson? Always be up front and honest with your attorney.
OK. So if there are assets, the trustee has powers from the Bankruptcy Code and the federal government that allow him to take property from debtors, sell it and use the proceeds to pay creditors. The trustee gets to keep a percentage of the proceeds and that’s how he makes his living. If the trustee gets enough to pay creditors only a small percentage of what they’re owed, then that’s all they get. If the trustee manages to rustle up enough assets to pay off all the creditors, then he does so and returns any remaining proceeds to the debtor at the end of the case.
Generally speaking, I like pretty much all the trustee’s in the San Francisco Bay Area area. They are polite, friendly and respectful of the debtors. They know you’re nervous and under a lot of stress. They try hard not to do or say anything that will hurt debtors feelings or add to their stress level. Still, keep in mind that the trustee has a job and that’s to collect assets that can go to pay creditors. If the trustee feels like you’re not being honest or forthcoming in response to his questions, you’ll see him get nasty pretty quickly. Although they’re good guys, they have a job to do and they do it efficiently. Our job as debtor and debtor’s attorney is to help him understand your financial situation. If we do that, we’ll get along with him just fine.
