At the “Meeting of Creditors” the bankruptcy trustee is mostly interested in your assets. Most often they’re all protected by exemptions.
Last time we introduced the Chapter 7 “meeting of creditors” as mostly a meeting with your bankruptcy trustee. Often none of your creditors show up. So you and your bankruptcy lawyer often mostly just talk with the trustee for a few minutes.
So what do you talk about?
Assets and Discharge
The U.S. Bankruptcy Code lists more than a dozen “Duties of trustee” in a Chapter 7 “straight bankruptcy” case. (See Section 704 of the Bankruptcy Code.) But at the Meeting of Creditors the focus is on two duties:
- to “collect and reduce to money the property of the estate”
- “if advisable, oppose the discharge of the debtor”
These sound more threatening than they usually are. We’ll explain the first one today; the second in our next blog post.
Asset Collection—Mostly Verifying There Are None
Chapter 7 is a liquidation type of bankruptcy. But most of the time you would have nothing to liquidate. That’s because everything you own (the property of your “estate”) is likely “exempt”—protected through property exemptions. Exemptions are categories of possessions and property that you are allowed to keep. Exemptions usually allow you to keep categories of assets up to certain maximum dollar amounts. (See Section 541 of the Bankruptcy Code on “Property of the estate” and Section 522 on “Exemptions.”)
One of the main things you’ll discuss with your lawyer at the beginning of your case is whether everything you own is exempt. (There are usually ways to protect those that aren’t, including by filing a Chapter13 case instead.) Assuming that all your assets are clearly exempt, very likely your trustee will agree. He or she will declare your case to be a “no-asset” case.
So at the meeting of creditors the trustee will mostly be going through the motions of verifying this. He or she will ask you a series of easy questions about what you own. These will mostly track the questions about assets that you answered in the paperwork you prepared with your lawyer. These are Schedules A and B about your real estate and personal property, and Schedule C about your exempt property. Your lawyer will prepare you for this, and will be there at the Meeting to help.
An Expected “Asset Case”
In some situations you may have one or more assets that you and your lawyer know are not exempt. You have chosen to offer the asset to the trustee because you don’t want it any more. An example might be a boat that you’ve gotten tired of paying the upkeep on.
The trustee than decides whether or not to accept the unprotected asset from you. He or she may decide it’s not worth enough to go through the trouble of transporting and selling the asset. The trustee has no obligation to take something just because it’s not covered by an exemption. In the example of the boat, if it’s in really bad condition the trustee may decide not to take it.
But if the trustee does accept the non-exempt asset, he or she will make arrangement to take and sell it. Out of the proceeds, after court approval the trustee pays the liquidation expenses and a fee to him- or herself. (See Section 326(a) on the “compensation of trustee” in a Chapter 7 case.) The trustee then pays the remaining funds to your creditors.
The trustee pays the creditors in a specific order depending on the nature of the debt. Priority debts are paid first, and in a particular order. (See Section 507 of the Bankruptcy Code.) These include unpaid child or spousal support and recent income tax debts, for instance. Only if there is any money left over do your other, “general unsecured debts,” receive anything.
The Unexpected “Asset Case”
Sometimes—quite rarely—the trustee gets interested in an asset that you and your lawyer didn’t expect.
The trustee may believe that the value you place on something is too low. Or the trustee may find an asset that you had not disclosed. This could happen through the questions he or she asks you at the Meeting of Creditors. Or the trustee could learn about it through some other source.
Disputes such as these are usually resolved between your lawyer and the trustee. The asset at issue may be appraised, and the matter settled that way. Or it may have to be decided by the bankruptcy judge.
If after all this there is an unexpected unprotected asset, you have a number of options:
- surrender the asset to the trustee for liquidation and payment to your creditors
- pay the trustee for the right to keep the asset, with the funds going to your creditors
- convert your case into a Chapter 13 one, paying enough into your payment plan to protect the asset
The Chapter 7 trustee has a number of duties, but dealing with assets is the primary one at the Meeting of Creditors. In most cases the focus is simply on verifying that all of your assets are protected by exemptions. But sometimes there are unprotected assets, either expectedly or—rarely—unexpectedly. If you are candid and thorough with your lawyer, it’s even less likely that the unexpected will happen.
Next week we’ll get into the trustee’s role in potentially challenging your right to a discharge of your debts.