What is a Bankruptcy Trustee?

What is a Bankruptcy Trustee?

When you file your case both a bankruptcy trustee and a judge are assigned to your case. Their roles are very different. The person with whom you’ll have your 341 hearing is actually the bankruptcy trustee not the judge.

The trustee is usually either an attorney or a certified public accountant that reviews your case and administers any assets to your creditors. For example if you are over the exemption amount by $1,500, you would pay that $1,500 to the Chapter 7 trustee and out of that $1,500 the trustee would collect a fee and they would distribute a pro rata share to any creditors who file claims in your case.

The trustee can also collect any insider payments in the past year (any money that you have repaid to friends or family members) or any gifts over $600 to any one person in the last two years. Its very important for your attorney to thoroughly review all of your bank statements and information to make sure there are no unforeseen issues on what you might have to pay the trustee.

That is also why it’s very critical to tell your attorney 100% of information so you can get proper advice on whether it’s in your best interest to file you case or whether it might be beneficial to wait to file your case. The trustee is objective is to find money to pay your creditors.

Although, creditors may also hire their own attorney to represent their interests. The judge is there to make rulings if there is a dispute between you and the trustee in terms of value of property or any other issue that may arise. In most cases there are no assets to distribute, but the trustee files the appropriate paperwork and the judge orders the discharge of your case.

Will Bankruptcy Prevent Me From Selling My House

Will Bankruptcy Prevent Me From Selling My House

If you sell your homestead prior to filing your bankruptcy case, the trustee can look to see how that money was spent.

For example if two years ago you received $50,000 from proceeds from the sale of your house, how was that money spent?

Did you use the money on reasonable expenses?  Did you pay back your creditors?  Did you spend it frivolously?  Did you incur debt at the same time or after receiving that money?  Your case filing has to be in good faith where you didn’t incur debt with the intention of filing for bankruptcy.

You have to make an effort to pay off the debt but genuinely be unable to do so.  Taking that example, if you took that $50,000 and gifted it to a family member the trustee could go after your family members for repayment of the $50,000 and use that money to pay your creditors.

If you took a vacation or spent the money frivolously instead of paying your creditors, the trustee would argue that you did not file the case in good faith and you would need to repay that money to the trustee.  Generally, it’s better not to transfer property just prior to filing your bankruptcy case. Make sure any profits are accounted for from the sale.  Keep receipts.

If there is a divorce order requiring that the property be sold, that is fine, but the money would still need to be accounted for.  If you split the homestead profits with an ex, we would need to look too see if that person was also on the deed to the property and determine if they were entitled to 50% of the equity.  If they have a 50% interest in the property but you give them 100% of the home sale proceeds without a divorce order that could be construed as a gift.  The trustee could reverse the sale or go after your ex-spouse to receive your portion of the sale proceeds to pay your creditors.

If you are considering selling your home its best to wait until your bankruptcy case is concluded or you can potentially waive your homestead exemption by putting your property on the MLS or under contract.  If you bankruptcy case is pending, you would need the court’s permission to sell the property.  The trustee or any creditors could potentially object to you using the homestead exemption.   Before deciding to transfer any property its always best to consult with your attorney prior to doing so.

Will Bankruptcy Prevent Me From Selling My House

Bankruptcy vs. Debt Consolidation

Let’s discuss in this article two types of bankruptcy filings, some of the bankruptcy eligibility requirements, major benefits to filing for bankruptcy and why this author finds it preferred in certain cases to file for bankruptcy Chapter 7 or Chapter 13 compared to a debt consolidation situation.

If you are eligible to file for a Chapter 7 bankruptcy that is always preferred to debt consolidation since it allows you to completely discharge all of your unsecured debt without having to repay it. It allows you to wipe the slate clean and restart your credit and life debt-free again.

There are certain income requirements to qualify for the Chapter 7 which is dependent on your household size. For a household size of 1 its $53,152, for a household size of 2 its $66,748, for a household size of 3 its $71,689, for a household size of 4 its $85,203. Those threshold amounts usually increase twice annually.

If you are only eligible to file a Chapter 13, you would be in a payment plan to the trustee. Potential clients are often under the impression that in a Chapter 13 you must pay 100% of your debt back. Some clients pay as little as 5% -10% of their total debt. Your payment is completely dependent on your income and expenses. Every client has different income, different payroll deductions and different expenses, therefore different plan payment amounts.

One of the major benefits to filing the bankruptcy is the automatic stay – creditors cannot sue you or pursue collection efforts against you while you are in bankruptcy which is not the case in debt consolidation. Second, potentially not all creditors file claims in the case and that debt gets discharged without a payment. Third, interest stops accruing when you file the bankruptcy, so you are not making interest only payments indefinitely and you know your plan will be completed in five years and you will be debt free.

Call Now Button