What are the Duties of a Bankruptcy Trustee?

 

A NJ bankruptcy trustee is responsible for completing the administrative tasks of a specific bankruptcy case and is typically appointed by the New Jersey bankruptcy court. These individuals are not judges, but are sometimes lawyers, though that is not a requirement. The trustee’s jobs include (but are not limited to): management of all of the petitioner’s bankruptcy paperwork and documentation, leading the meeting of creditors, and handling the liquidation of the petitioner’s assets.

When filing for bankruptcy, you need to first gather the necessary information and paperwork, either on your own or with the guidance of your New Jersey bankruptcy attorney. Based on the New Jersey exemptions, it’s also important to figure out what property (of yours) is exempt from seizure. Once you have filed for bankruptcy, the bankruptcy court will take legal control of all debts and properties that are not free from New Jersey exemptions.

The next step in a NJ bankruptcy case is when a trustee will be assigned. His or her responsibility is to review your paperwork in a detailed manner, especially any possessions and exemptions you want to claim. You may contest any decisions or rulings made by your trustee. About one month after you’ve filed, the trustee will be responsible for calling a meeting of creditors. The debtor must attend this meeting.

A trustee either deals with Chapter 7 cases, where the profit is made from liquidating (selling) the petitioner’s nonexempt property, or Chapter 13 cases, in which the profit comes in the form of a repayment plan. Because the trustee receives a portion of what he or she can collect for the filer’s creditors, the trustee has a powerful incentive to collect as much as possible for the creditors.

Regarding Chapter 7 cases, there are typically no non-exempt assets. If there are non-exempt assets, you will have to release non-exempt property, or the cash equivalent of its market value, to the trustee. This takes place following the meeting of creditors. The trustee will then split the proceeds from selling this property to the creditors. In some cases, if the property does not have a high value, the trustee may turn the property back over to you.

Regarding Chapter 13 cases, the trustee is responsible for handling the most important piece of the puzzle – the repayment plan. The trustee will work with the filer to set up a repayment plan of his or her debts. While the filer is in the process of repaying creditors, the trustee will be responsible for collecting the monthly payments and distributing them to the creditors. The trustee will also give the petititioner occasional updates on who has been paid and how much is still owed to each creditor.

Because bankruptcy trustees have a significant role and power in the bankruptcy system, it’s important to start off on the right foot with the trustee that is assigned to your case. A working relationship with your trustee will be vital, especially if you are involved in a Chapter 13 case. Be meticulous and honest when completing the bankruptcy forms and make sure you let the trustee know immediately if you’ve made a mistake. Open communication will make the bankruptcy process easier for both you and the bankruptcy trustee.

Image: “November 9th” by Kate Hiscock – licensed under CC 2.0

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Is My Bankruptcy Trustee Entitled to My Upcoming Financial Windfall?

When you file for chapter 7 bankruptcy in New Jersey, your bankruptcy case will be assigned to a trustee. The bankruptcy trustee works independent of both your bankruptcy attorney and the NJ bankruptcy court. The trustee’s job is that of bankruptcy case “inspector,” if you will. Their duties are essentially: to review all paperwork, hold the 341 hearing (also called the Meeting of Creditors), liquidate any of your assets that are not exempt, and to prevent bankruptcy fraud from occurring.

Many people wonder how bankruptcy trustees get paid. After all, who would want to take on the intense responsibilities associated with the job if it were an unpaid position?

How does a bankruptcy trustee get paid?

Filing fees

Every bankruptcy petitioner must pay a filing fee to the court system. Your NJ bankruptcy trustee will receive $60 of that fee. That doesn’t sound like much money, does it? Keep reading to learn more.

Commission

Bankruptcy trustees are motivated to find as many assets to liquidate as possible in every bankruptcy case because they receive a percentage of all of the collected assets that are paid to your creditors. They’ll make:

  • 25% of the first $5,000 they collect and disburse to your creditors
  • 10% of the next $45,000
  • 5% of the $950,000 after that, and
  • 3% of any assets collected and disbursed that total over $1,000,000

Costs

If your bankruptcy trustee incurs costs relating to your case, they can request reimbursement for those costs via the NJ court system. You will be notified if this happens, but you will not pay them directly. They will be reimbursed from any money that is freed up in your estate, but for this to happen, it must be approved by the court first.

Financial windfalls

After you file for chapter 7 bankruptcy, let’s assume that you come into some money. This could be due to an inheritance, lawsuit or repayment of a personal debt, etc. You may wonder if you’ll be able to keep this financial windfall or if your trustee will have access to it first in order to pay off your debts.

When you filed for bankruptcy, you essentially handed over your estate (all of your assets and debts) to the trustee. It is the trustee’s duty to lawfully pay back as much of your debt as possible. Therefore, any financial settlements or inheritance monies received while your bankruptcy case is active must be paid to the trustee. There are exemptions, of course, and you should always check with your bankruptcy attorney to ensure that you have the correct and up-to-date information.

If you are interested in reading more about the ‘windfall provision’ section of bankruptcy code 541, you can do so here. Section 541 of the bankruptcy code will also help you can find out exactly which property and assets will be included in your bankruptcy estate.

As always, remember that even if you are entitled to receive a financial windfall during your chapter 7 bankruptcy case, you will almost certainly never receive it in full. This is because once you have filed for chapter 7 in New Jersey, anything outside of the income you earn at your job will be subject to disbursement to your creditors, your trustee’s commission, and your attorney’s fees.

Have a specific question about a NJ chapter 7 bankruptcy case? Call or write us today! We are happy to consult for one half hour with a new client free of charge.

 

 

Image: “bling bling” by Frankie Leon – licensed under CC by 2.0

 

Why did the Trustee Object to My Bankruptcy Discharge?

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At the time that your bankruptcy case is officially filed with the court, a trustee will be assigned to oversee the details of your case. The trustee is an impartial third party who will be selected by the court system. Your trustee is not working against you; however, he is not working for you, either. The job of the trustee is to ensure that your bankruptcy case proceeds smoothly and lawfully.

Trustees are typically attorneys themselves, but they will not be involved in your legal representation during your bankruptcy case. Chapter 7 trustees are paid a small administration fee as well as a percentage of the assets they are able to liquidate and disburse to your creditors.

In a chapter 13 bankruptcy, trustees are paid through your reorganized debt repayment plan at the end of your case. There are limits on how much money a chapter 13 trustee can receive per bankruptcy case.

In both chapter 7 and chapter 13 cases, it is the responsibility of the trustee to verify the validity of any and all financial information that you provide in your bankruptcy paperwork. The trustee checks all of your calculations and will certify their  accuracy to the bankruptcy court.

Chapter 7 trustees are also entrusted with holding the 341 hearing – the Meeting of the Creditors, which takes place approximately 30 days after your case was filed in court. During this hearing, the trustee may ask you some questions regarding any of the data included in your documents. You will be under oath and must answer truthfully. If there is any falsified data in your bankruptcy documentation or if you are determined to have lied under oath – your bankruptcy petition will most likely be thrown out due to charges of attempted bankruptcy fraud.

If you successfully make it past the Meeting of the Creditors and your trustee finds that all of your paperwork and testimony is accurate, it then becomes the trustee’s job to examine all of your assets to determine what can be sold in order to pay off as much of your debt as possible. Don’t panic: the trustee isn’t going to come in and sell everything you own, because that would defeat the purpose of filing for bankruptcy. The goal is to leave you in better financial condition than before you filed.

(New Jersey chapter 7 bankruptcy exemptions can be found here.)

Although your trustee most definitely isn’t working against you, it is within his job description to make sure you are being forthcoming in your bankruptcy. As long as you have nothing to hide, you can rest easy.

Your bankruptcy trustee also has the power to ultimately object to your discharge (elimination of your debts). A trustee may object if you:

  • Respond dishonestly to any information that is requested during your bankruptcy case or misrepresent any of your financial information in your bankruptcy documents
  • Hide, move (or attempt to hide) any of your assets or property with fraudulent intent
  • Repay some creditors above others (preferential payments)
  • Withhold evidence of pertinent financial information
  • Disobey a court order
  • In any other way attempt to defraud the bankruptcy court or your creditors

In the event that your trustee determines that you should not be granted a bankruptcy discharge, he will make his objection known via a lawsuit known as an adversary proceeding.

The trustee does not have the final say as to whether or not your discharge will be granted. You will be able to defend yourself against the trustee’s claims, and ultimately, the court will determine if your debts should be discharged or not.

If you are currently in the midst of a pro se bankruptcy case and your trustee has made an objection, be sure to connect with a bankruptcy attorney who has dealt with adversary proceedings in the past.

 

Image credit: Daniel O’Neil

Can My Bankruptcy Trustee Visit My Home to ‘Take Inventory’?

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A common concern for anyone filing for bankruptcy is exactly how much “power” the bankruptcy trustee holds, and whether s/he is working for the debtor or for the creditors. In order to discuss this in depth, we first need to review some trustee basics.

In a Chapter 7 bankruptcy proceeding, a trustee is assigned to each case. The trustee’s main purpose is to oversee all of the assets that the debtor owns. An asset is defined as “property owned by a person or company that has monetary value and is available to meet debts owed.”

A trustee is appointed to a bankruptcy case as an impartial administrator of sorts. S/he has no personal interest in the case and can therefore oversee all of the financial information without prejudice. You cannot hire your own trustee, and your bankruptcy attorney cannot take on the role of trustee due to the conflict of interest. The bankruptcy court will typically select a local attorney with extensive bankruptcy experience to act as trustee.

Any and all documents containing information about your debts, assets, income, and the general state of your financial affairs will be reviewed by your trustee in order to verify all of the claims you made on your bankruptcy petition. Once s/he has a good handle on the details of your case, the trustee’s main job is to determine if you have any nonexempt assets.

Chapter 7 debtors are permitted to keep certain protected assets/property. These are known as exempt assets, and they cannot be sold or liquidated to repay your creditors. Nonexempt assets, on the other hand, are assets whose value exceeds the amount you are allowed to keep. It’s the trustee’s job to ascertain whether or not you have any nonexempt assets. If you do have some nonexempt assets, the trustee must establish the monetary value of said assets so that they can be sold (liquidated). The money that is made from liquidating your nonexempt assets will be used by the trustee to pay all of your creditors equally. For example, if it happens that you have $20,000 worth of nonexempt assets (jewelry, collectibles, etc) and five creditors, the trustee will sell the items and distribute $4,000 to each of your creditors.

While this may only make a small dent in the total amount of money owed to your creditors, the liquidation of nonexempt assets is in place so that your creditors can at least receive some repayment of the money you borrowed.

In order to determine the value of any nonexempt assets, the trustee does have permission to visit you at your home, and this knowledge can be stressful. However, in reality, trustees rarely ever visit a debtor’s home in order to “take inventory” of your nonexempt assets. If your trustee does come to your home, it will typically be at an agreed upon time to collect any nonexempt assets listed in your bankruptcy petition so that they can be sold. It is extremely rare for a trustee to ask to come inside your home to “have a look around.”

If your trustee does happen to show up at your door one day without warning, you can let him or her know that you weren’t expecting the visit, and you’d like to speak to your attorney before granting the trustee access to your property. If the trustee insists on inventorying your assets, reschedule the visit and make sure that your attorney will be present at the rescheduled appointment.

Image credit: Jonathan Mueller

Is My Bankruptcy Trustee Working For Me or Against Me?

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If you are considering filing for bankruptcy, or already have filed, you have probably wondered about the duties of your bankruptcy trustee.

Does he work for me? Is he against me?

In any bankruptcy matter, the trustee is not “on” anybody’s side. He/she does not represent you or your creditors. The trustee is not “out to get you”, or to either prove or disprove your case.

Every bankruptcy case is assigned a trustee to look over and represent the bankruptcy estate that is created when the bankruptcy case is opened. A bankruptcy trustee is assigned by the Department of Justice, and is responsible for collecting all assets of the NJ bankruptcy estate in order to pay off creditors with valid claims that you owe them money.

Your trustee is expected to remain impartial throughout his/her role as your trustee. Some of the responsibilities that come with being a bankruptcy trustee include:

  • Inspecting all of the paperwork involved in your bankruptcy matter, from the original bankruptcy petition to your tax returns, pay stubs, mortgage paperwork, and information about all of your debts and bank statements. This is the trustee’s first priority during any bankruptcy case, and it is performed so that he/she can verify that all of the information included in the original petition as well as all of your financial documents and papers is accurate.

 

  • Holding the Meeting of Creditors, also called the 341 hearing. During this hearing, the trustee will ask you any and all questions that he/she may have regarding information in your financial documents. Any of your creditors are allowed to attend this meeting as well, but more usually they don’t. Creditors may attend the 341 hearing if they feel that you are being less than truthful about your assets, but otherwise, this meeting is usually held between you (along with your NJ bankruptcy attorney) and the bankruptcy trustee. During the 341 hearing, you will be under oath, so it is imperative that you answer all of the questions asked by your trustee in complete honesty.

 

  • Paying your creditors with any of your assets that do not fall under the “exempt” category. This duty is probably the most well-known task that the bankruptcy trustee is responsible for. While you are permitted to retain possession of some of your personal property in a chapter 7 bankruptcy (exemptions), any assets that you own that are above and beyond your exemption amount will be liquidated (sold) by the trustee in order to pay back as many of your creditors as possible.

 

  • Preventing preferential transfers or interests. In a bankruptcy case, your financial behavior during and immediately preceding the filing date will be closely examined. If it is obvious that you transferred any property or paid any money to specific creditors in favor of others, the trustee is permitted to re-collect this property and/or money so that it may be evenly distributed among all of your creditors.

A bankruptcy trustee is not working for you or against you, per se. A good way to look at it is that the trustee will ensure that your bankruptcy petition and paperwork are all flawless, which can only aid in making sure that your debts will be discharged and that your bankruptcy petition will not be dismissed.

Image Credit: Fried Dough (flickr)