Bankruptcy is a lawful process that allows debtors to seek help whenever they are not able to pay their debts. During the process, the creditors will receive their pay through either the sale of some of your property or through a repayment plan that you promise to adhere to. Deciding on whether to file for bankruptcy or go for other options can be challenging, but a bankruptcy lawyer will help you settle on the best option.

Throughout the debt servicing process, the court will assign you a bankruptcy trustee. The San Diego Bankruptcy Attorney has compiled everything you need to know about the role of a Trustee in the bankruptcy process and how to contact us in case you need more insights concerning your situation.

Bankruptcy Filing Steps in California

A bankruptcy case involves several steps before you are assigned a trustee. At the preliminary stage, you will be required to decide whether you will represent yourself or you will need an attorney. In most cases, it is advisable that you have a legal representative who will assist you to maneuver through the complex legal process.

Whether you are representing yourself or you have an attorney, there are some basic steps you will need to take while filing for a bankruptcy. Upon completion of these steps, you will be assigned a bankruptcy trustee who will work with you throughout the debt servicing process. The steps are discussed below:

Collect and submit basic/necessary documents: Among the documents that you will be required to present are pay stubs for the last six months, or if you’re not employed, you should provide any document that shows your financial status. You also need to supply information regarding all the creditors that you owe. The report about the creditors should show the specific amount you owe each of them and their addresses.

Another important information is assets information. You are supposed to have a clear statement of all your assets (what you own) including the bank account and insurance coverage. Also, included in the information is any other assets like a vehicle or real estate. The information should also include the tax return for the last two years.

Complete credit counseling class: The class takes a maximum of one and a half hours. It can be done literary in a class or just over the phone or over the internet. You should also know that the credit counseling class should have been completed within the last six months before filing for bankruptcy. Therefore, it is advisable that you attend the class only when you are ready to file for bankruptcy. Upon the completion of the class, you should be given a certificate which you will be required to file in court. Cases arise when your certificate expires; that is, it is older than six months. In that case, you will be required to retake the class and file the certificate.

Complete petitions and schedules: You will be needed to complete and file a petition to the court. Normally, you should undertake this step in a court located in the region you have lived in for the last 180 days. You can complete these step yourself or with the help of your attorney. 

Attend 341 hearing: Upon filing your bankruptcy case, you will be required to attend a 341 hearing schedule. This is an important session in which the trustee assigned to you will ask you a series of questions pertaining to the documents you filed. The trustee will also ask you some question pertaining to several schedules you attended. Basically, the questions you expect during this session include details about your creditors, income, and assets in general. It is not a lengthy session and it is approximated to take 5 minutes. In most cases, the questions are not complex and only require your yes or no responses. If you are represented by an attorney, you will be required to be with him or her. The attorney will take you through the entire process and will help interpret the legal jargon you may not be familiar with.

Complete the debtor education class: The class is attended after you have filed your petition and the documents in the court. To indicate or prove your attendance of the debtor’s class, you will be required to file form B23 with the court.

What is a Bankruptcy Trustee?

A bankruptcy trustee is an independent person or a contractor appointed by the court to oversee your bankruptcy case. Generally, the official is appointed to represent the court and the creditors while collecting and servicing the debts. Remember while filing for the bankruptcy case, you will have two options in most cases. That is; to file for bankruptcy under chapter 7 or chapter 13. In either case, you will have a trustee but with different roles.

What Do The Bankruptcy Trustees Do?

In both chapter 7 and 13 of bankruptcy cases, the trustees have the following two common duties:

  • Review or crosscheck your financial statements or documents to make sure that they are completely and correctly filled; this also helps in ensuring all the information you presented in the petition are not fraudulent
  • Give a recommendation on whether your bankruptcy case should be upheld or be dismissed by the court.

The roles of trustees, however, differ slightly depending on the specific bankruptcy case you file.

The Roles of a Bankruptcy Trustee under Chapter 7

Under this chapter, the law requires that the trustee sells any of your asset that is not protected by the exemption law.

The basic duty of a chapter 7 trustee is to sell off the non-exempt property. Thereafter, he or she distributes all the proceeds realized from the selling of your assets amongst your creditors. By doing so, the trustees help relieve you from the burden of repaying the debts.

The primary roles of chapter 7 bankruptcy trustees include:

  1. Reviewing/revising your bankruptcy petition

The process of filing bankruptcy in California involves a lot of paperwork. You are required to disclose some information. Variety of the information is sensitive and you may end up giving wrong details. Among the information contained in the documents are your debtors, financial state, incomes, and the property you own. You are required to send to the trustee copies of some of your official documents. The documents include the tax return information, pay stubs among other documents. The trustee will then review the information you presented in the petition, then compare it with those in the documents you presented as evidence. Where there is a disparity, the trustee will ask you for further details.

  1. Examination of the debtor

After approximately one month from the day you filed the petition, the trustee will schedule a meeting with creditors, also known as 341 meeting. The meeting unites you and your creditors under your trustee. Most creditors rarely attend this meeting; however, if they attend, they will ask you many questions – especially if they feel like you are hiding some assets from them or the information you are giving them is untrue. Such questions require your responses or explanations. Generally, the trustee will lead the examination and the inquiry session and will assess you based on the information contained in the petition. The interrogation takes place while you are under oath. The process usually takes around five minutes.

  1. Sell your property/assets

The bankruptcy trustee will scrutinize your property and then sell those that are not protected under the exemption law. Exemption law in chapter 7 prevent the protected assets from being sold. Among such assets are your clothing, the household furnishing, and any account related to your retirement benefits. The proceeds acquired from the sale of the assets is used in the payment of the creditors.

The trustee is also allowed to sell such protected property but whose value exceeds the legally accepted value and use it to pay your creditors.

In some situations, you may not have any non-exempt property. That is, all assets you have are protected and their values don’t exceed the legal thresholds for the exempted asset. Your trustee in such a state will write a report to the court that explains that you have no unprotected property. Consequently, your creditors will not be reimbursed since there would be no money to use in the process.

Sometimes, conflict emerges between you and your trustee pertaining to the non-exemption state of some property. That is, your trustee may feel that certain assets should not be exempted while on your side, you wish that it should be exempted. The judge will be charged with the responsibility to make a verdict on the situation.

  1. Avoiding/preventing transfer of assets

You may be tempted in some cases to conceal or transfer some property to other people to avoid them from being sold. For instance, transferring some of your assets to your family members or friends just before filing your bankruptcy case. The trustee will launch an investigation and if he or she finds about the unlawful concealment of the assets, the trustee will undo it even if it is an already concluded processes. The money or property seized will then be sold and be distributed equally among all the creditors.

Normally, a big creditor such as a Car Company or bank when giving you secured loans, often prepare lien document. This document gives the creditor a legal interest over your property and can readily sell the lineated property whenever you default payment of the loan. If the creditor fails to keep such a document, the trustee will just sell any non-exempt property and distribute them to your creditors equally. Such situations are common mostly where the creditor was a friend or a family member who had just believed in your request for a promise to give it back.

The Role of Trustee in Chapter 13

Unlike chapter 7 cases where payment of creditors is possible only through the selling of your assets, chapter 13 cases allow you to service your creditors through a repayment plan. The schedule lasts for approximately three to five years. The major role that your trustee plays will be that of overseer or supervisor. He or she will ensure that the plan is executed to the latter as you proposed. Specifically, they will be engaged in:

Reviewing the Petition as well as the Repayment Plan in Line with a Chapter 13 Recommendation

Under this chapter, your plans concerning how you are going to pay you creditors throughout the stipulated period are outlined. It is not a must that you pay all the amount owed. You can decide to pay part of it over a certain period. However, it will be the role of the trustee to review your repayment plan to determine if it is fair to any of your creditors. To initiate the process, the trustee often;

  • Reviews or revises the bankruptcy form that you had earlier filed;
  • Verify or scrutinize your information by comparing it with the information you presented in the official forms and those that you are yet to forward to the trustees. Details about your income, debts, and assets on a monthly basis are among the information that will be contained in your petitions and schedules. To confirm or approve the details represented, the trustee uses the information contained in your bank statements, pay stubs, and your tax payment documents.

Conduct/Execute Chapter 13 Meetings with your Creditors

The meeting takes place about one month from the day you filed your case. The trustee is in charge of the planning and administration of the meeting and you will be required to attend the meeting. Here, you will be asked many questions in connection with your bankruptcy case. Some of the questions will revolve around your assets and income. This also gives creditors an opportunity to ask you questions on how you will service their debts. There are situations during the meeting when the information you present requires more support from your documentation. In such a case, the trustee will have to end the meeting and reschedule it for another day. However, if an agreement is reached and it is accepted that what you presented is right, the trustee will end the meeting.

Attend the Confirmation Hearing

Trustees or your creditors may sometimes be in a disagreement with your repayment plan. In such a case, they may object or conflict the plan you proposed and decide to seek approval from the court. Before then, you are given a very short period to rectify the mistake. Alternatively, you can draft some information or plan that will boost the authenticity of the plan you had presented earlier. The court schedules a hearing upon receiving a complaint concerning your repayment plan. The trustees attend the meeting to seek advice from the judge, which will have the plan approved or dismissed.

Administer the Bankruptcy Repayment Plan

You are required to begin servicing your proposed repayment plan within 30 days from the day you filed for chapter 13 bankruptcy by sending the amount you proposed to your trustee. Bear in mind that your plan remains ‘a proposed plan’ until the court approves it. As such, your trustee will be in charge of the amount you raise but just as a trustee to your creditors. Once the court has approved your repayment plan, the trustee will start distributing the amount collected to your creditors in servicing of your debts.

As explained earlier, chapter 13 cases take between 3 to 5 years. During this period, the trustee receives and distributes the amount to your creditors. To be accountable, the Trustee evaluates the proof of claims that each creditor filed. Further, the trustee takes records of all the collected amount and those paid until the entire credit burden is cleared and each creditor is satisfied.

How Do Bankruptcy Trustees Get Paid?

Payment of trustees is taken care of by the bankruptcy laws. The laws provide the means through which they are paid after they successfully handle a case. The amount payable and the source and the method with which these trustees are paid differ depending on the bankruptcy case.

Trustees who handle chapter 7 cases are paid in two basic ways depending on whether or not there were assets administered in your case. Specifically, the trustee is paid 60 dollars from the amount you pay as a bankruptcy filing fees. If the state waives the filing fees, the trustee will receive nothing.

The second source of payment to chapter 7 trustees is commission calculated based on the proceeds received from the selling of the bankruptcy assets. If the trustee did not sell any assets, then they will not receive any. As such, the amount of payments that trustees receive depend on how much assets they are able to seize and sell.

The payments of chapter 13 trustees are part of the plan you pay monthly for the agreed period. Specifically, the trustees receive 10 percent of the amount payable for the approved plan. They are expected to use the amount received to cater for all the expenses incurred while handling the cases and also maintaining their trustee offices.

Get More Information on Bankruptcy Near Me

The San Diego Bankruptcy Attorney law firm have been helping San Diego residents file for bankruptcy for many years. Whether you are battling with the idea of whether to file for bankruptcy or you want a bankruptcy law expert to help you with the bankruptcy filing process, you can always contact our bankruptcy lawyer in San Diego at 619-488-6168. We’ll ensure you are well-informed on issues such as exemption of assets, the bankruptcy process in California, the role of a bankruptcy trustee, and other issues that you may want to understand. Don’t hesitate, call us today!