What is a trustee?
Before we file your Chapter 7 case you will provide us with information about and documents related to your income, assets and debts. With the information you provide, we will prepare the petition and schedules that will be filed in the case. (Learn more about the bankruptcy Process.) Once the case is filed, an impartial "referee" called the trustee is appointed to oversee the case.
What does the trustee do?
The trustee's job is to maximize recovery for unsecured creditors by converting non-exempt assets to cash and distributing proceeds to unsecured creditors. The trustee will review the information in the schedules and documents and look for inconsistencies. It is imperative that you be completely forthcoming and honest in the information you provide in the schedules. Once a chapter 7 case is filed it is very difficult if not impossible to dismiss. If the trustee finds non-exempt property you may lose it. If the omission was more than an honest mistake you could face Federal criminal charges for Bankruptcy Fraud.
How would the trustee find assets if I don't list them?
The trustee has very powerful investigative tools and may conduct nationwide title, account and asset searches to verify information in the schedules. In some cases disgruntled ex-spouses, landlords, business partners or individual creditors contact the trustee to report assets or income the debtor may not have reported. If you don't list an asset, in most cases you cannot go back and claim an exemption on that asset. If the trustee finds the asset it will be sold.
The trustee may abandon the asset
If the asset is of limited value it is likely the trustee will abandon the asset and title will transfer back to the debtor. The trustee must weigh the potential value of the asset against the costs of liquidating that asset, including:
- costs of obtaining the asset from you
- costs storing the asset until sale
- costs of selling the asset such as brokers fees, auction fees, commissions
It is the ultimately the trustee's decision whether to liquidate or abandon an asset, but the trustee must act in good faith.
Undervalued Exempt Assets
It is up to you to assign value to the property you claim as exempt. If you undervalue it, you take the risk that the trustee will sell the property, refund you the amount of the exemption and distribute the balance to creditors. For example, if you claim an exemption of $200 on a 2 carat diamond ring, the trustee will want to know where you came up with that value. If you do not have an appraisal from a reliable source, you likely will end up losing the ring and receiving $200 if you do not have any remaining exemptions.
A fraudulent transfer is any transfer for less than equivalent value made while the debtor was, or that caused the debtor to be, insolvent. In a chapter 7 case, insolvency is presumed for any transfer that occurred in the 90 days prior to filing. The bankruptcy code allows the trustee to look back two years and "undo" transfers of any property you transferred if you received less than what the property was worth in return.
The trustee may take the property from whoever it was transferred to and sell it for the benefit of the estate. If the person you transferred the property to no longer has the property the trustee may force that person to pay what the property was worth at the time of the transfer. (Learn more about Fraudulent Transfers)
A preferential transfer in a Chapter 7 is:
- any transfer of the debtor's property
- to satisfy an existing debt
- in the 90 days prior to filing
- that gives the creditor more than they would have received in the bankruptcy
If the person you transferred the property to was an insider, the look back period is one year, however insolvency is not presumed if the transfer occurred more than 90 days prior. (Learn more about Preferential Transfers)