It almost happens in every meeting. I will be explaining how things work in a bankruptcy case and I will make reference to the “trustee.” Usually my clients won’t interrupt me but sometimes I can just tell by the look on their face that they have no idea who I am talking about. I don’t try to talk over my clients’ heads. Actually I try to make things as simple as possible so that I only have to go over it one time. As much as I try to make it easy I do make mistakes and forget that my clients don’t do this every day.
The “trustee” is the person who administers the bankruptcy case. The “trustee” IS NOT A JUDGE. I like to tell my clients that the trustee is sort of like a referee in a sporting event. His job is to make sure all the parties are going the right direction on the field and following the rules. When someone breaks the rules or how an issue should be administered, the trustee or other interested party (debtor, creditor, etc.) can ask the judge to get involved.
In the Central Division of the Bankruptcy Court for the Southern District of Iowa we have three trustees. They are Tom Flynn, Donald Neiman, and Dallas Jansen. I personally know all three very well and can tell you that they have exceptional knowledge of the bankruptcy laws. In my opinion the most impressive thing about each is that they are genuinely nice. When you file bankruptcy you will be assigned one of these three people to serve as your trustee.
One of the trustee’s duties is to conduct a “First Meeting of Creditors.” We also call the meeting a 341 meeting. This meeting or hearing is scheduled about 30 days after you file for bankruptcy. The trustee who is assigned to your case will be at the hearing and is required to ask you a series of questions. Most of these questions are questions that we have already discussed. Some of the questions include but are not limited to:
Do you still live at the same address as when you filed?
Did you list all of your assets and debts correctly?
Were you being garnished when you filed?
Did you transfer any assets or property to a family member in the last two years?
Did you pay any one creditor more than $600.00 in the 90 days before you filed?
The questions they ask are not intended to harm you in any way. Instead, the trustee is asking questions that will help them to administer your case.
The trustee is required to review all of your assets and determine if any of the assets are not exempt. This means that the trustee is trying to determine if he has to take the asset, sell the asset, and use the proceeds to pay creditors. An example would be a client who has a speed boat. Let’s say the client’s speed boat is worth $10,000.00 and he doesn’t owe any money against the boat. You need to know that boats are not exempt except for situations where the boat may be used for work (this is very rare in central Iowa). The trustee would be required to sell the boat and take the proceeds to pay the client’s creditors.
The trustee does have some discretion as to whether he takes an asset or doesn’t take an asset. An example that we see many times a month is the situation of “extra” cars. I did prepare a blog entry entitled CAN I KEEP MY CAR(S) IF I FILE BANKRUPTCY IN IOWA? Visit that post to learn more about the issue of keeping cars in bankruptcy. Consider a car that doesn’t run, has body problems, and is most likely worth less than the repairs that would be needed to make it road worthy. Usually we value a car like this at salvage value but most likely never more than $300.00. We almost never want to claim the car as exempt because we would rather use the exemption for a more valuable vehicle if the client has one. Keep in mind what the trustee would have to do with a non-exempt $300.00 car. The bankruptcy trustee would be required to liquidate the car (sell the car); take the proceeds from the sale of the car; first pay the expenses from the sale of the car (tow fee, auction fee, etc.); and take the remaining balance and distribute it among the clients’ creditors. In reality it is more complicated than what I just explained and can take many months to complete. Good news! To do all that work the trustee would be paid something like 10% of the gross($30.00). The trustees work hard for a living, however, they don’t work stupid. There is no value in doing all the work and distributing less than $100.00 to the creditors. More plainly stated, trustees will likely abandon a car in this condition and the client will get to keep the car.
I hope this explains who the trustee is and what they do. Everyone who files for bankruptcy gets a trustee who administers the case. The trustees in our area are really nice guys who have always been there to help me when I have asked. You don’t need to be afraid of the trustee when you see them at your 341 meeting. They probably would rather be at their offices working on something productive.