What Is The Bankruptcy Trustee’s Role?
Interviewer: How easy or difficult is it to deal with the trustees? It sounds as if their job is to just collect as much money as they can to pay creditors.
Trustees Are Compensated On A Commission Basis With A Percentage Of Assets They Can Allocate To Creditors
Vance: The trustees make a commission on everything they recover from the debtor to give to the creditors.
Interviewer: That sounds like a big conflict of interest.
The Trustee Represents The Interest Of The Bankruptcy Estate
Vance: No, not at all. The trustee doesn’t represent the debtors, they don’t represent the creditors. They represent the bankruptcy estate. Whenever you file bankruptcy, all of your assets become part of your bankruptcy estate.
If there are assets with equity over and above what your exemptions are, let’s say for example you have a car that’s worth $8,000 and you file bankruptcy.
The Trustee’s Role Is To Legally Collect As Many Assets As Possible To Give To Creditors
The bankruptcy laws give you an exemption of about $3,600 to protect any equity you have in a car. That’s only for a private owner. That leaves about $4,400 of equity in that car. Now, the trustee will generally make you an offer.
You can either buy the equity back from the trustee, or you can make him a lump sum payment offer which would probably be less than the equity that’s exposed. If you can’t do either one, he will take the car, sell it, pay you your exemption amount which is $3,600, take the rest of the money he recovers and distribute it to the creditors. And then he recovers a fee for doing that.
Some Trustees Are Zealous In Their Duties, Some Conscientious
Interviewer: Are the trustees in your area really aggressive? Will they try to extract every nickel out of somebody?
Vance: It depends on the trustee. Some of them are a little more aggressive than others. Some trustees and I tell this to some of my clients, over in this area will spend a dime to find a nickel.
Other ones don’t. If they can’t recover at least $1,000 they won’t bother. It just depends on the trustee. They’re all different.
You Cannot Choose The Bankruptcy Trustee Who Will Administer Your Estate
Interviewer: Can you choose the trustee at all when you file?
Vance: The cases are submitted to a different trustee every time. The trustees receive their cases as they are filed. The next one in line receives the next bankruptcy case that is filed. If I could pick the trustees, I would, but I can’t.
Interviewer: Transferring of assets seems like a big potential problem. What other mistakes do people make that can be detrimental to their bankruptcy case?
Vance: Disclosure is probably the most important thing that you have to do. You have to comply with full disclosure. I explain that to my clients when they come in. I tell them, “It’s full disclosure here in my office.” I do have clients come in and say, “Well, do I have to tell them about that? Do I have to tell them about this?”
You Can Face A Substantial Fine And A Prison Sentence For Not Complying With Fill Disclosure During Your Bankruptcy Filing
I always tell them, “Look, from here on it is full disclosure. You can walk out of my office right now and go talk to another attorney, but that’s your option.” Under Bankruptcy law, if it is discovered that you didn’t disclose everything, there’s a maximum $250,000 fine and/or 5 years in jail for any bankruptcy fraud.