What Documents Can a Bankruptcy Trustee Demand from You?

 

A Chapter 7 or Chapter 13 Bankruptcy Trustee has broad power to demand documentation from you.

When you file for bankruptcy in Michigan, you are, in fact, volunteering to provide an enormous amount of information about yourself to the US Bankruptcy Court—and your Bankruptcy Trustee in particular.

But are there any limits to what documentation a Trustee can demand from you? And what do you do when you think a Trustee’s documentation demand is overreaching? What do you do about documentation “fishing expeditions?”

This Article will discuss these tactical bankruptcy questions. First, however, what is a Trustee? What do they do in Michigan bankruptcy cases, and why do they get to do it?

 

What Is a Bankruptcy Trustee?

 

The Bankruptcy Trustee is an individual human being working in a private capacity within your bankruptcy case. They are chartered to perform their role by a division of the US Department of Justice known as the US Trustee’s Office.

The US Trustee him- or herself is a functionary of the US DOJ tasked with overseeing and ensuring the integrity of the bankruptcy system in the United States. The US Trustee will move to dismiss your case if you appear to be filing fraudulently or in “bad faith,” for example. It is also the US Trustee who will prosecute you for the Federal felony crime of Bankruptcy Fraud if you hide assets or perjure yourself in your testimony or bankruptcy petition filings.

The Chapter 7 and Chapter 13 Trustees have different jobs. These individuals are the subject of this Article.

In either Chapter, these Bankruptcy Trustees are tasked with the day-to-day oversight or administration of your bankruptcy case.

You can’t have a Trustee without a Trust, though, can you?

In this case, you don’t have a “Trust,” per se. Instead, you have a “Bankruptcy Estate.” Your Trustee is the Trustee of the Bankruptcy Estate you create automatically by function of law when you file a Chapter 7 or Chapter 13 bankruptcy case.

All of your assets and property, as well as any claim you have to assets or property, are included in your Bankruptcy Estate unless they are successfully “exempted” in your petition documentation.

Note that the process of exempting assets and “protecting” them in bankruptcy is discussed in specific detail in other posts on our site.

 

The Role of the Chapter 7 Bankruptcy Trustee

 

The roles of the two types of Bankruptcy Trustees differ slightly depending on which Chapter of bankruptcy is filed.

The Chapter 7 Trustee’s role is to liquidate the assets of your Bankruptcy Estate in order to generate a pool of funds from which your creditors may be fully or partially repaid.

Note that, if all of your assets are exempted, there is nothing for the Chapter 7 Trustee to liquidate. Your property is protected when this is the case.

In such “no-asset” Chapter 7 cases, the Chapter 7 Trustee simply presides over your 341 Meeting of Creditors hearing and conducts sufficient inquiry into the question of whether or not you have failed to disclose any property or have under-valued any property. Also, the Chapter 7 Trustee investigates any possible fraudulent transfers of property or cash or other pre-filing creditor (“preference”) payments that can be recovered for your creditors’ benefit.

If none of the above, he or she then files a so-called “Report of No Distribution” to inform the Court of the lack of assets and washes his or her hands of you.

 

The Role of the Chapter 13 Bankruptcy Trustee

 

The Chapter 13 Bankruptcy Trustee does not liquidate any property. Asset liquidation does not happen in Chapter 13 bankruptcy.

Instead, the Chapter 13 Trustee conducts and presides over not just your 341 Meeting of Creditors but any Chapter 13 Plan Confirmation hearings or other claims objections or other hearings that may be docketed in your 3-5-year Chapter 13 proceeding.

The essential function of the Chapter 13 Trustee is to receive your monthly Chapter 13 plan payment and then to disburse it out to your creditors.

However, despite this succinct job description, the Chapter 13 Trustee takes a very active role in ensuring that your monthly plan payment encompasses all of your disposable household income and that you comply with the requirements of the US Bankruptcy Code and the Bankruptcy Rules of Procedure. To the letter.

This is especially true in the Detroit Bankruptcy Court, where the Chapter 13 Trustee will object to every monthly household expense you have if it appears to be even mildly “above average” or “unnecessary.”

 

Bankruptcy Trustee Document Demands

 

As you might guess, the Trustees need to verify a lot of information about you, your assets, their value, your income, your expenses, and more in order to do their jobs.

They won’t take your word for anything. They will want to see the evidence that what you’ve stated in your bankruptcy petition is true.

This evidence will be required in documentary form.

One of the best reasons to retain an experienced Michigan bankruptcy attorney to assist you will be to take the mystery and confusion about what documentation sill required from you and when.

 

Statutory Authority for Bankruptcy Document Demands

 

First, it’s important to realize that the Trustee has the legal authority to demand this documentation from you.

Bankruptcy is a Federal legal process. It is governed by a statute called the US Bankruptcy Code.

Under Section 704(a)(4), (a)(6), and Section 1302(b)(1) of the Bankruptcy Code, the Trustees are granted the broad authority to investigate your financial affairs and to object to your discharge if warranted.

Section 343 of the Bankruptcy Code authorizes the Trustees to conduct the 341 Meeting of Creditors. At this hearing, you will be asked questions regarding your financial affairs and assets under oath and penalty of perjury.

To facilitate all of this, the Trustees, in particular, will require certain documentation to provided at least 7 days prior to your 341 Meeting of Creditors. If it is not provided, your hearing will be adjourned. If a repeated failure, the Trustee may move for dismissal of your bankruptcy case.

Additionally, under Federal Rule of Bankruptcy Procedure 2004, any party in interest (including a creditor) can subpoena documentation for separate review and examination for a so-called “2004 Examination.”

So what documents can a Bankruptcy Trustee demand?

 

Types of Documents a Bankruptcy Trustee Can Demand

 

For any bankruptcy proceeding in Michigan, you can expect to be required to turn over the following documents:

 

• Tax returns (at least 2 years in Chapter 7 and 4 years in Chapter 13 proceedings);
• 90 or more days’ worth of bank statements;
• 6 months of more of pay stubs or other income documentation;
• Annuity, whole life, retirement account, stock ownership statements;
• Real estate deeds;
• Leases;
• Car and other vehicle titles;
• Documentation related to lawsuits or other third-party claims;
• Business ownership documentation, if any.

 

Nearly all of this sort of documentation will need to be turned over prior to your 341 Meeting of Creditors.

Note that this is not an exhaustive list. The specific documents required may vary depending on the case and jurisdiction. The purpose of these documents is to help the trustee determine the full extent of the debtor’s assets and liabilities.

The Trustees have the authority, further, to request a great deal more information than is described here. So long as the document demanded is arguably related to your financial affairs, assets, or the integrity of your bankruptcy proceeding, the Court will allow usually require it to be turned over.

But not always.

What do you do when the Trustee’s (or any other party’s) document demand is over-broad? Or personally intrusive in an unjustifiable way?

 

Contesting Trustee Document Demands

 

A debtor in bankruptcy who receives an overbroad request for documentation from a trustee has several options for responding. Some of these options include:

 

• Objecting

 

Your bankruptcy attorney can file an objection to the Trustee’s request if he or she believes that the request is overly burdensome, irrelevant, or violates your privacy rights. This Objection is a sort of Motion that is filed with the Bankruptcy Court. The Trustee will be able to file a Response, and the Court will then schedule a hearing on the matter. After taking testimony from you and from the Trustee, hearing arguments, reading the pleadings filed, your Bankruptcy Court Judge will issue a decision.

 

• Negotiation

 

You can attempt to negotiate with the Trustee to reach a mutually acceptable agreement on the scope and nature of the requested documentation. Experienced bankruptcy attorney required to exercise this option!

 

• Compliance

 

The path of least resistance is simply to comply with the request. When a Trustee is engaging in an obvious fishing expedition, hunting wildly for assets or value that simply doesn’t exist, this is not necessarily the best option—unless it is. Remember that, when you filed for Chapter 7 or Chapter 13, you voluntarily agreed to provide a lot of personal information about yourself.

If there’s no “there there,” as Bill Clinton would say, what’s the harm? If you don’t have the documentation at all or don’t exercise control over it (i.e., very old income documentation or bank statements), your bankruptcy lawyer may tell the Trustee to go and subpoena it from the bank or your former employer. Otherwise, turning it over and allowing the Trustee to do his or her job is sometimes more efficient that, essentially, arguing over nothing.

However, there may be some harm. It depends. You will need an experienced bankruptcy attorney to tell you when this is the case.

 

Bankruptcy Trustee Documentation Demands: The Bottom Line

 

The bottom line with regard to Bankruptcy Trustee documentation demands is that you will never know if the demand is unreasonable or objectionable if you are not working with an experienced bankruptcy attorney. In particular, you want to work with a bankruptcy lawyer who knows your local Trustees on an individual basis and is accustomed to what “that guy” “usually does.”

This level of practical experience is worth its weight in gold when your assets and debt discharge are at stake.

Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has successfully represented Metro Detroit Chapter 7 and Chapter 13 clients for over 30 years.

If you are considering filing for bankruptcy in Detroit or elsewhere in Michigan, contact us now to schedule your free consultation.