Wondering what bankrutpcy trustees look for when they ask for bank statements and question you at the 341 meeting? Worried that a bankruptcy trustee will examine your situation and somehow disqualify you from bankruptcy because of something you did (or didn’t do) right before you filed?
Not to worry. Your bankruptcy discharge does not depend on the trustee’s approval of your money choices in the run-up to bankruptcy.
There is no subjective do-we-approve-of-the-debtors-money-management test to get a discharge.
The bankruptcy system makes no judgments about how you’ve lived your financial life before filing. What’s important is something else, entirely.
What bankruptcy trustees look for
Trustees routinely ask for your bank statements or similar records of receipts and debits. They are not looking to judge your every expenditure or your worthiness for bankruptcy.
They’re looking to see if the records generally match the financial story in your schedules. If there are unusual transactions, they want to understand what was happening. Did you get a bonus? Sell some stock? Recover on an insurance claim?
Large outflows of money need explanations. Did you pay off a loan from your parents? Take money to the casino? Withdraw cash and stash it under the matress? Put a downpayment on a replacement vehicle?
The question is: are these transactions consistent with your bankruptcy papers.
Again, the trustee wants to verify that your schedules are complete and that you’ve made full disclosure. Not that you’ve made the same choices that the trustee would have made personally. That’s what bankruptcy trustees look for.
Hot button issues
Some things do create legal issues. But those issues don’t always affect you.
- If you hide money or assets, those fraudulent acts may keep you from a discharge.
- If you pay significant sums to a creditor with an old debt, the creditor may have to give the money back; but there’s no consequence to you.
- If you use your credit cards, knowing you won’t repay, the creditor can challenge the discharge of those charges on the basis of fraud
The price of a fresh start
The basic bankruptcy bargain is the debtor’s full disclosure of his/her financial condition in exchange for the discharge of legal liability for debt. The bankruptcy trustee is looking for that disclosure.
Careful attention to the preparation of your schedules yields a tangible return in the form of a fresh start.
More
Your spending before bankruptcy
