Texas Bankruptcy Blog : Texas Bankruptcy Lawyer & Attorney : Fears Nachawati law Firm : Chapter 7, Chapter 13, Consumer Bankrutpcy : Dallas, Fort Worth, Austin, Houston, San Antonio

When a consumer bankruptcy case is filed, a trustee is appointed to oversee and administer the case. The trustee does not represent the interests of the debtor and cannot give legal advice, which is the role of your bankruptcy attorney. However, it is important to cooperate with the trustee and any request for information.

The issue of a debtor’s duty to cooperate with the trustee was recently litigated in the case of In re Royce Homes, LP. 2009 WL 3052439 (Bkrtcy. S.D.Tex.). In that Chapter 7 case the trustee requested financial documents and information from a corporate debtor. In response to the request the debtor provided access to “storage facilities containing stacks of documents and old computer servers, most of which are wholly unresponsive to the Trustee's request.” The trustee filed a motion asking the bankruptcy court to compel the debtor’s cooperation.

In deciding the matter the court cited several sections of the bankruptcy code and rules which require debtors to cooperate with the trustee. Notably section 521(a)(3) requires the Debtor to “cooperate with the trustee as necessary to enable the trustee to perform the trustee's duties under this title.” The court ordered the debtor to provide the specific information that the trustee had requested, rather than simply dumping documents or permitting access to records. The court emphasized the debtor’s duty to cooperate by stating, “It is well settled that a [trustee] should not be required to drag information from a reluctant and uncooperative debtor. Because of the extraordinary relief offered under the Bankruptcy Code delay and avoidance tactics are inconsistent with, and offensive to, its purpose and spirit.”

Cooperation with the trustee is an important part of the bankruptcy process. Failure to cooperate or to testify truthfully could result in a discharge, or worse. Your bankruptcy attorney can help guide you through this process of disclosure with the trustee and protect your interests.
 

Quite a bit of mystery surrounds the bankruptcy trustee.  Generally, the person identified as the bankruptcy trustee in a Chapter 7 case is a “panel trustee,” also called an “interim trustee.”  The Panel Trustee is appointed by the United States Trustee as a local agent to review the debtor’s bankruptcy petition and schedules, and to determine if the debtor has any non-exempt assets available for distribution to creditors.  The Panel Trustee is not a government employee, although he or she is supervised by the Office of the U.S. Trustee (a division of the U.S. Department of Justice).  While the Panel Trustee is required to be independent and disinterested in the debtor’s case, the Panel Trustee works primarily for the benefit of the debtor's unsecured creditors.

The Panel Trustee is almost always the individual that presides over the debtor’s Section 341 Meeting of Creditors.  The Panel Trustee must investigate the debtor’s affairs, examine the debtor under oath, and submit reports to the bankruptcy court and Office of the U.S. Trustee.  At the 341 Meeting the Panel Trustee is required to ask the debtor specific questions outlined in the U.S. Bankruptcy Code.  These questions include:

Did you read the schedules before signing?

Did you list all of your assets?

Did you list all of your debts?

Are the schedules accurate?

Do you want to make any corrections to the schedules?

Do you have a domestic support obligation?

Panel Trustees are paid a flat fee of $60 per case.  In addition, Panel Trustees receive an incentive commission on each dollar they collect from the debtor.  The commission rate is: 25% on the first $5,000 distributed; 10% on the next $45,000 distributed, 5% on the next $955,000, and 3% for every dollar distributed in excess of $1,000,000.  The National Association of Bankruptcy Trustees reports that approximately 90% of Chapter 7 cases are considered “no asset cases” in which there are no assets available for liquidation, either because assets are exempt (protected) by debtors or liened by secured creditors. 

Panel Trustees are usually attorneys or accountants with extensive bankruptcy law and auditing experience.  The bankruptcy trustee is forbidden from offering legal advice to debtors in bankruptcy.  Unfortunately, unrepresented debtors often do not receive the full protection of the bankruptcy laws because they lack the counsel of an experienced bankruptcy attorney.  These unrepresented individuals sometimes find themselves involved in “asset cases” and under the trustee’s microscope.  However, with the proper preparation, and with the experienced counsel of a skilled bankruptcy attorney, your Chapter 7 Bankruptcy can proceed very smoothly – even under the scrutiny of the bankruptcy trustee.