Red Flags that Might Draw the Suspicion of a Bankruptcy Trustee

Once you file for bankruptcy under Chapter 7 or 13, the court will appoint a trustee to oversee your case. The trustee is responsible for ensuring fairness and accuracy so that the interests of creditors are protected. As part of their fiduciary role, they review and verify a filer’s financial disclosures, and can investigate if something seems improper.

Given their vital role in the bankruptcy process, it is always best to avoid anything that might raise a red flag with the trustee. Working with a qualified attorney can help you avoid common mistakes and give you the best chance for a prompt, successful resolution to your bankruptcy matter. This might require obtaining certain documents or clarifying potential discrepancies before you file. 

Some specific issues that frequently raise suspicions among bankruptcy trustees include the following: 

• Unverified or inconsistent income — It’s not uncommon for someone seeking debt relief to have an inconsistent income history. However, what a filer has earned and spent over the past year or so should be verifiable through paystubs, bank statements and other documents. In a Chapter 7 case, concerns about unreported income or hidden assets could mean that a debtor does not qualify under the means test. Meanwhile, questions about financial status can make it difficult to assess the feasibility of a Chapter 13 repayment plan. 
• Large or unusual recent transactions — Major cash withdrawals, balance transfers among different accounts and luxury purchases within 90 days of filing are sometimes seen as attempts to game the system. There are instances where discharge is denied for recently incurred debts. Payments or the shifting of property to friends or close relatives can also be seen as a sign of a fraudulent transfer. Of course, you might have a legitimate reason for a recent transaction, but it is wise to be prepared to address it if the trustee brings it up. 
• Inflated expenses — Budgets showing above-market housing, transportation or “miscellaneous” expenses without proof will likely prompt inquiries about the availability of lower-priced options. Sudden spikes in medical, childcare or business costs right before filing should also be explained proactively. 

You and your attorney might be able to provide satisfactory answers at the Section 341 meeting or by providing additional records. When a serious issue remains, the trustee could object to exemptions or debt discharge in a Chapter 7 case or require Chapter 13 plan amendments.

Jeff Field & Associates provides comprehensive counsel to Georgia residents on a full range of bankruptcy issues so that they can secure a prompt, favorable resolution whenever possible. Please call 404-381-1278 or contact us online to schedule a consultation. Our offices are in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur.