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What Does The Bankruptcy Trustee Investigate

What About Honest Mistakes

Bankruptcy Trustee Searches For Assets

Bankruptcy is often a stressful process for most people. It is quite possible that you will inadvertently forget to disclose something on your documents or tell you trustee. We all make mistakes sometimes and honest mistakes are easily remedied. As soon as you learn of your error, contact your trustee immediately. They can help you take appropriate action to correct the matter to everyones benefit.

Sequestration Orders Being Challenged

3.34 The trustees duty to act in a commercially sound way should be given increased attention when there is an appeal against the making of a sequestration order.

3.35 Trustees are faced with the challenge of securing the bankrupts assets and administering the estate, while being cognisant of the fact that there have been cases where the court has not made provision for trustees fees to be paid where the sequestration order has been set aside .

3.36 In Kyriackou v Shield Mercantile Pty Ltd 33, in the Federal Court, a bankruptcy notice that had led to the making of a sequestration order was later declared invalid, and therefore set aside. Because the sequestration order had been wrongly made in the first place, Weinberg J, at paragraph 40 stated,

It would be quite wrong, in my view, to burden Mr Kyriackou, who is the successful applicant in this proceeding, with the costs of administering the estate that should never have been made the subject of a sequestration order. Regrettably, that leaves the Official Trustee with no obvious and immediate recourse against either the appellant or the first respondent. It also leaves him with what might be considered a legitimate sense of grievance. He may be out of pocket for doing no more than what he was required by statute to do.

Weinberg J concluded at paragraph 42,

What Does The Bankruptcy Trustee Investigate Tell Your Bankruptcy Trustee Everything

I thought of writing this blog topic because just yesterday, a lawyer friend called up with a question. The lawyer is a family law lawyer, representing a spouse who completed a consumer proposal. The lawyer, on behalf of his client, is making a claim as having a trust claim over his spouses home.

The judge asked if the client declared this claim as a potential asset in his sworn statement of affairs in the consumer proposal bankruptcy paperwork? The answer is no. Now the judge says, correctly, that the client had a duty to disclose that information at the time. The judge is correct. The judge then went on to ask how he can rely on the credibility of the clients assertions now? What a jackpot they are now in!

That is why I say tell your bankruptcy trustee everything. If there is full disclosure in the initial interview before the period of time the bankruptcy process begins, I can then consider any troublesome issues and advise on the best course of action. Then you dont need to worry about what does the bankruptcy trustee investigate. Nobody wants to have a nasty surprise like my lawyer friends client.

what does the bankruptcy trustee investigate

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The Trustee Will Look For Suspicious Banking Activity

The trustee will also use bank statements to look for evidence of your income and expenses and question you about any significant transactions. If you paid any big bills or transferred a large sum to someone right before you filed bankruptcy, the trustee might have a duty to bring that money back into the bankruptcy estate for all creditors to share.

Filers should disclose such payments in the official bankruptcy form Your Statement of Financial Affairs for Individuals Filing for Bankruptcy. However, it doesnt always happen, and the trustee will be on the lookout for such activity. Keep in mind that the trustee might find bank accounts you didn’t report in your paperwork, too.

What Does A Trustee Do

Bankruptcy What Does a Chapter 7 Trustee Do

In both Chapter 7 and Chapter 13 bankruptcies, its the trustees duty to review your bankruptcy forms and investigate and verify your financial information.

One of the trustees responsibilities in doing this is to make sure your bankruptcy claim is not fraudulent.

In addition to ensuring you have a legitimate claim, your trustee in a Chapter 7 bankruptcy is responsible for managing your assets. That includes

  • Collecting your property
  • Converting your assets to cash
  • Distributing the proceeds to your creditors

The trustee will also facilitate the meeting of creditors.

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What Does The Bankruptcy Trustee Investigate Collection Of Information By Bankruptcy Trustee Also Allowed Under Pipeda

A person filed a complaint after a bank, where she as well as her husband had gotten a mortgage from, revealed her personal information, especially regarding her financial situation, to the Trustee of the Bankrupt Estate of her spouse. There was no disagreement that this disclosure happened without the complainants understanding or permission.

However, the federal government ruled that it was allowable under the Personal Information Protection and Electronic Documents Act given that the financial institution was required to provide the information under another law, namely, the Bankruptcy and Insolvency Act .

PIPEDA paragraph 7 specifies that a party may disclose personal information without the knowledge or consent of that party if the disclosure is for the purpose of collecting on a financial obligation owed by the person to that party.

Paragraph 7 of PIPEDA specifies that an organization might disclose personal information without the knowledge or permission of the person if the disclosure is required by law. Trustees are licensed by the Office of the Superintendent of Bankruptcy under the BIA and also are held to requirements of practices or solutions established by the BIA.

As long as the Trustee is asking for information from a 3rd party that will assist in the bankruptcy administration, that 3rd party can provide the information without worrying about what does the bankruptcy trustee investigate or a PIPEDA violation.

Talk To A Bankruptcy Lawyer

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    The Role In Ex Parte James

    3.4 A trustee must act justly. They are considered officers of the Court and in exercising powers and discretions and making decisions no lesser standard is to be expected of them than of a court or judge. This principle is referred to as the rule in Ex parte James.5

    3.5 The rule requiring a trustee to act justly or fairly can apply even in situations where this may not otherwise be strictly required by lawfor example where some property has come into the hands of the bankrupt which was never intended to be property of the bankrupt, but, in law, is his property.6

    3.6;In such circumstances, for the rule in Ex parte James to operate, it has been suggested that four requirements must be met. These are:

    • that the bankrupt estate has been enriched by the relevant transaction
    • that the claimant is unable to submit a proof of debt in the ordinary way
    • an honest person would consider it unfair for the trustee to retain the money in question
    • the rule only operates so as to nullify an enrichment of the bankrupt estate.

    3.7 The rule in Ex parte James was referred to in two cases, ReHouston 7 and Foyster v Prentice8.

    3.9 In the Foyster case the bankrupt made an unsuccessful application for review of the trustees conduct and in particular sought orders that the trustee had not acted impartially and had breached the fiduciary duty owed to him during the conduct of his duties and administration of the bankrupt estate. At 185 Wilson FM stated:

    And at 202:

    Appointment Of An Ip As Trustee Or Liquidator

    What questions will the chapter 7 bankruptcy trustee ask at the 341 Meeting of Creditors?

    The IP is appointed by the creditors as trustee or liquidator by one of a number of procedures, outlined below. The OR can also ask the Secretary of State to make the appointment. A trustee can be appointed even after the bankrupt is discharged if there are still bankruptcy assets to deal with.

    The decision procedures by which an IP can be appointed are as follows:

    • correspondence with creditors
    • a virtual meeting of creditors
    • a physical meeting of creditors
    • the deemed consent of creditors

    The OR will choose the most appropriate method, depending on the circumstances of the case, but only the creditors can ask for the decision to be made at a physical meeting.

    The OR will notify the bankrupt if an IP is appointed. An IP must also advertise their appointment in the Gazette as outlined in rule 10.74 of the Insolvency Rules 2016. If the Secretary of State makes the appointment, the IP must notify the creditors individually or, if the court allows, by an advertisement.

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    Division 42 Of The Rules

    2.12 Division 42 of the Rules sets out standards for the minimum level of acceptable conduct and performance for registered trustees.

    2.13 The purpose of the standards, stated in subsection 42-4 of the Rules is:

    The purpose of the standards is to ensure:

    ;;;;; that a registered trustee acts at all times in accordance with the trustees powers and duties under the Act, the regulations and these Rules and in relation to the practice of bankruptcy law generally; and

    ;;;;;; that an administration to which these standards apply is carried out consistently at a high level.

    2.14 This practice direction does not set out all of the Standards, but focuses on those standards that are not prescriptive. It use subjective terms to describe conduct expected of trustees:

    Who Can Serve As A Bankruptcy Trustee

    The U.S. Trustee Program is administered by the Department of Justice . However, bankruptcy trustees are not employees of the DOJ or the USTP. Rather, private trustees are appointed andin most states, including Nevadaoverseen by the USTP.

    Some bankruptcy trustees are former bankruptcy attorneys, but neither a law degree nor prior bankruptcy experience is required to be appointed trustee. Generally, anyone with the appropriate financial and administrative skills who passes a background check and is eligible for bonding can be appointed.

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    What Does The Bankruptcy Trustee Investigate When The Bankruptcy Trustee Suspects Fraud

    When allegations of bankruptcy fraud enter into bankruptcy administration, the next step normally includes obtaining information via an examination under oath. The BIA enables either the Trustee or the OSB to examine a bankrupt under oath. The BIA additionally permits the Trustee to put questions under oath to anyone that might have information, knowledge or documents concerning the affairs of the bankrupt. One of the key functions of the bankruptcy trustee is to protect the interests of unsecured creditors and to do so at every stage of the bankruptcy process.

    As soon as the Trustee has gathered sufficient proof to support a case, the Trustee has 2 options, depending on the circumstances. If it is criminal activities or bankruptcy offences that the bankrupt person or the Directors of the bankrupt company have done, the Trustee can ask the OSB to review the proof. If they concur with the Trustees analysis, they can then call in the RCMP to check out.

    If the RCMP has adequate evidence of a crime having been committed, or of bankruptcy offences, they will have the Crown lay bankruptcy fraud charges and then there will be a criminal trial. The result can be a fine, jail time or both. This will also give cause for the Trustee to have no choice but to oppose the persons bankruptcy discharge.

    How Does The Bankruptcy Trustee Get Paid

    Liens In Bankruptcy

    A bankruptcy trustee receives a small flat-fee payment per case administered. In addition, the trustee may receive an incentive payment in the form of a percentage of funds recovered on behalf of creditors. Depending on the amount recovered, this commission can range from 3% to 25%.

    Most Chapter 7 cases are no asset cases, meaning that the trustee determines that there are no non-exempt assets available for the payment of creditors and there is no percentage-based compensation. In a Chapter 13 case, the trustee receives a percentage of funds collected through plan payments.

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    What Happens If The Trustee Suspects Fraud

    An important part of the bankruptcy trustees job is to investigate fraud. If the trustee suspects that someone may be committing fraud in a bankruptcy case, he or she can file a lawsuit against that individual. But, what happens then?

    Bankruptcy Rule 2004 Examination

    If the trustee suspects fraud but does not have enough evidence to file a lawsuit, a Rule 2004 examination may be conducted. A Rule 2004 examination is similar to a deposition; however, some different rules apply, such as the scope of questions that may be asked. The trustee can also request document production from the filer anyone that might relate to the case. The Bankruptcy Rule 2004 authorizes the trustee to examine:

    • The act, conduct, property, liabilities and finances of the debtor
    • Any matter that might affect the administration of the bankruptcy estate
    • Any matter that might affect the debtors right to a discharge

    Adversary Proceeding

    Once the trustee collects enough evidence to file a lawsuit, he or she can do so in the bankruptcy court. This type of lawsuit is known as an adversary proceeding. An adversary proceeding can be filed by a trustee to:

    • recover property and set aside transfers;
    • obtain turnover of undisclosed property;
    • revoke the discharge of a bankruptcy debtor;
    • determine the validity and extent of liens;
    • recover money that was obtained through fraud.

    Other types of Bankruptcy Fraud Cases:

    Transactions The Trustee Can Undo

    If you’ve repaid creditors or transferred money out of your name recently, the trustee might be able to get the money back. These items might signal transfers that the trustee can reverse and bring back into the estate:

    • excessive gifts
    • transfers for less than full value
    • transfers that prefer one creditor over others, and
    • payments to relatives or others close to you.

    Find out more about what the trustee will look for by reading The Bankruptcy Trustee and Preference Claims.

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    Chapter 13 Plan Issues

    In addition to the other items, the Chapter 13 trustee will consider some of the following things to determine whether the judge will confirm your plan:

    • your marital status and your spouse’s income
    • debt that exceeds statutory limits
    • excess income not included in your plan, and
    • whether you transferred assets shortly before filing to try to avoid paying creditors what they’re owed.

    Learn more about your obligations under the Chapter 13 repayment plan.

    The Bankruptcy Estate And Bankruptcy Trustee

    Will the Bankruptcy Trustee come to my house to take my things?

    In order to understand what a trustee is and what they do, it is best to first get a clear understanding of the concept known as the “bankruptcy estate.” Under bankruptcy law, at the time someone files for bankruptcy, a bankruptcy estate is created which is composed of the debtor’s property. The bankruptcy estate is its own distinct legal entity separate from the bankruptcy debtor.

    Of course, since the bankruptcy estate is not a person, that’s where a bankruptcy trustee is needed to step in to play the role of overseeing the bankruptcy estate. The trustee will perform various duties required by law, as well as the circumstances of a given bankruptcy case. Trustees are people who are appointed or selected to oversee particular bankruptcy cases or a particular type of bankruptcy.

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    The Function Of The Trustee Is To Get In Realise And Then Distribute All Available Assets In The Bankrupts Estate In Accordance With The Law In Carrying Out His Functions And In The Management Of The Bankrupts Estate The Trustee Is Entitled To Exercise His Or Her Own Judgment And The Court Will Be Slow To Interfere With This

    Investigations of the trustee

    The trustee will normally need to investigate the bankrupts affairs, with a view to ensuring that the creditors receive the returns that are properly due to them Appointment of Trustee in Bankruptcy.; This duty of investigation includes looking at the circumstances of transactions that occurred before the bankruptcy to see whether any of these transactions;are open to challenge and might be set aside or otherwise adjusted for the benefit of the creditors. Such transactions include:

    • Any transactions at an undervalue
    • A preference
    • Assignment of book debts
    • Transactions defrauding creditors

    The purpose of the investigation will be to obtain and consider the evidence in relation to suspect transactions.; If the evidence justifies it, the trustee can apply to the court for an order in relation to each of these situations which may have the effect of restoring the position to what it would have been if the transaction had not taken place or such other order as the court thinks fit.

    The trustees powers

    The trustee in bankruptcy has a wide range of powers including:

    • To carry on the business of the bankrupt for the purpose of winding it up beneficially
    • To bring or defend legal proceedings in relation to any claim by or against the bankrupt
    • To apply to the court for possession and sale of the bankrupts home
    • To apply to the court;to sell or otherwise deal with property or assets belonging to the bankrupt;

    Liability of the trustee

    Taking legal advice

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