What to expect at a 341 Meeting of Creditors
If you’ve never filed a business or personal Chapter 7 bankruptcy, you’ve missed out on the pleasure of attending a “341 Meeting of Creditors.” The purpose of this article is to explain the purpose of this important meeting, how to prepare for it, and what could go wrong.
What is a 341 Meeting?Remember the purpose of a Chapter 7 liquidation bankruptcy is to sell non-exempt assets and use the money to pay creditors. When a case is filed, it*s assigned to a trustee whose job is to find those assets and administer them. The 341 Meeting refers to Section 341 of the Bankruptcy Code which requires the debtor to appear and be examined by the trustee for this purpose. The meeting usually lasts 10-30 minutes. It takes place in a federal building with security. It is tape-recorded.
How Does The Debtor Prepare For A Meeting Of Creditors?I give my clients a letter which explains the purpose of the meeting and how it works. The letter basically says where to go, what to wear, and how the meeting is conducted. In business and personal cases, the debtor must bring a picture ID to the meeting. In addition, individual debtors must bring their social security card. Most of the actual *preparation* is done in the weeks prior to the meeting, as my staff gathers the necessary financial documents and sends them to the trustee. Other than the client being familiar with the bankruptcy schedules and his financial situation, there*s really not much work for him to do. We urge the client to answer all questions truthfully and completely, but to not volunteer information.
What Happens at the Meeting?The trustee asks the debtor a series of questions under oath, and the debtor answers the questions. I am generally not allowed to say anything during the meeting, so I just *sit there.* Although if something goes wrong, it*s good to have me there.
What Can Go Wrong?Here are some of the most common events that could turn the 341 Meeting into a nightmare scenario. They are ranked from mild to explosive.
1. Debtor forgets to bring his driver*s license or social security card. Some trustees will reschedule the meeting; others will conduct the meeting and simply require the debtor to come back to show the identification. This is an easily avoidable, although common, problem which can create unnecessary stress for the already-nervous debtor. A good attorney will work quickly on an alternate identification solution to avoid the debtor*s return if possible.
2. Trustee wants more documents, and/or says the documents provided are insufficient. Depending upon the extent of what documents are requested, the meeting could be continued and the debtor and attorney will have to return for further examination after the documents are provided. This is common in high-profile and more involved Chapter 7 bankruptcies. As long as the debtor cooperates and turns over the documents, it is usually nothing to lose sleep over.
3. There are buy-back issues. This is not really a *problem* with the 341 Meeting per se. In a Chapter 7 bankruptcy, all non-exempt assets are the property of the bankruptcy estate, so if the debtor wants to keep such an asset, he must *buy it back* from the trustee. We would of course prepare the client for this ahead of time, and set the expectation that the trustee may send an appraiser to the home. This should not be a surprise at all, although it can be unnerving for some clients. Buy-back negotiations are handled offline between the trustee and the debtor*s attorney.
4. US Trustee shows up to investigate a possible presumption of abuse. This means that the debtor might make too much money to receive a Chapter 7 discharge. If the case is *borderline* I will prepare the client way in advance for this threat, and we will discuss Plan B options such as converting to a Chapter 13 bankruptcy if necessary. More on this later. In a case such as this, the US Trustee*s analyst will ask more questions and the meeting will take longer. Sometimes the meeting will last 45 minutes or more. There will usually be additional document requests while the presumption abuse issue is investigated after the meeting.
5. A creditor shows up to make trouble. This can be anyone from a big bank*s attorney to an ex-boyfriend. Depending upon the creditor*s level of sophistication, the 341 Meeting can get ugly. Bank attorneys will simply ask questions just like the trustee did, but non-lawyer creditors might not know much about bankruptcy and how the process works. Although creditors are allowed to ask questions, the trustee should maintain decorum and time limits in the interest of other folks in the hearing room. If the trustee fails to do so and the proceeding turns into a wild circus, it*s appropriate for debtor*s counsel to object and advise the client accordingly. This hardly ever happens, and when it does it*s usually in a small business bankruptcy with angry customers or unpaid employees. It*s hard to predict how long the meeting will take and if the debtor will have to come back.