What happens in a First Meeting of Creditors in a Consumer Chapter 7 Bankruptcy in the District of Arizona Bankruptcy Court?

The first meeting of creditors may be the only hearing in a Consumer Chapter 7 Bankruptcy Case.

It's mandated in the Bankruptcy Code, at 11 USC 341, and because of that it's referred to among bankruptcy lawyers as a 341 hearing.

The 341 meeting is an examination of the debtor under oath and under penalty of perjury. A few years ago the questions at a 341 meeting were posed by the debtor's attorney, but the practice now is that they are posed by the Bankruptcy Trustee, a fiduciary appointed at random from the panel of such trustee's in the district.

So expect your lawyer to sit like a bump on a log during the hearing, because that's his or her correct role under the current system.

Normally, in Phoenix, the hearing is held at the Federal Court Building, and the proceedings are recorded with electronic equipment, rather than a Court Reporter.

Because the 341 meeting is held at the Federal Court Building, the debtor coming in the front door must pass through a metal detector; do not bring a pocket knife or any other weapon-like object, because it will take extra time to take it back to your car, or talk to the officers about storing it, and that will make you late for the first meeting. Being late for your bankruptcy hearing is bad; it makes the trustee unhappy, and when the trustee is unhappy, everybody is unhappy.

The trustee normally needs to "get through" about five debtors every half hour. So the entire process is pretty quick, unless the trustee has an unusual number of questions about a case. If he does, he may shorten the questions that he or she will ask and instead have the trustee's lawyer schedule a Rule 2004 examination of the debtor, which can be a multi-hour examination.

But on average, a first meeting of creditors examination lasts about five minutes.

The trustee sometimes takes roll first, and sometimes gives the oath to all the debtors at one time; other give the oath to tell the truth, the whole truth and nothing but the truth to the debtors individually.

Some of the trustees also point out that there is a zero tolerance policy for debtors who fail to list assets, and explain that the penalties for bankruptcy fraud may include five years in prison.

If they weren't anxious before that, most consumer debtors who are unrepresented and unprepared for the hearing are pretty anxious thereafter.

The trustee then asks for the first debtors on the calendar to come forward, and give the debtors a choice as to which one they'd like have testify first; at the end of the examination, the trustee asks the unquestioned debtor in a joint case, "Did you hear the questions I asked your husband/wife?" And then asks "If I had asked you the same questions, would your answers have been substantially the same?"

The first mechanical order of business is the inspection of the two forms of id for both debtors. The trustees usually want to see a social security card and driver's license, and if the debtors do not have those or other id acceptable to the trustee, the 341 meeting is usually continued to a later date, and the discharge of the debtor is pushed back in time. AND EVERYBODY IS CRANKY AT THE DEBTOR WHO DIDN'T BRING A SOCIAL SECURITY CARD AND DRIVER'S LICENSE. AND SOMETIMES THE TRUSTEE GETS REALLY CRANKY! AND YOUR BANKRUPTCY LAWYER ISN'T GOING TO BE HAPPY THAT HE OR SHE HAS TO DRIVE TO COURT A SECOND TIME ON THE CASE; AND YOUR DISCHARGE WILL BE DELAYED IF YOU DON'T BRING THE SOCIAL SECURITY CARD AND DRIVER'S LICENSE.

After the inspection of the identification, the trustee asks whether the address on the petition is still correct and tells the debtor to keep the Court advised of any address changes until the case is closed. Note that there is a difference between the debtor receiving the discharge order, and the administrative closing of the case, which may be two years away in an estate with modest non-exempt assets for distribution.

The trustee will ask the debtors whether they have read and understood "The Bankruptcy Information Sheet" that contains basic bankruptcy information. If the answer is no, the 341 meeting with be continued until the answer is yes.

I'll post a copy of the most current version of The Bankruptcy Information Sheet here as soon as I scan one. Technology is not easy when you've been to your 40th High School Reunion.

The trustee will then ask the debtors whether they provided the information that their attorney used to prepare their petitions, and whether they reviewed the petitions and schedules prior to the filing, and whether the debtors signed the petitions and whether the petitions and schedules are true and correct and complete.

The trustee will generally fish a little at that point on the issue of whether the debtor listed all their assets. If you didn't list all your assets, especially big ones like cars and land and stock, you're dumb as a stump and deserve what you will get, which is bad.

The trustee will then explore whether there are causes of action, like whiplash lawsuits, that were not listed which might be pursued as assets of the estate.

The trustee then moves on to questions about inheritances, and points out to the debtor that if the debtor becomes eligible to receive a bequest or inheritance within six months of the filing of the Chapter 7 Bankruptcy, it is property of the bankruptcy estate pursuant to 11 USC 541.

Then the trustee explores whether there were transfers outside of ordinary support or Christmas type presents over the course of the last year; the trustee is interested in whether the debtor may have given a preference payment to an insider over the last year, or a fraudulent transfer (a preference happened if the debtor gave his sister the Corvette in payment of a debt within the last year; a fraudulent transfer happened if the debtor gave the Corvette to his sister for Christmas, or sold it to her for a dollar, within the last four years).

The trustee will want to know how long the debtor has lived in Arizona, to establish venue (where the case should have been filed).

The trustee will then explore the issue of who is eligible to file a Chapter 7 case and obtain a discharge by asking about any prior bankruptcy filings under this or different names and social security numbers (apparently somebody actually did that at least once).

The trustee then examines whether the debtor owes child support or alimony.

Then the trustee asks whether the debtor has disclaimed (refused to accept) an inheritance within four years prior to the bankruptcy filing (generally debtors are not inclined to refuse to accept an inheritance prior to filing, because they need the money).

The trustee then points out that he wants to see the upcoming tax return, and that any tax refund coming to the debtor is property of the estate and must be turned over to the trustee, on pain of losing the discharge.

The trustees recently started asking whether the debtor has purchased a car within the last two months, hoping that the bank or credit union has not perfected it's position, and that the bankruptcy estate will get a car to sell.

After the trustee is satisfied that the trustees questions are answered, AND that the debtor has produced the documents the trustee has requested (and no, it's not really a request), the trustee will check to see if there are any creditors present to ask questions of the debtor. Creditors seldom send a representative to the First Meeting, because there's just too little time to get meaningful information.

And that concludes a standard, unexciting First Meeting of Creditors. Sometimes they're way too exciting, but that's for another day.