What Your Bank Statements Tell the Bankruptcy Trustee

Even though it is not a formal requirement under the Bankruptcy Code, most Chapter 7 bankruptcy trustees ask filers to provide them with a copy of their bank account statement before the 341 meeting. Many ask for the statement that covers the filing date while some request several months of bank statements. Why are the trustees requesting this information?  It’s not to see how much you spent on take-out last month or to judge you for buying your lunch at the QuickTrip by your work every day. Instead, they’re looking for information that may not be anywhere else on your bankruptcy forms. Let’s find out what that might be! 

Your Bank Account Balance

Filing a Chapter 7 bankruptcy requires you to be open and honest. As you complete your bankruptcy forms, you will want to ensure that you are transparent about your financial situation. The bankruptcy trustee assigned to your case will want to review your bank account statements before your 341 meeting to verify the information you put on your bankruptcy forms matches your bank statements. The trustee will use these statements to get a glimpse into your financial history. 

Your bankruptcy trustee can ask for up to two years of bank statements. The trustee will look at your statements to verify your monthly payments to make sure they match the expenses you put on your bankruptcy forms. For example, if you listed your car loan as $500 a month, the trustee will use your bank statements to ensure that amount is being reflected on your bank statements. 

The trustee will also want to look at how much you had in your bank account at the time of filing your Chapter 7 bankruptcy. Many individuals estimate the amount in their bank account when they file their petition. However, the trustee wants to know for sure how much was in there at the time of filing to ensure any money you had in the account is protected under an available exemption. For example, if you put on the bankruptcy petition that you had $500 in your bank account at the time of filing, but in fact, it was $3,000, and it was nonexempt, the trustee can take the money to pay your creditors. If you are unsure if the money you had in your account falls under an exemption, you may want to seek some professional help by speaking with a lawyer. 

Take note, the balance in your bank account is based on an “actual balance.” Any checks that you have written out to someone else, a creditor such as your real estate mortgage lender, etc. but have yet to be cashed, is considered money that is available to you and can be deemed as property of the bankruptcy estate. The bankruptcy trustee won’t care if you wrote checks to pay your mortgage on your real estate and it didn’t clear. Knowing your actual balance the day of filing is vital to ensuring your money is safe. 

Your Income 

The trustee assigned to your case will look at your income and expenses and question you about your transactions. The trustee will request certain documents before your 341 meeting of creditors. Aside from your bank statements, the trustee will request 60 days of pay stubs and two years of tax returns. The trustee will match the requested information to your bank statements to ensure they match with your forms. 

On your bankruptcy forms, you will be asked to include your income for the previous six months. By looking at your paycheck stubs, the trustee will want to make sure that you calculated your income correctly. Calculating your income correctly is vital to ensuring you qualify under the Chapter 7 Means Test. If you failed to include all your income within the last six months, you may not qualify for a Chapter 7 bankruptcy. If you don’t qualify for a Chapter 7 bankruptcy, the court may convert your case to a Chapter 13 bankruptcy. If you don’t think you qualify or may need to convert your case you may want to speak with a bankruptcy lawyer who can review your financial situation. 

The trustee will use your tax returns and pay stubs to compare them to your deposits. If there is a big disparity between both, you will be required to explain why. Don’t forget to include any bonuses or any other income you received in your bankruptcy forms. 

Keep in mind, the trustee will look at your statements to see if anyone loaned you money or if there were any large deposits. If anyone did loan you money, the trustee won’t care about the money as long as you used the money for reasonable living expenses. The trustee will want to see that you listed any friend or family member that lent you money as a creditor on your petition.  

Account Activity 

The bankruptcy trustee will look through your bank statements with a fine-tooth comb to see if you made a large purchase and check your forms to see if you reflected the purchased item on your bankruptcy petition. Let’s look at how it works if you fail to list an asset: 

If the asset is not listed, and the asset is not protected by an exemption, the trustee sells the asset and uses that money to pay your creditors. If you are worried about an asset that is not exempt, speak with a bankruptcy law firm who can go over your exemptions. There are many attorneys today who give free consultations and can go over your exemptions. 

The trustee will also want to see what payments to creditors (if any) were made, and what checks were written out. Trustees look for this information to see if you made any fraudulent transfers or preferential payments. The Bankruptcy Code does not allow individuals filing bankruptcy to pay friends or family members back for any debts owed. The court will also look to make sure you didn’t pay a single creditor more than $600 in the 90 days leading up to filing your bankruptcy case. 

All of your creditors must be treated equally otherwise the court will look at this as a preference and can sue your friend/family member or creditor to get the money back. The bankruptcy court doesn’t think it would be fair if you paid your mother over your credit card. If you have any canceled checks, be ready to explain why the check was canceled and what the payment was for. 

You should disclose any payments to insiders on your Statement of Financial Affairs (Official Form 107). Bankruptcy trustees will also look through your bank statements to see your cash deposits and withdrawals. Any large deposits in your account should be accounted for. The bankruptcy trustee may ask you to explain where the money came from and why. 

Cash Withdrawals

If you have numerous cash withdrawals, don’t panic. Many individuals take out cash here and there for living expenses. The occasional withdrawal between $20-$40 is typically not an issue. Larger and more frequent withdrawals may require some explaining. The trustee may want to see what the money was spent on. For example, if you received a $10,000 tax refund right before filing, and you took $3,000 from it in cash, the trustee will want to know where that money is and what it was spent on. 

Other Accounts

Another thing that your bank statement can reveal is the existence of other accounts. Whether that’s a bank account at the same (or a different) bank, a Venmo account or something like PayPal. If the accounts are yours and were not listed on your schedules, the trustee is going to wonder what you’re hiding. The trustee can ask you for statements from these accounts as well. The trustee will look to make sure any accounts in your name are listed on your petition if you are the owner. If there are transfers to other accounts be prepared to explain. 

Conclusion

To ensure that your bankruptcy case goes smoothly, always comply with reasonable requests from the trustee. If the trustee asks you to provide more information about your bank statements and accounts at your meeting of creditors you will need to be able to explain what purchases you made, what deposits were made and what withdrawals were made. If the trustee requests more bank statements or proof of where money was spent, make sure to provide the requested information. Not submitting this information can be a red flag to the trustee that you did something you weren’t supposed to.  

Before submitting your bank statements, go over them carefully to ensure that anything that is out of the ordinary you can explain. The easier you can make it for the trustee to see there is nothing suspicious going on, the better off you will be. The bankruptcy trustee isn’t there to nitpick at everything. They want to ensure that you really need debt relief protection from the bankruptcy court. If you are worried about your bank statements, you may want to speak with a bankruptcy lawyer that can review them for you.