Is the Meeting of Creditors Something to Fear?

Every bankruptcy case includes a meeting with the case trustee known by various names including the "Meeting of Creditors", "341 Meeting", and "First Meeting". In many bankruptcy cases, this is the only court-type appearance for individual seeking bankruptcy protection, and is often a point of anxiety for a prospective bankruptcy filer. It doesn't have have to be, and in this post I'll discuss a few misconceptions, some basics, and when the meeting can be a legitimate source of problems.

What a Meeting of Creditors Is Not

The first step in understanding a meeting of creditors is considering what the meeting is not:

  1. The meeting is not a hearing before a judge. The bankruptcy judge assigned to a case will not be at the meeting, and is not allowed to attend the meeting.
  2. Creditors don't typically attend the meeting of creditors. It's seldom that it accomplishes anything for them to do so. I'll discuss the exception below.
  3. The debtor doesn't have to explain his or her reasons for bankruptcy. Bankruptcy relief is generally presumptive--the law assumes that people are honest but unfortunate and deserving of a fresh start.

The Function of a 341 Meeting of Creditors

The basic function of a meeting of creditors in a consumer bankruptcy case is to allow the trustee to obtain testimony, under oath, of the debtor pertaining to facts relevant to the administration of the case, i.e. the info the trustee needs to do his or her job. The appearance also provides an opportunity for identity to be verified. Beyond that, there is variation between trustee, chapter, and district.

Essentially all trustees would seek verification that the bankruptcy papers had been reviewed and are correct as filed. A chapter 7 trustee will inquire if there have been any post-petition inheritances or similar receipts of money or property. Chapter 7 trustees will usually seek clarification on any asset or transaction disclosed on which they are unclear about the nature or value. Chapter 13 trustees are keen to know if there are changes in income.

Local practice varies on what else might be common at a meeting. For example, some chapter 13 trustee will discuss the particulars of a chapter 13 plan, while others will defer those details to outside communication with counsel.

Why are some meetings longer than others? While waiting one's turn in the meeting room, one might observe that some meetings are short, no more than a couple of minutes, while others might drag on for 15 minutes or more. Longer meetings typically mean the trustee is trying to get an understanding of some facet of the case (property, transactions, income, expenses, etc). This might be because it is complex and could not be completely explained in the bankruptcy papers, or might be because it wasn't listed as well in the bankruptcy papers as it could have been.

What Can Go Wrong at a Meeting of Creditors

The reality is that most common problems at a 341 meeting are not substantive. Missing or being late to the meeting, and failing to have proof of one's social security number are the most common problems. Not being able to prove the social security number typically results in having to come back a second day for a second meeting, which is a considerable waste of time. Missing the meeting altogether could potentially tank the bankruptcy case.

Responding to "New" Facts

A source of unpredictability at a meeting of creditors is when newly disclosed facts pop up at the hearing. There's a lot of information involved in a bankruptcy, and it happens sometimes that facts are inadvertently omitted or mischaracterized in the original bankruptcy papers. It's very import to fix such errors, as having things wrong in official bankruptcy papers can lead to severe consequences, including loss of a bankruptcy discharge or even criminal prosecution. Fixing the error at the meeting is a better idea than not fixing it all, but leaves both the trustee and the debtor's attorney scrambling the figure out what impact the new facts have on the case. These sorts of uncomfortable disruptions can be avoided by making corrections earlier--several days beforehand is best, or at least minimized by getting your attorney's advise about the correction before sitting down with the trustee.

The Trustee Surprise

True surprises from trustees at 341 meetings are relatively raw. On the other hand, if there is an issue floating outstanding in the case, the meeting might be first time one learns about how the trustee will approach it. If there is something strange about an asset, for example, one typically strives to understand that strangeness prior to filing, so there is not so much room for surprise.

The Creditor Confrontation

A confrontation with a creditor at a 341 meeting is exceptionally rare in an individual bankruptcy case. Institutional creditors like banks and finance companies see little point in paying a representative to go ask a couple questions at a meeting that seldom impact the treatment of the company's debt.

The folks who do show up generally fall into two categories: (1) people who got the notice of the bankruptcy and showed up because they think they need to; and (2) upset former business partners and ex-spouses. The first category generally go home without asking a question once they realize what the meeting is actually for. The second category is not so innocent. Upset individual creditors with an axe to grind may set out with the goal of causing problems in the bankruptcy case. Usually, the trustee is not going to give them much opportunity to waste time. However, if it seems like the creditor has information about things that ought to have been disclosed by the debtor on the bankruptcy papers, the trustee is going to be interested in hearing the creditor out. Extra diligence in disclosure beforehand is the best preventive course in such a case.

Bottom Line

For most people, a 341 meeting of creditors is mundane experience. Being there on time, having your identification, and being careful to fully disclose in your bankruptcy petition are the ingredients for having a simple meeting.

It should be noted that local practice varies considerably around the country and the observations in the post might not be relevant outside my North Carolina practice area.

Photo of Erich M. Fabricius

Knightdale Attorney Erich Fabricius represents clients in bankruptcy, consumer debt litigation, and in small business matters. He is licensed to practice law in North Carolina. His blog posts consider matters related to debt, bankruptcy, litigation, and other legal issues in North Carolina.

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This blog post is made available for educational and informational purposes only and to promote a general understanding of the law, and not to provide specific legal advice. Use of this blog does not create an attorney-client relationship. Reading this post is not a substitute for obtaining legal advice based on the unique facts of your situation from an attorney licensed to practice law in your state. No representation is made regarding the currentness of the information contained in this post. Examples that may be provided in this post are merely for illustrative purposes; the results in your case may be different and no results are guaranteed.