Tag Archives: 341 hearing

Who Comes to the First Meeting of Creditors?

Section 341 of the United States Bankruptcy Code requires that the United States Trustee shall hold a meeting of the creditors within a reasonable time (usually within 20 and 40 days) after a Bankruptcy Petition is filed.  It doesn’t restrict that to cases with assets or ongoing business activities or anything else.  It requires a meeting of creditors (generally referred to as the first meeting, because there can be more in complicated cases) in all cases filed.

It is called the First Meeting of Creditors (or 341 hearing), which confuses many of my clients who then seem to think that their creditors will actually show up.  In most consumer cases it is really a meeting between the Trustee assigned to the case, the debtor and debtor’s counsel.  I doubt anyone actually knows why the same provision for the same meeting is included in the Code for all chapters.  In reality consumer cases, whether they are filed under Chapter 7 or Chapter 13, are very different from business cases — regardless of chapter.

The first thing to say about 341 meetings is that they vary wildly from one part of the Country to another.  Since there is so little statutory direction, they have evolved according to local custom.  The one constant is that very few creditors show up.  Think about it.  Why would a credit card company pay someone to come to your First Meeting of Creditors?  What is he going to ask?  Why don’t you make more money so you could afford to pay this?   They have better things to do.

Now, a local car lender might show up.  First of all, they are already here, second, there are some things they need to know.  Are you going to keep the car?  Oh, and is it insured?  Actually, though, even that has gotten rare.  A call to debtor’s counsel is just more cost effective.  So, for most consumer debtors the only person interested in their case is the Trustee; and he just wants to make sure that the schedules are complete and accurate, make sure he understands what is going on and if there are any non-exempt assets that he gets his hands on them to he can sell them (pay himself a nice chunk) and distribute the rest to your creditors.

Well, that is most consumer cases.  It isn’t all of them.

A First Meeting of Creditors is held under oath, and it is intended for creditors to ask relevant questions if they want to.  So, it is a great chance for someone who thinks that they might have grounds to object to your discharge to ask some basic questions to help them build their case.  So, if someone thinks that the debtor has defrauded them, then that creditor (or his lawyer) might show up to ask some questions about that.

Then, there are the other creditors.  Probably my favorite to watch is the ticked off former spouse.  They are generally just mad, but they frequently know about assets that the debtor kind of, sort of, forgot to list on the Schedules.   Occasionally, a mad ex-spouse makes me regret that I don’t have the buildings’ popcorn concession; but those are rare.

Next, there are the creditors who got the notice of the hearing in the mail and just thought they were supposed to be there for some reason.  That is probably the largest group.

Finally, you have creditors who are just mad.  By golly, they didn’t get paid and they want to tell somebody about it.  I had one of those today, and the Trustee listened politely and then explained that he isn’t the Judge and he doesn’t make decisions about what debts should or shouldn’t be included in the discharge.  Usually, these people just want to feel like they have had their say and someone has listened.

Still, in most cases, the First Meeting of Creditors is the biggest non-event the debtors have ever lost sleep over.


First Meetings of Creditors — the Stories

If you have a 341 hearing coming up, talk to your lawyer.  If your lawyer tells you that you have nothing to worry about, then take a book.  Otherwise, you will leave shaking your head over stories like this one:

Some time ago the first debtor on the docket (not my client THANK GOD) testified under oath that he owed mid 3 digits ($30,000 or MORE) in child support to each of three women (yep, that actually did add up to a total of 6 digits).  The Trustee, of course, needed the Mother’s names and addresses to send a kind of special notice to that goes to child support creditors.  The debtor didn’t know any of the Mothers’ addresses.  He wasn’t sure which city any of the three women lived in (with his children).  Although, he did know which Counties they each lived in, because DHS was collecting child support, or trying to, and they are organized into County offices.  Oh, did I mention that he wasn’t sure about one child’s name?  The really scary part was that his current girlfriend was there with him.

He didn’t have a good time.  My clients were in and out in about 3 minutes.  Well, three minutes after we sat through an hour plus long docket.  We were dead last.


First Meetings of Creditors — the Questions

The First Meeting of Creditors, or 341 hearing, exists so that the Trustee assigned to administer the case  can make sure he understands the schedules, identify any non-exempt assets he needs to administer and ask the Debtor any questions he needs answered.  Also, any creditors who need to know something (like car lenders who want to know if the Debtor is going to keep a car and verify that it is insured) or someone who believes he has been defrauded and needs a chance to ask a few questions to decide whether or not to pursue an objection to discharge have the right to ask questions as well.  These are the people for whom this hearing exists, but for most clients, it is a non-event.

Once you have been sworn in, you will take a seat to the Trustee’s left, and your lawyer will stand opposite you behind a podium.  Your lawyer will then begin asking you incredibly difficult questions — like your Name.  (You might want to study.)  Your lawyer should go over with you exactly what he will ask before the hearing, but the questions don’t generally get much harder than that first one.

Then, the Trustee has the right to ask you questions if he wants to.   He may ask some basic questions to make sure that he understands everything.  Again, not really much harder than that, “Please state your full name for the record” bit; and your lawyer should give you a pretty good idea of what kinds of things about your case will catch the Trustee’s eye.

After that, any creditors present have the right to ask you questions and so does the U.S. Trustee’s office if they want to.  The U.S. Trustee’s office is generally interested in asking questions about the Means Test, any budget entries that look excessive or anything that might smell like fraud or abuse.

It is that whole idea that their creditors are going to ask them questions that I think really scares my clients.  Look at it this way.   No one is going to pay a representative to drive to the Courthouse and cool his heels through the first part of the docket without a good reason.   Car lenders may want to know if you are going to keep the car and if it is insured.  That makes sense.  They need to know that.

For most of my clients from the time their case is called by the Trustee until they are heading out the door is less than five minutes.

Now, there are exceptions.  Business cases or other cases with significant assets and large  dollar figures involved will take more time.  For one thing, they are more complicated and there is more to understand.  For another, the bigger the dollar figures and the more things going on the greater the opportunity to conceal funds or otherwise commit fraud.

Of course, people who kind of, sort of, forgot to tell their lawyers about the rent house they own in another County or oil and gas rights in Texas  are generally in for an unpleasant surprise.  People who filed Bankruptcy leaving a number of people feeling like they were defrauded or just a ticked off ex-spouse will frequently prefer a root canal without anesthesia.  Clients whose lawyers either didn’t do their jobs or didn’t know their jobs are generally not in for a brief or pleasant time.  Anyone who thought that not mentioning something to his lawyer was a good idea is in for an eduction.  These are generally people for whom the 341 is not pleasant.

That last paragraph was a little smug and isn’t completely true.  There can be plenty of good, honest people who are well represented whose 341’s aren’t fun.  Construction contractors who left a bunch of houses unfinished and bills unpaid will frequently find homeowners showing up to either lay the groundwork for an objection to discharge or just to regain a pound of flesh.  Ex-spouses can be unpleasant additions to a 341 room.

Ask your lawyer if anyone is likely to show up on your case.  Basically, non-institutional creditors (normal people instead of Capital One) are likely to show up just because they got something in the mail and don’t know that they don’t have to.

If your lawyer tells you that you have nothing to worry about, then take a book.  Otherwise, you will leave shaking your head over some poor sod who went before you and didn’t have a good day.  I will post a few of those stories another time.