Bankruptcy Myths – Part #4

The Bankruptcy Trustee and the Pro Se Debtor, More Observations from a Baltimore Bankruptcy Lawyer

Myths and urban legends abound on the internet.  It’s easy to take a picture and slap a factual claim on it.  Maybe it’s a wrongly attributed quotation, or the claim of a conspiracy theorist.  When I see one of these quotes or claims that just seem a little off, I turn to the urban legend debunkers at Snopes.  Similar urban legends exist about bankruptcy and debt resolution.  Whether it’s a claim by a debt settlment scam artist that President Obama was going to help you get out of debt, or the terrifying story of a man just down the street who filed bankruptcy and lost his house, his car and his dog, you need a resource to help you figure out truth from legend.  As they say, every urban legend comes from a grain of truth, we’ll help you find that grain and ignore the rest.

Part 4

Many People Believe that:  The Panel Trustee is impartial like a Judge.  That they are just there to keep things moving along.

This is not true.  The trustee is there to maximize the return for creditors.  To promote this end, part of their compensation is tied to how much money the creditor gets.  In other words, the Trustee gets a commission!  They can also hire and pay themselves for the cost of recovering those funds.  This would be fine if they were all content to stay within the law, but here is where the myth gets teeth.  Some of them are actually just bullies!

Like most laws, The Bankrupcy Code is really poorly written.  This leaves some areas up to interpretation by judges and different judges come to different conclusions.  Eventually standards arise through the appeals process.  Sometimes, however, the code is actually clear on its intent.  It is normally in the grey areas that the Bully Trustee lurks.  He or she will send a demand letter to a debtor or a friend or relative of a debtor, demanding turnover of an asset, alleging some intent to “defraud the creditors” or making a claim about a fraudulent conveyance.  There may be absolutely no evidence of this, but it is absolutely worth the time of the trustee to pursue it.  The trustee will also throw out a settlement offer, to make this all go away.  It usually starts at some high number, but drops as the discussion goes on.

Enough people cave and agree to whatever the trustee demands (yes, even some lawyers) to make this practice entirely worth it financially to the trustee.  Defending these actions could cost the debtor hundreds or maybe thousands of dollars potentially.  And if the trustee turns out to be chasing a wild goose?  The debtor is out that money and the trustee is simply out their time.

There is no loser pays with abusive Trustee tactics and so, the cycle continues.

About the Author:  William Grafton is a Maryland Bankruptcy Lawyer and Co-Owner of the Grafton Firm, LLC.  He has written, lectured, and educated on credit related topics for nearly 10 years and is happy to be bringing his expertise to the Baltimore Metro area.