Asset Administration

 

Most cases are no asset cases.  You can help the trustee quickly make that determination by supplying helpful information that may not be required by the statements and schedules or current rules. 

 

Small Asset Cases

 

Through research the OUST has determined that a greater return is made to creditors in small asset cases ($1,000 to $10,000) than in larger cases.  As a result, trustees are being mandated to handle cases under the traditional $2,000 to $5,000 range.  Trustees are also being strongly encouraged to be more exacting in those cases where there appear to be assets.  Please let your clients know that in any case where there is a tax return, car, or other asset that will bring money to the estate, they will also be asked to turn over “all” cash on hand on the date of filing (even if it is a nominal amount), and may be asked to turn over “all” non-exempt personal assets (even if they could not be sold for much).  The idea is that even a small amount of funds will increase the percentage return to unsecured creditors. 

 

Estate Analysis

 

An explanation of the process of analyzing an estate may be helpful to debtor’s counsel.

 

First the trustee will gather information.  In addition to the review of debtors pleadings and the questions asked at the first meeting of creditors; trustees have additional sources of information about the estate.  Debtors would be amazed at the amount of information supplied by third parties.  In addition, most trustee’s have access to asset searching software that provides information on real estate, businesses, motor vehicles, boats, trailers, taxes, and more.  Some trustees even make house calls with digital cameras to look for assets.  In a pilot study trustees were requested to visit the homes of approximately 50% of the debtors on each rotation.  These visits disclosed that 70% of the homes visited had “materially” under reported assets.  In this study 35% of the cases on each calendar became asset cases. Key items the trustee looks at (in addition to schedules A, B, C, D & E) include the statement of financial affairs.  The following is part of my paralegal’s checklist:

 

            [ ] Statement of Affairs

                        [ ] Q3 Preferential Payments?

                        [ ] Q5 Repossession by Relative          

                        [ ] Q7 Preferential Transfers

                        [ ] Q8 Insurance Payments (over exemption)    

                        [ ] Q10 Preferential Transfers                           

                        [ ] Q11 Disposition of Large Balances              

                        [ ] Q13 Preferential Transfers                           

                        [ ] Q14 Verify Ownership

                        [ ] Q16 Verify Divorce Transfers

                        [ ] Q18 Verify Status of Business and Assets    

                        [ ] Q19 Financial Applications Check               

                        [ ] Q20 Verify Inventory Reductions                

                        [ ] Q23 Excessive?                                          

            [ ] Schedule A             

                        [ ] Available Equity?                                        

                        [ ] Verify Title                                                  

            [ ] Schedule B                         

                        [ ] Available Equity?                                        

            [ ] Schedule D

                        [ ] Available Equity?    

                        [ ] Verify Ownership                            

            [ ] Schedule E                          

                        [ ] Likely Refund?                                            

                        [ ] Tax Liability?                                              

            [ ] Schedule F                          

                        [ ] Business Debt but no Q18                           

            [ ] Schedule G             

                        [ ] Rent Paid/Excess income on Sch J               

            [ ] Schedule J              

                        [ ] Excess Retirement Income

 

Research has indicated that at least 10% of all cases are asset cases.  The OUST believes that if debtors schedules were accurate this number would be as high as 45%.

 

Next, asset data is entered into the trustee’s bankruptcy software.  It is usually entered by type of property.  As a result, it is helpful to the trustee if all of a similar type of asset is entered as a group with a total in the right hand column.  Each asset should of course have its value entered as well.  For example: “stove (350), table (150) ...”  All of the information the trustee is aware of is entered into the computer.  The trustee is then asked to make an independent assessment of each class of properties value.  This may be the value assigned by an agent of the trustee such as a real estate agent or auctioneer.  Or, if the debtor’s values look accurate, it may be those values reduced by 7% (in the case of real estate) or 15% (in the case of vehicles or personal property).  Finally, exemptions as claimed on schedule C and valid liens are entered.  This data is used by the computer to create a “Form 1".  This is the form the OUST, the Court, and the auditors look at to see if the trustee is doing his job.  They expect the trustee to recover, if possible, the amount at the bottom of column three.  Unfortunately, the Form 1 as printed does not show the trustees valuation.  As a result, the number you get from reviewing your clients pleadings will often be higher than the trustee’s.  Do not expect the trustee to claim exemptions for you.  It is your job to properly complete the pleadings.  If you don’t timely claim an exemption your client may loose property.

 

The Form 1 is reviewed to determine if the estate is worth administering. Trustees are being asked to administer smaller cases.  Most trustees set the case threshold at $1,000.00.  However, you should not depend on this amount.  If a trustee determines that the estate has sufficient assets he will issue a directive or demand letter.

 

Tax Refunds

 

If a refund has been received as follows:  2,000 or more in the 3 weeks before filing, 3,000 or more in the 6 weeks before filing, or 4,000 or more in the 9 weeks before filing; have your client prepare a summary by date, name, and purpose of the disposition of the refund to present at the 341 hearing.  Also have them bring copies of their bank statements for the period just before receipt of the refund to the filing date and receipts as appropriate to prove the expenditures.

 

If you have a married debtor filing singly, be sure to include all the W2's for both parties so a proper allocation of the refund can be made.  It is not simply a 50/50 split.

 

If your client has spent a refund received post filing, come to the hearing with a proposal for repayment (over 6 months or less).

 

Extensions filed with the IRS are not binding on the Trustee and your client must file returns within 10 days of the 341 hearing.  It is best if they are prepared prior to that date so the hearing need not be continued.

 

Be sure to correlate recently received tax refunds with question 3 of the Statement of Financial Affairs.

 

If your client receives a refund post-filing or determines that they are entitled to a refund post-filing, be sure to amend schedule b to disclose the refund  (even if a no asset report has been filed) and provide the trustee with a copy of the amendment.

 

The OUST has taken the position, after a number of successful cases, that debtors do not have the right to change their deductions after the date of filing in an attempt to reduce the size of their eventual refund.  As a result, be aware that the trustees will compare year to date withholdings on pay stubs with total withholdings on the tax return.  If there is a discrepancy the case is to be turned over to the local UST Office for post filing theft of estate assets.

 

Some debtors have filed returns failing to list all of their available deductions so they can present to the Trustee a return with nominal refunds in hopes that the case will not be administered.  These individuals then file an amended returns once the case has been closed.  Please counsel your clients not to do this.  If they are caught, they may be prosecuted for theft of estate assets and their discharge revoked.

 

If your client files bankruptcy in the last quarter of the year, a portion of their tax refund is considered property of the estate.  You can calculate this amount as follows:

 

Total Refunds x (the number of days of the year to date of filing/total days in the year) = Estate Share

 

If your client has non-exempt personal property the trustee will ask for the value of those items up to the Total Refund.  This is so that your client is not out of pocket to retain personal property of the estate.  However, if there is substantial non-exempt property the trustee may still be required to liquidate it.

 

In the event that you are required to forward to the trustee all of a tax refund, the check should not be signed.  It should simply be forwarded to the trustee.  If your client is required to forward only part of the refund, they should make a copy of the check, deposit it to their account, and then write the trustee a check for the appropriate amount.  Send the check and a copy of the original check to the trustee.  If the tax refund has been direct deposited, include a copy of the bank statement showing the entire deposit.  The cost of a cashiers check or money order can be deducted from to total.  Do not send cash to the trustee.  Personal checks are okay, but cashiers checks are preferred.  If the check bounces your client may have to pay additional fees.  The cost of preparing the return may also be deducted if you ask ahead of time and provide proof of payment.

 

Valuation of Property

 

Occasionally it is necessary for the trustee to verify or determine the value of property.  If real estate is involved the trustee will look at the purchase price, any appraisals within the last two years, and the property tax notice.  If there is still a question as to value the trustee will have Paula Draper, do an examination of the property and make a market appraisal.  She will call your client to arrange a time to look at the property.  If the property is a motor vehicle or some other asset, the appraisal will usually be done by Erkelens and Olsen.  Your client will be given a directive requiring them to call Erkelens and make appropriate arrangements.  Sometimes Erkelens will come down and appraise the property so your client don’t have to take it to Salt Lake.  If personal property is being valued, Erkelens will be given instructions as to the value that must be obtained at auction before the property can be sold.  If Erkelens believes the value of the item or items to be higher than this, they will take possession.  The trustee will then seek court approval for a sale.

 

It should be noted that debtors can always make an offer to the trustee for the purchase of an item.  Payment should be over six months or less.  However, once Erkelens takes possession, the property will be sold at auction.  Your clients can bid at the auction just like anyone else, but there can be no private deals.

 

Delivery of Assets

 

As indicated above, if your client has items that are to be sold; they will be provided a directive to contact Erkelens and cooperate in the delivery of the item.  If the property is in the form of Stock Certificates or other Commercial Paper, they should be hand delivered to the trustee.  If the property is from a tax return or bank account, it should be mailed to the trustee in the form of Certified Funds.  If you have concerns regarding a specific item of property please feel free to contact the trustee.