It would be extremely unusual for the bankruptcy trustee, the official responsible for overseeing your case, to come to your house. However, it could happen because some bankruptcy cases attract close scrutiny. Also, the U.S. Trustee conducts audits of a small percentage of cases, and, although unlikely, an audit could trigger a personal visit.
The Bankruptcy Trustee's Duties
In most bankruptcy cases, the bankruptcy court appoints a trustee to oversee your matter. One of the trustee’s primary duties is determining whether you have any "nonexempt property" you can't protect with a bankruptcy exemption.
Bankruptcy trustees are strongly motivated to find nonexempt property. Not only do creditors get paid from a bankruptcy filer's nonexempt property, but bankruptcy trustees receive a percentage of the money paid to creditors.
What Happens to Nonexempt Property in Bankruptcy?
Nonexempt property can be seized and sold for the benefit of your unsecured creditors in a Chapter 7 case. In a Chapter 13 bankruptcy, the trustee ensures you’ve accurately valued your property because you must pay the value of any nonexempt property to your creditors in your three- to five-year repayment plan.
The trustee relies primarily on three sources when assessing the extent of your nonexempt property:
- your bankruptcy schedules and statements
- 521 documents like tax returns, pay stubs, and bank statements, and
- your testimony at the 341 meeting of creditors (the hearing all bankruptcy filers must attend).
The Trustee Requires Full Asset Disclosure
You’re required to tell the truth in your dealings with the trustee. In particular, you certify under penalty of perjury that your bankruptcy schedules and statements are true and correct. At the 341 meeting of creditors, the trustee will administer an oath or ask you to affirm that your testimony is truthful. Then, the trustee will ask you general and specific questions about your disclosures.
If the trustee detects a discrepancy in the information you’ve provided, the trustee can request additional documentation or testimony. With broad authority to gather whatever information will resolve the issue, the trustee can investigate using asset databases, public records, and other resources.
When the Trustee Will Conduct a Home Inspection
Unless your case is somewhat unique, you won’t need to worry about the trustee showing up at your door. Here are a few instances in which it might occur.
Your Home Is in Disrepair
In bankruptcy, it’s important to know the actual value of your property. A real estate website’s determination of the fair market value of your home won’t be accurate if your house needs a new roof, has termite damage, or hasn’t been renovated in decades. A trustee might want to view and photograph the damage before incurring the expense of a formal appraisal.
You Report Ownership of Valuable Items
Most people don’t have home furnishings of significant worth. If you’ve disclosed heavy equipment, numerous antiques, or an expensive book collection, the trustee might want to inventory your home to ensure you didn’t leave anything out.
You Have a Storage Space or Bank Deposit Box
Expect the trustee to ask you what is inside. If you’re using the storage space for your holiday decorations and crafting supplies, the trustee will likely take your response at face value and move on, assuming you’ve disclosed the contents in your paperwork. However, if the trustee isn’t comfortable with your answer or has other information that might question your truthfulness, the trustee might want to arrange a time to inspect the contents.
Someone Claims You’ve Committed Fraud
If a business partner, ex-spouse, or someone else claims that you haven’t truthfully reported all of your belongings, the trustee might want to look at your home in person. In such a situation, the trustee would likely inventory the house's contents to assess potential bankruptcy fraud.
Remember that the trustee won’t show up at your home unannounced. Instead, your attorney will coordinate the visit. If you don't have counsel, the trustee will set the date and time with you.
The U.S. Trustee and Bankruptcy Audits
Also, all bankruptcy filings are subject to an auditing program that authorizes the United States Trustee, an arm of the Department of Justice, to contract with independent auditors to conduct audits of a small percentage of Chapter 7 and Chapter 13 cases in each federal judicial district each year.
The Audit Program
A small portion of cases gets designated for audit. About half are chosen randomly. The remaining audits, called “exception audits,” come from cases where the debtor claims expenses or income significantly outside the norm.
The Audit Process
The audit process is similar to what a trustee might conduct. The auditor will request documentation to support your income, expenses, and assets claims. The auditor will do a “desk audit” using online databases to search for real estate, vehicles, and other assets you own and compare the results with the schedules and statements you filed with the court.
The Audit Report
The auditor will issue a report to the court of the investigation results. If the audit finds that you made a material misstatement that you cannot adequately explain, the court will decide whether the misstatement is severe enough to warrant further action, like the recovery of assets, dismissal of the case, denial of discharge (the order that wipes out your debt), or criminal prosecution.
It’s unlikely that an audit would trigger a home inspection, but it could happen. One of the benefits of retaining an attorney is that your lawyer will know whether your case might flag an audit and give you advice that should help you avoid it.
Find out how much Chapter 7 costs or how much you could expect to pay for a Chapter 13 case.