Why the Chapter 7 Bankruptcy trustee wants to see your bank statements (PART 2)
In my previous blog post I discussed how when I first became a consumer bankruptcy attorney, I thought Trustees wanted to see your bank statements just to verify the amount of money you had in the bank on the date you filed your petition. I was half-right, because in addition to verifying your funds, Trustees can find a lot of other valuable information in your bank statements, including whether the nature of your withdrawals indicates that you may have moved funds out of your account in the weeks leading up to your bankruptcy filing in order to hide those funds from the Trustee. Additionally, the Trustee can use your bank statements to make sure the amount of monthly income you declare on your petition is accurate. Income verification. In two places in your bankruptcy petition, you have to declare your monthly income. Now a lot of people think it’s best not to show a lot of income in a Chapter 7, and that may be true, but what is also true is that you have to tell the truth about everything in your bankruptcy petition, including your income. Nowadays, your income is very easy to verify
because most people get their income deposited automatically in their bank accounts. If you claim that you gross $4,000 a month, but your bank records show automatic deposits of your job of $6,000 a month, that’s a problem. Maybe a big problem. It could in fact result in your Chapter 7 getting converted to a Chapter 13, in which you have to pay off a percentage of your debts over the course of five years. Not fun.
I once had a client who, like a lot of us, collected unemployment during the pandemic. When I asked him how much he collected during the previous six months, he said he collected, say, $800 a week, four time a month, for six months, for a total of $19,200. A review of the bank statements, however, showed that in two of the previous six months he had received five, not four unemployment checks, so he actually collected some $20,000 during that time. We were able to correct the mistake before the client filed his petition, and his meeting with the trustee was uneventful.
Additionally, the income you declare on your bankruptcy petition must include Income you received from friends and family members who gave you money in the months before you filed your bankruptcy petition to help you through hard times. This is called contributory income. How would the trustee find out about contributory income? First of all, again, it's not a question of will they or won't they find out, because you have to tell the truth on your petition or risk serious legal problems. However, that aside, it's fairly easy for them to find out because,
like everything else nowadays, those contributions would probably come into your bank account via Zelle or Venmo and they would be very easy to spot. If the trustee saw a regular pattern of, say, $500 being Zelle’d into your account every month from the same savings bank identifier, the questions would follow: who does that account belong to and why are they sending you money every month? Again, once this extra income is factored into your petition, you could wind up in a Chapter 13, and virtually no one, ever, wants to be in a Chapter 13.
The moral of the story is don’t lie, of course, but not lying is not enough. You have to be very careful and very exact in the information you put into your bankruptcy petition. Don’t guess at your salary or how much you received in unemployment benefits you received over the last six months. Examine your paystubs and examine your bank statements. Don’t guess how much your rich brother sent you over the last six months. Search the bank statements. Get it right.
In closing, I once had a trustee who said my claim that a client and her two kids spent $800 on food every month was too high and possibly fraudulent. $800 was a good faith and very reasonable estimate on my part, but now that I had to give that estimate some support, I went to my client's bank statements for the previous six months and was actually able to document that my client actually spent much more than $800 a month on food because in the bank statements were listed dozens of debit card purchases in places like Trade Fair, McDonalds,
Pizza Palace and Costco. Your bank statements can work in your favor as well.