The “Meeting of Creditors” in a Chapter 7 Case

Posted by Kevin on December 22, 2020 under Bankruptcy Blog | Comments are off for this article

In virtually every Chapter 7 “straight bankruptcy” case, you never go to court. But you DO go to a formal meeting, usually lasting 5 to 10 minutes, one that you must attend. If you don’t, your case can be dismissed.

This meeting is with your Chapter 7 trustee, but it is misleadingly called the “meeting of creditors.” It is sometimes referred to as the “341 hearing,” named after the Section 341 of the Bankruptcy Code which addresses it. 

This meeting is not one in which all your creditors attack the debtor for filing bankruptcy.  What usually happens is that the trustee will question the debtor about his or her petition, or documents that were submitted after the filing.  The questioning is usually not intensive.  Although creditors are given the opportunity to be there, most of the time they do not attend.  Why not? Because usually there is no reason for them to attend. The grounds for objecting to bankruptcy are very limited so most creditors can’t object. So they don’t waste their time.

The creditors that tend to be at the 341 hearing are those which have collateral in personal property such as your motor vehicle or furniture, or creditors with an axe to grind.  In the past in New Jersey, certain collateral creditors sent representatives to the 341 hearings.  They routinely questioned debtors usually about their intention about the collateral (retain or surrender). But now, most of these creditors forego the 341 hearings in favor of making arrangements with the debtor’s attorney either over the phone or by email.    

The axe to grind creditors are usually ex-business partners or ex-spouses.  For them, its just not just the money, it’s  personal.  My experience has been, however, that trustees are very adept at controlling these types of creditors, and they make sure that the 341 meeting is not used as a vehicle for making ad hominem attacks on the debtor.  That does not mean that the trustee will not give such creditors some leeway in questioning the debtor.  The one area of concern is that these creditors tend to know the debtor pretty well as opposed to credit card companies or mortgage lenders.  They may know if the debtor had been engaged in cutting corners or engaging in questionable behavior.  Be sure to talk with your lawyer well in advance if you have any concerns in this area. He or she will warn you if your circumstances raise any red flags, and will prepare you for the meeting.

Rarely, if there isn’t enough time for legitimate questions, a second meeting of creditors can be scheduled. Or the conversation with a creditor might continue informally outside the hearing.

There is one person who is NOT allowed to be at the meeting: the bankruptcy judge. As the Bankruptcy Code says: “The court may not preside at, and may not attend, any meeting under this [341] section… .” So the meeting is definitely not a court hearing.

Conclusion

At most Chapter 7 meetings of creditors there are no creditors, or, at most, one or two. It’s rare that a creditor will ask tough questions, but it can happen. Your attorney will prepare you for the types of questions that will be asked at the meeting.   Be sure to share any concerns with your lawyer so you won’t worry unnecessarily.