Section 341 Meeting for a Business: 5 Questions the Trustee Asks Every Owner

The meeting gets its name because creditors can come ask questions, but they rarely do. Instead, this will be a meeting between you and the trustee. This is not a long meeting. Yes, you will be placed under oath and the meeting will be recorded, but do not worry - there will be no judge. In most cases, the trustee asks about the same five things. First, the Trustee will verify whether the statements in your bankruptcy petition and schedules are accurate and true. Second, they will inquire if you have listed all of your company’s assets and liabilities. Third, the Trustee will ask about any transfers. Fourth, about your books, records and business operations. Finally, the Trustee will ask if there are any insurance policies.

Corporations must testify through an officer, director, or controlling stockholder, who will be the one designated by the court. Partnerships can be represented by any general partner, while a sole proprietor shows up personally.

Only a few people must attend a small business Chapter 11 meeting. First is the company’s senior management - usually, that’s you, but whoever the officers are will have to show up. The debtor’s lawyer must be there, too.

If you are a sole proprietor, you have to file in your own name. Filing as an individual does away with the need to hire a lawyer, or have a resolution of authorization. The documents include bank statements, profit-and-loss statements and pay stubs as well as recent tax returns.

Next comes the first meeting of creditors, held between 21 and 40 days after the filing. In addition, the most recent tax return, or a transcript of the return, is due to the trustee 7 days in advance. If it’s a corporation, a resolution authorizing the filing should be included with the petition.

You will need to be present in person or virtually, and you will likely be one of several debtors set for that time. The trustee will call roll, then address each debtor in turn. They will place you under oath and ask questions. There should be an interpreter if needed, so ask for one beforehand.

Some standard questions are to be expected. First is whether the debtor read the petition and schedules before signing and whether they are accurate. Whether anything has changed since the filing date and whether the debtor sent the trustee a true copy of the latest tax return. They are brief and straightforward, for the most part. But the trustee will also ask about anything unusual in the filing. A good attorney can likely predict these questions.

Next, you will be asked to verify that you listed all assets and liabilities on your company’s bankruptcy petition and schedules. The Trustee wants to know about every creditor - both the ones you list in the petition, and those you left out. Next is any real property you might own, like the business premises or any other real estate. Anyone owing you money is part of the bankruptcy too. Same with any lawsuit. Lastly, insurance proceeds are up for discussion.

Transfers prior to filing are a big subject for bankruptcy trustees. The Trustee will want to know what, if anything, you gave away before filing. If you gave away anything within the two years preceding bankruptcy, it may get some scrutiny. If you made payments of more than $600.00 to anyone in the year prior to filing, you should be prepared to discuss what they were for and where they went.

The Trustee wants to know the physical location of the books and records. Who kept the books is just as important as where they are kept. Some questions you are likely to be asked include who is responsible for managing the books and records, where the corporate minutes are now, which outside accountants the business used in the last 3 years.

Last up is what’s left at the company. In your answers, you should be prepared to disclose any business inventory or accounts receivable still on the books, any and all insurance the business had during the last 12 months. Any other businesses run by the debtor in the last 6 years are a subject as well.

Still, a creditor can show up at your meeting of creditors. They could be looking for information to start a lawsuit against you for fraud or alter ego. You can expect to be asked whether or not your application for business credit was accurate, where the collateral for any loan might be now, how business income was used, and whether the debtor plans to start a similar business.

If no other things need to be said, then the Trustee will tell you when it ends. If the trustee needs more information, the meeting can be set over to another date. Missing the meeting can get your case thrown out.

Complete a Chapter 7 Bankruptcy

The trustee takes control of the bankruptcy estate, sells off the assets, then uses the proceeds to pay the creditors who filed claims on time. It can take from six months to several years to complete a Chapter 7 bankruptcy. On average, a sole proprietorship gets a discharge after 3-4 months, but a corporation gets no discharge at all.

Chapter 11 Case

Small business Chapter 11 bankruptcies follow a different set of rules. The paperwork includes a balance sheet, statement of operations, cash-flow statement, as well as your latest tax return. The company gets its discharge when the plan gets confirmed by the court. In addition to the basic questions, the trustee in a Chapter 11 case might ask you about your business plan, whether you think you can make it work and how. The Trustee explains your periodic reporting duties, and may even ask to inspect your books and premises.

Get Ready

What can you do to get ready? Go back over your petition and schedules again, making sure everything is right. Pay close attention to what you reported you gave away prior to filing. Gather up the business books and any records they came from. Look for your corporate minutes, if you kept them. If you have anything the Trustee wants to know about, be ready to explain it. Whatever you say has to be honest. If you’re not sure about something, say so, and don’t guess. Your lawyer can fix some mistakes ahead of time.