Florida Chapter 7 Trustee’s Aggressive Collection Practices

“If you cannot reason with a man, reason with his wallet.”
11 USC 326(a) determines a Chapter 7 and 11 Trustee’s compensation to be twenty-five percent of the first $5,000, ten percent from $5,000 to $50,000, five percent between $50,000 and a $1,000,000 and three percent of any monies disbursed or turned over in a bankruptcy case. For this reason, trustees are zealous in collecting all property of the debtor’s estate as is their role as representatives of the estate.
When a case is filed, a debtor must list all of the property they claim is exempt. The trustee then has thirty days to object to the debtor’s claim of exemptions, otherwise the trustee’s right is waived and the exemptions stand. If the trustee files the objection to the claim of exemptions, the objection must be justified by some kind of measurable facts. Typically, the trustee states that they disagree with the value assigned to the debtor’s property. For instance, if the debtor lists his car’s value at $1,000, which he’s allowed to keep but the trustee feels it’s worth an amount closer to $2,000. This would be a valid ground for the trustee’s objection. The debtor would then have to either amend their list of exempt property or attend a hearing in front of the judge and argue the evidence with the trustee.
The most typical form of evidence in these cases is a property appraisal. The trustee hires an appraiser who declares that they have no interest in the debtor’s property, that they have created a fair appraisal and that they have no bias effecting the appraisal. As long as the appraiser is qualified to do appraisals, which is a relatively easy standard to meet, the appraisal is found to be prima facie (presumed) valid evidence. The debtor must appear with their own evidence to refute the appraiser’s values or those values stand. This means that the debtor must hire their own appraiser, which costs from $300 – 500 dollars. Often times, the debtor cannot afford to do this. They are after all, bankrupt.
Appraisers often have another related job, frequently, they are actually auctioneers who moonlight as appraisers. This encourages them to artificially inflate values of appraised property so that the trustee will use their auctioneer service to liquidate the estate. When this happens, the appraiser is paid the appraisal fee, as well as their commission percentage on the auctioned goods.
An appraiser who artificially assigns values to property higher than what is accurate gets hired by unethical trustees because these trustees can obtain more property for the estate and that means more money in the trustee’s wallet. I have seen appraisals of used personal property come back with higher values than a new retail price for the same item.
This is where the trustee offers a “buy back”. A “buy back” is an offer from the trustee to the debtor where the trustee gives the debtor the opportunity to purchase their unexempt property from the estate, typically over a one year period. The debtor often accepts this offer because of the strong emotional attachment one gets to their personal property. If this happens, the appraiser doesn’t get to sell the goods, but was still paid for the appraisal itself and because an unethical trustee got an inflated paycheck, they’ll be more likely to hire that appraiser again.
To defeat this scheme, a debtor must either find the $300 – 500 dollars to pay for their own appraiser and probably hire an attorney to attend this hearing or attempt a motion to have the trustee removed from the case. 11 USC 324(a) creates statutory ground for removal of a trustee, permitting the court to do so, “for cause”. If a trustee is removed, the trustee is removed from all cases unless a special order is entered. Although nothing in the bankruptcy court should be taken lightly, motions for removal of a trustee are particularly serious and difficult due to the extreme effect of trustee removal. If a motion to remove trustee is entered, the trustee can hire counsel to defend themselves and can pay that counsel from assets of the estate. If the trustee wins and can show the suit is baseless, they can sue the party who filed the motion against them for sanctions. The slightest inkling of sanctions sends most attorneys running and with the heavy standard for removal, it seems to be an over some burden and not a real option.
The individual debtor is often best served by paying off the unethical trustee which is often less expensive than paying the $300 – 500 for an appraiser as well as whatever the attorney for the turnover hearing will cost.
If you are facing an appraisal that appears ludicrous, contact a Jacksonville Bankruptcy Attorney or call us at (904) 685-1200 for a free initial consultation and we’ll discuss the best strategies available to you.