Understanding Trustee Scrutiny in Bankruptcy

The Trustee’s Scrutiny: Why Luxury Expenses Can Tank Your Bankruptcy Case

Below is a summary of the core legal principles and risks every debtor must understand regarding discretionary spending and Chapter filings

Updated on September 27, 2025.

Key Points: Trustee Scrutiny & Luxury Expenses

• All Debt is Equal: You cannot choose which unsecured debts to exclude; all liabilities, including club memberships and credit cards, must be listed.
• Assets Must Be Listed: Personal property, such as expensive hobby equipment (e.g., golf clubs), must be disclosed on Official Bankruptcy Form 106A/B.
• The Expense Test: The Trustee scrutinizes Schedule J (Expenses) for non-essential spending that demonstrates disposable income.
• Chapter 7 Risk: Significant luxury expenses can cause you to fail the Means Test, forcing a conversion to Chapter 13.
• Chapter 13 Risk: Luxury spending is considered non-essential, and those funds must be diverted to increase payments to creditors.
• Bank Statement Warning: Trustees review bank statements; failure to disclose an asset (like a golf club) that appears in a bank transaction can lead to an Adversary Proceeding.

Listen: The Professor’s Audio Briefing

The Rudy Giuliani Golf Debt and Your Financial Credibility

When former New York Mayor Rudy Giuliani filed for Chapter 11 bankruptcy, the public filing revealed a debt that, for most, was a surprise: $40,000 owed to an exclusive golf club.

This debt is more than just an anecdote; it highlights a crucial, often overlooked, legal principle when it comes to bankruptcy, and that is in the eyes of the bankruptcy trustee and the law, there is no difference between a golf membership, a credit card, or a debt to your dentist. Not all debts or expenses are treated equally. It is all debt that must be fully disclosed and accounted for.

As a professor published in Consumer Bankruptcy Law, I use cases like this to teach a vital lesson: the bankruptcy process is a deep dive into your finances. Your hobbies, assets, and spending habits will be scrutinized by the bankruptcy trustee to determine your eligibility for relief.

The Non-Negotiable Rule: You Cannot Pick and Choose

The first lesson from the Giuliani filing, which applies to every consumer filing Chapter 7 or Chapter 13 is that you must list every single debt, secured and unsecured.

Clients often request to keep a specific credit card because they like the rewards or want to preserve their relationship or credit with the issuer. Unfortunately, that’s not possible. The law is clear: unless you are keeping an asset that secures the debt (like a car or a house), you cannot pick and choose which unsecured debts to keep and which to discharge. Whether it’s a $40,000 golf membership or a $40 balance on a store card, it must be listed on the bankruptcy schedules.

Mandatory Disclosure: Assets and Expenses

The bankruptcy system requires full transparency. The key financial documents demand a specific accounting of everything you own and spend. When bankruptcy is filed, all your expenses, income, and assets are listed in the petition and accompanying documents will be provided to the assigned trustee.

Assets:

Your assets, including cash, bank accounts, investments, and personal property like jewelry, art, and even golf clubs must be listed in detail on Official Bankruptcy Form 106A/B: Property (Individuals).

Exempt Assets:

After listing your assets, you claim the assets you are legally allowed to keep (exemptions) on Official Bankruptcy Form 106C- Schedule C: The Property You Claim as Exempt (Individuals).

The issue of exemptions is a complex area of debtor-creditor law which I discuss in depth in this post.

Expenses:

Your monthly budget is listed Official Bankruptcy Form B106J- Schedule J: Your Expenses (Individuals). This is where recreational or luxury spending can create major problems.

The Trustee Objection: Luxury Expenses and Disposable Income

This is where your golf hobby, or any other significant discretionary spending, intersects critically with your legal eligibility for bankruptcy relief.

Bankruptcy trustees are charged with recovering the maximum amount possible for creditors as they represent the interests of the bankruptcy estate. They will immediately scrutinize expenses that appear to be luxuries rather than necessities.

Scenario 1: Chapter 7 Bankruptcy (Liquidation)

If you file for Chapter 7 bankruptcy, you must qualify under the Means Test, which is the last six months average of your income. Your income is also compared to your expenses to determine your disposable income.

If the trustee observes a significant, non-essential expense, for example, $500 a month listed on Schedule J for a golf membership or extensive dining out, they will object to your filing. The argument is simple: you have $500 in disposable income that could be paid to creditors if you simply eliminated the luxury expense.

The trustee will move to dismiss your case or compel you to convert to Chapter 13 because your ability to pay creditors makes you ineligible for Chapter 7 relief.

Scenario 2: Chapter 13 Bankruptcy (Reorganization or the Wage Earner’s Plan)

If you file Chapter 13, you propose a repayment plan. The Chapter 13 Standing Trustee will object to any plan that includes significant luxury expenses. They argue that those funds must be diverted to paying down your debt.

You could try to argue that a hobby like golf is “therapy” (it is for me)  or essential for business, but the bankruptcy judge will likely rule against it. The result: that $500 a month is removed from your expense budget and must be paid into your Chapter 13 repayment plan, increasing the amount you pay back to creditors.

Beyond the Objection: Bank Statements and Adversary Proceedings

The issue extends far beyond the forms themselves. Trustees require bank statements and will review your expenses and patterns in spending. It’s common for trustees to request bank statements dating back 6-12 months.

If the trustee sees monthly automatic withdrawals for a golf club or repeated, large transactions for theme parks and eating out (as in a client case where couples were spending $500 to $800 monthly on restaurant meals), they have grounds for objection.

Worse:

 If the trustee sees money coming out of your account for an asset (like a golf club) that you failed to list on your schedules, you could face an Adversary Proceeding. This is essentially a lawsuit within the bankruptcy case, which is a serious matter that can result in the denial of your discharge. I discuss the adversary proceeding procedure in this blog post.

As I always advise my clients and students that full disclosure is paramount. Bankruptcy is not one of those situations where “less is more.” A bankruptcy lawyer’s duty is to scrutinize a client’s credit card and bank statements thoroughly before filing to avoid these complications, even if it means delaying a filing for a year or more to clean up unacceptable expenses.

Your Bank Accounts

Trustees require specific documentation when a bankruptcy petition is filed. Besides tax returns and pay stubs, they will ask for bank statements. That could be an issue depending on what a debtor spends money on. For example, if the bankruptcy trustee saw money come out of my bank account each month to pay for golf, not only could the trustee object, but if I didn’t list my golf clubs on my schedules, then I’d have bigger problems. That could lead to an adversary proceeding. I discuss the procedure in this blog post.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

Speaking of golf:

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.

Additional blog content is available below or by using the search bar at the top of this page:

• Bankruptcy
• Your Wallet

Please note the information on this site does not constitute legal advice and should be considered for informational purposes only.