The Trustee in Chapter 7

In bankruptcy you hear a lot about “the trustee.” What does this person do, starting with a “straight” Chapter 7 case?

First, let’s get out of the way a whole other kind of “trustee” who you might hear about in the bankruptcy world, the “United States Trustee.” That’s someone who usually stays in the background in consumer bankruptcy cases, so you’ll usually not have any contact with anyone from that office. It is part of the U.S. Department of Justice, tasked with administering and monitoring the Chapter 7 and 13 trustees, overseeing compliance with the bankruptcy laws, and stopping the abuse of those laws. The U.S. Trustee is the enforcer of the bankruptcy system.

Second, today’s focus is the Chapter 7 trustee. The next blog will be about the Chapter 13 trustee, emphasizing how these two types of trustee are similar and how they’re different.  

The Chapter 7 Trustee

A Chapter 7 case is a “liquidation,” meaning that if you own anything which is not “exempt,” it has to be surrendered and sold to pay a portion of your debts. But the reality for most people is that everything they own is “exempt,” so they get to keep everything they own. There is no “liquidation” in those situations.

The Chapter 7 trustee is the liquidator. He or she is the person assigned to your case by the bankruptcy system who does two things:

1) determines whether or not everything you own is “exempt,” and

2) only in the relatively few cases in which something is not “exempt,” decides whether that asset is worth collecting and selling, and if so, liquidates it (sells and turns it into cash), and distributes the proceeds to your creditors.

The Chapter 7 trustee starts this first task by reviewing the documents we file on your behalf at the bankruptcy court as well as other papers we usually we send the trustee directly. Then he or she presides at the so-called “meeting of creditors,“ and asks you a list of usually easy questions about your assets and related matters. Lastly, the trustee can investigate or take any other action, although in most cases the trustees likely just relies on what we present in writing and orally.

In those cases where some of the debtor’s assets are not exempt and these available asset(s) is(are) worth collecting, the trustee will gather and sell the asset(s), and pay out the proceeds to the creditors, all in a step-by-step procedure dictated by bankruptcy laws and rules. 

Related posts:

Income Tax Refunds In Chapter 7 Bankruptcy Protecting Yourself When Your Business Has to Throw in the Towel Ten Things You Need to Know About Assets and Exemptions in Bankruptcy The Usually Easy to Answer First Question for Your Bankruptcy Attorney What Happens to Your “General Unsecured Debts” in Chapter 7?