Chapter 7 Trustee Duties

Trustee Duties during Chapter 7 Bankruptcy Hearings!

The bankruptcy trustee duties under chapter 7 bankruptcy are to take control of and liquidate your nonexempt assets and distribute funds (if any) to your creditors.

  1. What are the Trustee’s Duties?
  2. How is my property distributed?
  3. What is a “No Asset” case?

What are the Trustee’s Duties?  

The primary role in an “asset” case (see No Asset Case) is to liquidate (sell off) your nonexempt assets in a manner that maximizes the return to your unsecured creditors.

First, they sell off your nonexempt property that you own free and clear of liens and that has market value above the amount of any security interest or lien and any exemption that your hold in the property.

The trustee also pursues causes of action (lawsuits) belonging to you and pursues the trustee’s own causes of action to recover money or property under the trustee’s “avoiding powers.”

Avoiding powers include the power to:

  1. Set aside preferential transfers made to creditors within 90 days before the petition;
  2. Undo security interests and other pre-petition transfers of property that were not properly perfected under non-bankruptcy law at the time of the petition; and
  3. Pursue non-bankruptcy claims such as fraudulent conveyance and bulk transfer remedies available under state law.

NOTE: If you are in business, the bankruptcy court may authorize the trustee to operate your business for a limited period of time, if such operation will benefit the creditors of the estate and enhance the liquidation of the estate.

Up How is my property distributed?  

There are six classes of claims, and each class must be paid in full before the next lower class is paid anything. In order of priority, they are:

1. Payment of claims filed timely under section 501 or tardily filed before the date on which the trustee commences distribution under this section;

2. Payment of any allowed secured claim (requires proof from creditor)

3. Payment of any allowed unsecured claim (requires proof from creditor)

4. Payment of any allowed claim, whether secured or unsecured, for any fine, penalty, or forfeiture, or for multiple, exemplary, or punitive damages, arising before the earlier of the order for relief or the appointment of a trustee, to the extent that such fine, penalty, forfeiture, or damages are not compensation for actual pecuniary loss suffered by the holder of such claim;

5. Payment of interest at the legal rate from the date of the filing of the petition, on any claim paid under paragraph 1, 2, 3 or 4 above.

6. To the debtor (the person who filed the chapter 7 bankruptcy)

NOTES: Since your main concern is retaining exempt property and in getting a discharge that covers as many debts as possible, you should be concerned with trustee’s disposition of your estate assets with respect to the payment of those debts which, for some reason, are not dischargeable in the bankruptcy case.

Up What is a “No Asset” case?    

Most chapter 7 bankruptcy cases are “no asset” cases which means that all of your assets are exempt or subject to valid liens, so there is no distribution to unsecured creditors.

In this case, there is no need for creditors to file proofs of claim. However, if the trustee later recovers assets for distribution to unsecured creditors, they will be given notice and additional time to file claims.

If the case is an “asset” case then unsecured creditors, hoping to get something, must file their claims within 90 days after the first date set for the meeting of creditors (341 meeting).

How to file chapter 7 bankruptcy

The Chapter 7 Discharge

Chapter 7 bankruptcy forms

Alternatives to Chapter 7 Bankruptcy