What Does a Chapter 7 Bankruptcy Trustee do?

What Does a Chapter 7 Ban…

Most people have a general idea of what a bankruptcy is, but you might not know who actually does the work. A Chapter 7 bankruptcy trustee will play an important role in your case. Understanding that role can calm your anxiety and help you know what to expect.

This blog post will review the role of a Chapter 7 bankruptcy trustee. It will explain how the trustee oversees the bankruptcy process and how you can expect to interact with the trustee directly.

The Bankruptcy Trustee Is In Charge of Your Chapter 7 Case

The trustee is appointed to your case by the court after you file your Chapter 7 Bankruptcy. His or her job is to oversee and administer the bankruptcy proceedings. He or she will be responsible for identifying your exempt and non-exempt assets, seizing and selling non-exempt property, and distributing the proceeds to your creditors. The Chapter 7 Bankruptcy Trustee is also the person you, petitioner, will interact with the most during the process, outside of your bankruptcy attorney.

The trustee is supervised by the Office of the U.S. Trustee, but is not a government employee. He or she is paid based on a percentage of non-exempt assets (discussed below) that are sold to satisfy your unsecured debt (such as credit cards and personal loans).

What Does a Chapter 7 Bankruptcy Trustee Do Once the Case is Assigned?

Once your case is assigned to a Chapter 7 Bankruptcy Trustee, the law requires that trustee to review your schedules of assets and liabilities, along with all your other Chapter 7 Bankruptcy filings, and sort your assets into three categories:

  • Lien-Secured -- property that is being used as collateral on a debt (such as a house for a mortgage or a car for a car loan)
  • Exempt -- property that falls within legally allowed protections (like your primary residence up to a certain equity limit)
  • Non-exempt -- property that can be sold to satisfy your debts

If all your assets fall in the first two categories, the trustee will file a “no asset” report with the court and there will be nothing to distribute to your creditors.

If there are non-exempt assets available, the trustee will send an “asset” report to the bankruptcy court and then issue notice to each of your unsecured creditors that the bankruptcy has begun. Then he or she will schedule and conduct the meeting of creditors.

Your Chapter 7 Bankruptcy Trustee May Seize and Sell Your Property

The most painful part of the bankruptcy process for most debtors is the sale of non-exempt property. The trustee has the authority, and the duty, to seize any property not protected by the Bankruptcy Code and sell it to satisfy your outstanding unsecured debts. Generally, the trustee is required to do this in a way that maximizes the financial return for the creditors, often including selling the property at auction. However, in some cases, the trustee may allow you to exchange exempt property for non-exempt property, or to buy back certain assets that would otherwise be sold. Work with your bankruptcy attorney to identify your most important assets and find out if any of these options are available.

Tips on Interacting with your Bankruptcy Trustee

The meeting of creditors, sometimes called a Section 241 hearing, will be the time you are most likely to interact directly with your Chapter 7 Bankruptcy Trustee. At this hearing, the trustee will ask you specific questions about your assets, debts, income, and expenses. Creditors are also allowed to attend the Section 241 hearing and ask questions, but in many cases they choose not to do so.

When you attend the meeting of creditors -- or any other time you interact with the Chapter 7 Bankruptcy Trustee -- you need to remember that his or her job is to make sure the creditors are paid as much as possible for your debts as the bankruptcy code allows. That doesn’t mean the trustee works for the creditors, but it does mean you should be careful about what you say. Your bankruptcy could become more complicated, or be denied discharge, if you:

  • Tell the trustee you quit your job to avoid wage garnishment
  • Let the trustee know you spent money before filing bankruptcy to keep it from going to your creditors
  • Hide assets from the trustee
  • Fail to disclose all your creditors to the trustee
  • Interfere with the trustee’s sale of your non-exempt assets

Your relationship with the Chapter 7 bankruptcy trustee doesn’t have to be warm or friendly. However, it is important that you disclose all the necessary details so that the trustee can do his or her job and your debts can be discharged. At John A. Steinberger & Associates, P.C., we know how to work with you and your trustee to be certain your interests and your assets are protected as much as the Bankruptcy Code allows. We are a full-service bankruptcy law firm in Southeast MI. We serve debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. Call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.