Chapter 7 Trustee

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Chapter 7 Trustee

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From Executive Director

In simple terms, the Chapter 7 trustee is the person who handles your case when you file bankruptcy under Chapter 7, but the job of the bankruptcy trustee is broader and involves more than most people realize. Also, the Chapter 7 trustee has more power and authority than most people know.

What Is A Chapter 7 Trustee

When you file Chapter 7 bankruptcy, all of your property becomes known as the “estate”. This includes all legal or equitable interest that you have in property as well any and all interest that you have in property that is being held for you by someone else. You keep possession of the your estate property, but you are not allowed to dispose of, transfer, convey, mortgage, or otherwise deal with any of the estate property.

Since you cannot do anything with the estate property other than continue to use it, someone has to “take charge” of the estate property. So, a Chapter 7 bankruptcy trustee is appointed to manage the estate property. Basically, the bankruptcy trustee assumes temporary ownership of your property.

It should be pointed out that there is a difference between the United States trustee and the Chapter 7 trustee who is also known as the Chapter 7 bankruptcy trustee and bankruptcy trustee. The United States trustee is a government employee and oversees and supervises the trustee’s side of bankruptcy. The United States trustee (or in Alabama and North Carolina, the bankruptcy court)  appoints a Chapter 7 bankruptcy trustee who is an impartial private individual and not a government employee.    

What Does A Chapter 7 Bankruptcy Trustee Do

The primary job of a Chapter 7 bankruptcy trustee is to liquidate or sell your non-exempt
property in a manner that maximizes the return to your unsecured creditors. However, there is a lot more to the job.

First, the Chapter 7 trustee will review your bankruptcy Petition and all of the documents attached to it.

Next, the Chapter 7 bankruptcy trustee will then conduct the 341 meeting of creditors. The bankruptcy trustee is charged with verifying the information that you have filed in your Petition. Generally, if everything appears proper and legitimate, the trustee will ask you general questions which answers verify your information. If something appears improper or requires more information, the trustee will ask you questions about that. The trustee may require that you produce documents to support or prove certain facts. For example, if you claim that you and another person, not a party to the bankruptcy, own a certain home, the bankruptcy trustee may require that you give the trustee a copy of the deed to the property showing who are the owners.

In both reviewing your bankruptcy Petition and the 341 meeting of creditors, the bankruptcy trustee will look to see that you pass the “means test”. Within 10 days after the meeting of creditors, the trustee must file with the bankruptcy Court a statement as to whether or not the trustee believes that you pass the “means test”.  In other words, the trustee has to state whether the trustee thinks that your case should be presumed to be an abuse of the Chapter 7 bankruptcy laws. If the trustee states that the trustee believes that there is abuse, the trustee is required to take further action on the issue. If the trustee does not believe that there is abuse, your bankruptcy continues on the normal path.

If the Chapter 7 trustee finds that all of your property is exempt and that you do not have any property that can be sold for the benefit of your creditors, the trustee is required to report to the bankruptcy Court that your case is a “no asset” case.

If, on the other hand, the Chapter 7 trustee finds that you have property that is not exempt and that can be sold, then the trustee is charged with selling the property and distributing the net proceeds to your creditors.

The bankruptcy trustee also looks to see if you have improperly disposed of any property or given preferential treatment to a creditor or anyone else. For example, you cannot give your property to someone else just so it will not be sold by the Chapter 7 bankruptcy trustee. If the trustee finds that you have disposed of any property or given preferential treatment, then the trustee can recover the property and deal with it.

It should be mentioned that not all transfers and conveyances are improper. You may have sold a home for the fair market value. If you did, the trustee will want to know what you did with the money. If you can show that you used the money for proper expenses, then there will not be a problem.

After a bankruptcy trustee has sold and/or dealt with all of your property that the trustee can deal with, the trustee is charged with accounting to the bankruptcy for the trustee’s actions.

Powers And Authority Of A Chapter 7 Trustee

Chapter 7 bankruptcy trustees have broad power and authority to carry out what they are charged with doing. As mentioned above, they can require that you answer all questions that do not violate the fifth amendment (you are not required to answer questions that may incriminate you), they can require that you produce documentation to support or prove what you claim, and they can sell your non-exempt property.

Chapter 7 trustees have what is known as “avoiding” powers. They can also look back to 90 days before your Chapter 7 bankruptcy was filed and set aside (avoid) any transfer that they deem improper and in violation of bankruptcy laws. For example, there was a woman who paid for a new roof on her boyfriend’s home just before filing bankruptcy. The Chapter 7 trustee made the boyfriend pay to the trustee the money that the woman paid for the roof and then distributed the money to the woman’s creditors. In another example, a husband and wife sold a home for much less than it was worth. The Chapter 7 bankruptcy trustee got the home back, sold the home to another buyer, and distributed the net proceeds to the couple’s creditors.

A Chapter 7 trustee can also avoid transfers that are deemed to be fraudulent under your state’s laws. In these cases, the trustee can “look back” as long as your state’s laws allow. Some states require that an action to set aside a fraudulent transfer be started within 1 year of the transfer. Other states have longer time periods such as 4 to 6 years.

Chapter 7 bankruptcy trustees also have the authority and power to “step into the shoes” of the debtor for certain civil actions. For example, if you have a civil case where someone owes you money and you filed Chapter 7 bankruptcy, then the bankruptcy trustee has to power and authority to decide what is a reasonable settlement.

This is general information only. If you have any questions whatsoever, talk with a lawyer licensed in your state who has experience with Chapter 7 bankruptcy, Chapter 13 bankruptcy, or bankruptcy in general.

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