The Trustee's Role in a Chapter 7 Bankruptcy Case

Every Chapter 7 bankruptcy case has a trustee appointed to in the beginning stages. The trustee plays a very important role in the bankruptcy case and is the one person, other than their attorney, that the filer will have the most contact with while they case is pending. A chapter 7 bankruptcy trustee has several jobs throughout the bankruptcy case.

Initiating a Stay

Creditors cannot contact bankruptcy filers to demand money from them once the case is filed. The trustee mails letters to every creditor the individual or couple filing for bankruptcy protection provides to let them know about the filing. The creditors are also invited to a meeting where they can ask their customer questions about their finances.

Locating Assets

A trustee must determine whether a filer has assets that can be liquidated. Ideally, the filer will state any assets they own on their court documents when they file their case. However, the trustee may have to do some research to determine whether there are any undisclosed assets. Because creditors have rights to the money they are owed, the trustee has an obligation to them to be sure the filer is telling the truth.

Liquidating Assets

Whether assets are disclosed or discovered, the trustee must then determine their value and sell them to pay the creditors. Although many chapter 7 bankruptcy cases are have no assets, either because there are actually no assets or because anything the individual or couple owns is exempt, there are some cases that involve selling a filer's personal property. After the sale is completed, the trustee has to determine how much of the proceeds each creditor will receive. Creditors rarely receive anything close to the amount they are owed.

What the Trustee Can Sell

In order to give the filer a fresh start but also helping the creditors get money the filer owes to them, trustees can seize and sell any property that isn't covered by a lien and that isn't exempt. Real estate with an outstanding mortgage cannot be sold by the bankruptcy court and vehicles that aren't paid in full cannot be seized by the trustee. Those assets are typically returned to the original creditor.

In order to ensure they understand their rights as well as to protect them, everyone considering bankruptcy should consult with a bankruptcy attorney. An attorney could help them understand the process and what to expect as their case moves through the courts.