What Does The Chapter 7 Bankruptcy Trustee Do?

Learn about the Chapter 7 bankruptcy trustee's job, payment, duties and more.

When you file for Chapter 7 bankruptcy, the court will assign a bankruptcy trustee to administer your bankruptcy case. In this article, you'll learn about the specific duties of the Chapter 7 bankruptcy trustee so you’ll know what to expect before, during, and after the 341 meeting of creditors—the hearing almost all filers must attend.

What Does a Trustee Do in Chapter 7 Bankruptcy?

The Chapter 7 trustee reviews the bankruptcy paperwork and checks the debtor's identification. But those are minor duties. The main responsibility of the Chapter 7 trustee is to sell anything the debtor isn't entitled to keep and to disperse the funds to the debtor's creditors. So, in any Chapter 7 bankruptcy case, the primary interest of the trustee will be what you own and the property you claim as exempt (that you have the right to keep).

Some people mistakenly believe that the trustee's job is to help the debtor through the process. The truth is that the trustee protects creditors, not debtors—although the trustee will be polite and help the case move along. The best way to understand this dynamic is to learn how the trustee gets paid. Keep reading.

The Chapter 7 Trustee’s Payment

A Chapter 7 trustee gets a meager $65 per case to conduct a basic review of a debtor's bankruptcy petition (as of August 2020). However, a Chapter 7 trustee stands to earn much more. The court pays the trustee a commission on the funds distributed to the debtor's creditors.

The funds could come from any number of nonexempt sources (property the filer can't protect with a bankruptcy exemption), such as money in the debtor's bank account, nonexempt property the trustee liquidates (sells), or funds the debtor agrees to pay to keep nonexempt property (more below). The trustee receives 25% of the first $5,000, 10% of any amount between $5,000 and $50,000, and 5% of any additional money up to $1,000,000.

The Chapter 7 Trustee Reviews the Bankruptcy Petition

If your bankruptcy paperwork indicates that all of your property is exempt (you get to keep exempt property), your case is considered a "no-asset" case—creditors won't receive anything. The bankruptcy notice that the court sends to creditors will tell creditors that they don't need to file proof of claim forms because money won't be available to pay them. But they'll also be informed that could change.

The trustee is required, under the supervision of the U.S. Trustee, to assess your bankruptcy papers for accuracy and signs of possible fraud or abuse of the bankruptcy system. The trustee will go over the paperwork and look for clues that suggest you're hiding or mischaracterizing assets. The review will include both the petition and schedules and the 521 documents you'll have turned over before the hearing (bank statements, paycheck stubs, profit and loss statements, tax returns, and the like).

The trustee won't show much interest in the case after finding nothing. When there isn't any property for the trustee to seize and sell to pay your unsecured creditors, then there is no commission to incentivize the trustee.

Learn more about red flags the trustee looks for before the meeting of creditors.

The Chapter 7 Trustee Conducts the 341 Creditors Meeting

You'll meet the Chapter 7 bankruptcy trustee when you appear at your creditors' meeting, which you must attend if you don't want your bankruptcy dismissed. The trustee will check your identification, ask mandatory 341 questions (as well as any other potential issues raised by your paperwork), and let any appearing creditors ask questions (they rarely show up).

Typically, if all of your assets are exempt, the trustee will conclude the meeting, and you won't hear anything further. You'll complete your debtor's education course and wait for your debt discharge.

However, if you can’t answer the trustee’s questions fully, the trustee will continue the creditors' meeting to another date and ask you to submit appropriate documentation in the meantime. More rarely, the trustee may hire an attorney to pursue nonexempt assets you appear to own, or even refer your case to the U.S. Trustee's office for further action if it looks like you have engaged in fraudulent activity.

Learn more about what happens at the 341 meeting of creditors.

The Chapter 7 Trustee Seizes Nonexempt Assets

If there are nonexempt assets for the trustee to seize and sell, you’ll have to cooperate in getting them to the trustee for disposition. You can also "buy the assets back" from the trustee at a negotiated price or substitute exempt assets for the nonexempt assets. Many trustees discount the property value by 20% and sometimes give the debtor a few months to pay.

Trustee Search for Nonexempt Assets

Many people wonder whether a trustee can search their homes to determine whether they are hiding property. While such searches are unusual, part of your duty to work with the trustee could consist of a guided tour of your home or storage space upon the trustee's request. And if you don't cooperate, the trustee can obtain an order from the court to force the issue.

Trustee Abandonment of Nonexempt Assets

If you have nonexempt property that isn't worth very much or would be cumbersome for the trustee to sell, the trustee can—and often will—abandon the property, which means you get to keep it. For example, no matter how much your used furniture may be worth in theory, many trustees won't bother selling it. Arranging to sell used furniture is expensive and rarely produces much if any proceeds for the creditors.

The Chapter 7 Trustee Provides Support Arrearage Notices

If you owe back child support, the trustee must provide a notice to the holder of the support claim and the state child support agency to help them find you after your bankruptcy discharge. Specifically, the trustee will inform the payee about rights under the bankruptcy law. The trustee will inform the state child support enforcement agency about the back support, the discharge, the debtor’s address and employer information, and the name of any creditor who holds a nondischargeable or reaffirmed claim or a claim.

Both the payee and the child support enforcement agency can ask these creditors to provide your last known address. The laws authorize these creditors to release such information without penalty.

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