When you file for Chapter 7 bankruptcy, a bankruptcy trustee will be assigned to your case. The Chapter 7 bankruptcy trustee’s job is to administer your bankruptcy case. The specific duties of the Chapter 7 bankruptcy trustee are outlined below. (To learn about Chapter 7 bankruptcy, see our Chapter 7 Bankruptcy area.)
For information on other procedural aspects of bankruptcy, see the articles in The Bankruptcy Process.
In a Chapter 7 bankruptcy, the trustee is mostly interested in what you own and what property you claim as exempt. This is because the court pays the trustee a commission on property that is sold for the benefit of the unsecured creditors. The trustee may receive 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.
If your papers indicate that all of your property is exempt (which means you get to keep it), your case initially is considered a “no-asset” case and your creditors are told not to file claims (because you don’t have any property that will be sold to pay them). The trustee also won’t show much interest in a no-asset case unless your papers suggest that you may be hiding or mischaracterizing assets. After all, if there is no property for the trustee to seize and sell to pay your unsecured creditors, then there is no commission for the trustee.
The first time you will personally encounter the trustee in a Chapter 7 case is when you appear at your creditors’ meeting, which you must attend if you don’t want your bankruptcy dismissed. Typically, if all of your assets are exempt, you will hear nothing further from the trustee. However, if there are (or it appears that there might be) nonexempt assets in your bankruptcy estate, the trustee may continue your 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 dishonest activity.
If there are nonexempt assets for the trustee to seize and sell, you will be expected to cooperate in getting them to the trustee for disposition. You will also be given the opportunity to “buy the assets back” from the trustee at a negotiated price or substitute exempt assets for the 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.
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 cooperate with the trustee could consist of a guided tour of your home upon the trustee’s request. And if you don’t voluntarily cooperate, the trustee can obtain an order from the court to force the issue.
The Chapter 7 trustee is charged with several other duties, including:
The trustee is also required, under the supervision of the U.S. Trustee, to assess your bankruptcy papers for accuracy and for signs of possible fraud or abuse of the bankruptcy system.
See How to File for Chapter 7 Bankruptcy for detail on the petition forms, and where the trustee might look for issues.
If you owe back child support, the trustee is also required to provide notices to the holder of the support claim and the state child support agency to keep them abreast of your bankruptcy and help them find you after your bankruptcy discharge. Specifically, the trustee is required to provide:
Both the payee and the child support enforcement agency can ask these creditors to provide your last known address. The laws specifically authorize these creditors to release such information without any penalty.
Excerpted from The New Bankruptcy: Will It Work for You?, by Attorney Stephen Elias (Nolo).