What Does a Trustee Do in Chapter 7 Bankruptcy?

When looking into filing Chapter 7 Bankruptcy, you may wonder what a trustee does & what their role is in your personal bankruptcy.

There are many terms that are associated with Chapter 7 bankruptcy, some of which are used differently in other scenarios. One of those terms is “trustee.” What is a trustee in a Chapter 7 bankruptcy filing and what is their role? We’ll take an in-depth look into that in this post.

What is a trustee in a Chapter 7 bankruptcy?

A trustee is appointed by the court to oversee your bankruptcy case. The trustee has several responsibilities, and will often seem like your worst enemy at times. This is because the trustee has to make decisions that you most likely don’t want them to make. It isn’t personal, it is their job. The goal of a Chapter 7 bankruptcy is to discharge your debts so you can get on the path to financial solvency. The trustee can be thought of as someone that is helping you in that goal.

What does a trustee do in a Chapter 7 bankruptcy case?

The trustee has several roles and responsibilities in your Chapter 7 bankruptcy. You will obviously have some work to do as well, but the trustee has official roles and responsibilities to act on your behalf. Some of those responsibilities will be a relief to you, while others you will probably not be a fan of. Let’s look at each responsibility and explain why the trustee is assigned to handle them.

A trustee will examine your Chapter 7 bankruptcy filing

When filing a Chapter 7 bankruptcy, you make several declarations regarding your assets, debts, income and other financial matters. These claims need to be evaluated for accuracy. You most likely have several creditors, some of which you are happy to pay, while others you may be ignoring. The trustee will examine your creditors and determine whether or not you have accounted for all of them.

The trustee will also examine your financial behavior prior to your filing. Did you spend money you shouldn’t have? Are you following the guidelines that you are supposed to? The trustee will determine whether or not your filing is legitimate and if it should move forward. They will also evaluate your assets to make sure you haven’t intentionally or accidentally committed fraud by transferring ownership or hiding assets.

The trustee will deal with your creditors

Once the initial evaluation is complete, the trustee will determine the path to repayment. There will be a meeting called by the trustee with you and your creditors, which will help them gather the information they need to help determine how repayment will proceed. Some creditors will not attend as long as they are not suspicious of your filing, while others will want to attend to ensure your declarations are legitimate.

The trustee will forward questions the creditors want answered and inquire more about your assets and financial history. If your responses match the investigation and bankruptcy documentation, the trustee can move to the next step in the process.

A trustee is responsible for checking liens in your Chapter 7 bankruptcy case

The trustee in your Chapter 7 case will be tasked with checking for any outstanding liens against you. A lien is a legal claim or right against a property, typically to satisfy a debt or other obligation. For example, you might offer your assets as collateral to receive a loan or debt and forfeit it if you cannot repay it.

Liens involve assets like real estate or personal property to secure a mortgage or equity lines of credit. It also includes other credit facilities like tax liens. The trustee will determine the priority of the liens and whether they can avoid them.

For example, a mistaken signature or inaccurate information in a lien contract can forfeit a creditor’s right to the asset, and the trustee can sell the asset for the benefit of the other creditors. The trustee will also work with the debtor’s creditors to negotiate a repayment plan, if necessary.

The trustee will liquidate your assets to repay your debts

The trustee will work with you to recover and repossess all your non-exempt property. Non-exempt properties are all assets not protected by Chapter 7 bankruptcy. A trustee might search your home if they feel you hid some assets in the filing. Otherwise, they can cooperate with you in this process.

The trustee will then liquidate all your non-exempt property to repay investors. They can sell the property directly to recover funds or negotiate a buy-back plan with you at a discounted rate.