What is the Role of the Chapter 7 Trustee?

Once a Chapter 7 bankruptcy case is filed, an impartial case trustee is appointed by the office of the United States Trustee. (In Alabama and North Carolina, the trustee is appointed by the court). The primary function of the Chapter 7 trustee is to administer the case and liquidate your non-exempt assets. In most cases, your assets are completely exempt and there is no property for the trustee to administer. The trustee will liquidate your non-exempt assets in a manner that maximizes the return to your unsecured creditors. The trustee can also pursue causes of action that you may have at the time your bankruptcy case is filed. A common cause of action is one to recover money or property that is owed to you.

The trustee also has strong avoiding powers. This allows a trustee to set aside preferential transfers made to creditors prior to your bankruptcy filing. This avoiding power may result in proceeds being distributed to unsecured creditors.

In addition to liquidating any non-exempt assets, the trustee has the duty of making sure that you have complied with the numerous bankruptcy laws that are enumerated throughout the Bankruptcy Code.

The trustee is often a local bankruptcy attorney; however, a trustee is not required to be an attorney. You can rest assured that the trustee will be a person who is very knowledgeable about Chapter 7, the court process and all of the necessary procedures to administer a case.

The trustee is mostly interested in what property you own, whether it can be exempted under the Federal or State laws and whether or not it can be administered for the benefit of creditors. The trustee has a vested interest in the property because he is partially paid on commission. That's right; the trustee may receive 25% of the first $5,000.00 administered, 10% of any amount between $5,000.00 and $50,000.00, and 5% of any additional amounts administered.

Many debtors wonder whether or not the trustee will want to search their homes for property. Although this is possible, it is highly unlikely. The trustee would have to believe that the debtor was not being truthful in his schedules or otherwise not complying with the trustee's requests.

The Chapter 7 Trustee's Work

The trustee will review the petition and schedules that you filed. He will review the exemptions to see if there is any property that can be administered. He will check your statement of intentions with regard to secured property and to leases. At the meeting of creditors, the trustee will investigate your financial affairs.

He will review your attorney's fees to see if they are in compliance with local standards for fees. If the fee paid by you was excessive, the trustee may bring a motion to have those fees reviewed by the court. To the extent that the fee is determined to be excessive, the court may order cancellation of the fee agreement or order that a portion of the fees be refunded to you.

He will check your state issued I.D. as well as your social security card. If there is a problem regarding those items, the trustee will report same to the United States Trustee.

If you miss your required meeting of creditors, the trustee may set a continued date or he may move to have your case dismissed.

Don't be alarmed by what the trustee does and what the trustee can do. In the majority of cases, the debtor's dealings with the trustee are limited to the relatively short meeting of creditors.