Trustee’s Role in Chapter 7 Bankruptcy

Chapter 7 is the simplest and quickest form of bankruptcy process available to a financially troubled debtor. It’s available to individuals, married couples, corporations and partnerships. Due to the financial contingency or bad economic situation, many small business firms are forced to file bankruptcy proceedings under Chapter 7.

Chapter 7 bankruptcy is also known as liquidation. In this bankruptcy process, the court appoints a trustee to dispose business assets and repay its creditors. Immediately after filing a Chapter 7 petition, a trustee will be appointer to administer the case. The person appointed will be an interim trustee.

An interim Chapter 7 trustee’s role is to investigate debtor’s finances, verify proofs of claims, and provide interim and final accounts. The trustee should also deal with patient’s medical records in health care bankruptcy cases. Most of the action in the case takes place in the trustee’s office and not the courtroom. The trustee takes control of the debtor’s property, unless it’s exempt, and starts working through the case.

Within fifty days of filing the bankruptcy petition, the trustee holds a first meeting called a 341 meeting. All creditors will be provided due notice about the meeting, thus giving them a chance to assess and question the debtor’s inability to pay. The trustee also questions the debtor on oath. In this meeting, the creditors have the right to nominate a permanent trustee. If they fail to administer their right, the interim trustee will be converted to permanent trustee. All these creditors are stopped by the automatic stay from pursuing the debtor for payment in any way.

Chapter 7 trustee is bound to collect and sell the entire debtor’s non-exempt property and pay off the creditors, thus completing the case at the earliest. If after the creditors meeting, the trustee determines that the debtor has some nonexempt property, then it should either be surrendered or equivalent value in cash should be provided to the trustee. However, if the property though not exempt isn’t worth much or would be cumbersome for the trustee to sell, the trustee may abandon the property thereby allowing the debtor to retain it. The trustee should be accountable for all property received and should keep record of all transactions. Secured creditors get a preference over unsecured creditors while making these payments.

A Chapter 7 bankruptcy trustee is appointed by the U.S. trustee services. The trustee reviews the debtor’s bankruptcy petition and verifies the information and calculations using available financial documents and other resources.


Inside Trustee’s Role in Chapter 7 Bankruptcy