When you file for Chapter 7 bankruptcy, the court will assign a bankruptcy trustee to administer your bankruptcy case. This article explains the 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.
The Chapter 7 trustee reviews the bankruptcy paperwork and checks the debtor's identification. But those are minor duties. The primary 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 have the right to keep.
Some people mistakenly believe that the trustee's job is to help the debtor through the process. However, the trustee protects creditors, not debtors—although the trustee will be polite and move the case along. The best way to understand this dynamic is to learn how the trustee gets paid.
The trustee is responsible for assessing the bankruptcy papers for accuracy and signs of possible fraud or abuse. The trustee will review the paperwork for clues that the filer is hiding or mischaracterizing assets and compare financial disclosures to the 521 documents you'll have turned over before the hearing (bank statements, paycheck stubs, profit and loss statements, tax returns, and the like).
When the bankruptcy paperwork indicates that all the filer's property is exempt from creditors, the case is a "no-asset" case, and creditors receive nothing. The bankruptcy notice that the court sends to creditors tells creditors they don't need to file proof of claim forms because money won't be available to pay them unless the trustee later finds undisclosed assets.
Learn about red flags the trustee looks for before the meeting of creditors.
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.
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.
Many people wonder whether trustees 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 include 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.
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.
If you owe back child support, the trustee must notify 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 notify 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.
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.