ROLE OF THE CHAPTER 7 TRUSTEE

The United State Trustee’s office is a branch in the United States Department of Justice.  The United States Trustee’s office contracts with individuals, usually attorneys across the country, who act as Chapter 7 trustees.  These Chapter 7 trustees do not work for the government.  They usually are a part of bigger law firms or they work by themselves and run their own offices.  For every Chapter 7 case that is filed with the Bankruptcy court a Chapter 7 trustee is randomly appointed to the case from this panel of trustees.  In Utah, there are different groups of trustees that are assigned to different geographical areas.

Once a Utah Chapter 7 trustee is assigned to a case, the trustee first reviews all of the bankruptcy schedules and statements that have been filed in the case.  The Utah Chapter 7 trustee’s next job is to conduct the 341 meeting, or the Meeting of Creditors.  This meeting usually occurs about a month or so after the case is filed.  At this meeting the trustee reviews and verifies the documents and information that debtor is required to bring to the meeting.  The trustee also asks the debtor a series of routine questions, plus any additional questions that the trustee feels are necessary in each case.

If the trustee finds errors or incorrect information in the schedules and statements that were filed in the case, the trustee may require the debtor to change and amend the schedules to reflect accurate information.  The trustee may also ask the debtor to produce other documents and information at a later date.

As soon as a Utah Chapter 7 case is filed, a bankruptcy estate is created.  The creation of the bankruptcy estate means that the Utah Chapter 7 trustee has the right to administer the debtor’s property.  Basically, this gives the Utah Chapter 7 trustee the right under certain circumstances to take the debtor’s property.  Once the debtor files a Chapter 7 case and while the case is open, the debtor cannot sell or transfer any property without the permission of the trustee.

As mentioned above, one of the Chapter 7 trustee’s main jobs is to investigate the assets and property of the debtor to determine if there is any property that the trustee is entitled to take for creditors.  If the trustee finds available assets, he may then take and sell the assets for the benefit of creditors.  Chapter 7 debtors are entitled to claim exemptions in certain property.  This is property that the trustee cannot take and that the debtor is allowed to keep.

The Chapter 7 trustee can take and sell homes and vehicles as well as any other non-exempt property.  However, the vast majority of people end up keeping their vehicles and homes because there is not enough non-exempt equity for it to make mathematical sense for the trustee to take the property.  If a trustee wants to take a home, the trustee needs to sell the house for enough to pay a realtor (and cover all other costs of the sale), pay off all mortgage loans and other liens against the home and then pay out to the debtor’s the properly taken exemption.  If there is enough money left over after all of these outlays to pay something to general unsecured creditors, the trustee may sell the home.

The trustee can take and sell any non-exempt property.  In Utah this means a trustee could take or sell recreation vehicles, stocks, bonds and a portion of tax refunds.  In Utah, any money in the debtor’s bank account as well as any cash on hand on the date the case is filed is non-exempt property.

Sometimes the debtor’s property is not exempt, but if such non-exempt property has a relatively low value in the trustee’s opinion, the trustee may abandon such property.  This means that the trustee will not sell the property because it is of inconsequential value, so the debtor can keep it.  This judgment call is left to each individual trustee, so there is no way of knowing exactly what the trustee will do with any particular piece of property.

In cases where there are assets and where the trustee chooses to take those assets, the trustee will notify all of the debtor’s creditors so that they can each file a proof of claim with the Bankruptcy court.  A proof of claim is a document where creditors state how much the debtor owes them.  Once creditors have each filed a proof of claim, the trustee then distributes the funds collected from the debtor’s estate to each of the creditors in order of priority on a prorated basis.

The Chapter 7 trustee also has powers that allow the trustee to retrieve property that the debtor has recently given away or sold to other people.  For instance, if a debtor has repaid a debt to an insider (which is usually a family member) within the past year, the trustee can sue that family member and get the money back in order to distribute it to all of the creditors in a more equitable manner.  This means that if the debtor paid the debtor’s mother back $5,000 with his or her entire tax refund within the past year the trustee will likely sue the mother to get that money back.  If it is a small amount, the trustee may elect to not bother with it.

The Chapter 7 trustee is entitled to keep a percentage of what is collected, so the trustee is highly motivated to find and take assets.  Discussing what a trustee is likely to take with a Utah bankruptcy attorney is very important to do before the debtor files for bankruptcy.

If a debtor is uncooperative in supplying the trustee with information or documentation that the trustee requests or if the debtor refuses to turn over property to the trustee, the trustee can file a motion with the bankruptcy court requesting that the debtor’s discharge be denied or revoked.  This means that the debtor will not obtain debt relief through the bankruptcy and will still owe all of his or her creditors.  So, it is very important for the debtor to be truthful, honest and cooperative with the trustee.

The vast majority of all Chapter 7 cases filed end up being “no asset” cases.  In fact, the American Bar Association estimates that over 85% of all Chapter 7 cases filed are “no asset” cases. In a “no asset” case, the trustee abandons the trustee’s interest in all of the assets of the debtor and the debtor is allowed to keep all of his or her property.

Dealing with a Chapter 7 trustee can be extremely frustrating at times.  This is one of the main reasons that debtors hire Utah bankruptcy attorneys to assist them with the Chapter 7 bankruptcy process.  A Utah bankruptcy attorney deals directly with the trustee and can assist the debtor in complying with the trustee’s demands and requests.

 

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