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Which role does a case trustee play in Chapter 7 bankruptcy?

By gathering knowledge about the entire Chapter 7 bankruptcy process, it becomes easier for a person to make informed decisions related to a bankruptcy filing. One important point regarding a Chapter 7 filing is the role of a case trustee.

According to bankruptcy laws, a case trustee is appointed by the United State Trustee to administer a Chapter 7 filing by liquidating all of the debtor's non-exempt assets. Since most cases of Chapter 7 bankruptcy involve exemptions under federal and state laws, a case trustee must file a "no asset" report, which will prevent unsecured debtors from receiving any money. However, for an "asset case," unsecured creditors are required to file a petition for debt recovery within 90 days of the creditors' first meeting. However, if the unsecured creditor is a government entity, the time limit is 180 days.

Usually, the most important role that a case trustee performs is when the bankruptcy filing is an "asset case" because, in that case, the case trustee's role involves liquidation of all non-exempt property so that the benefits for creditors are maximized. That is achieved by selling a debtor's assets, provided that those assets are free of lien and worth more than any security or lien attached to that asset.

Bankruptcy laws also grant "avoiding powers" to a case trustee, which means that a case trustee is empowered to recover debt by setting aside transfers, undoing security interests or pursuing non-bankruptcy claims, which come under the jurisdiction of Tennessee laws. Additionally, a case trustee may also be able to run a business that filed for Chapter 7 bankruptcy for a certain period of time if that business has the potential to generate profits and benefits creditors. It is worth considering, at any rate.

Source: USCourts.gov, "Liquidation Under the Bankruptcy Code," accessed on Feb. 27, 2015

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Kenneth C. Rannick, P.C.
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