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The role of a case trustee in a Chapter 7 bankruptcy filing

When debt becomes so overwhelming that Wisconsin residents consider filing for bankruptcy, they usually want to know whether the process is right for them. One detail that debtors should understand is the role of a case trustee in a Chapter 7 bankruptcy filing.

A U.S. court appoints a case trustee to impartially administer a Chapter 7 bankruptcy filing. The trustee’s main responsibility is to liquidate the debtor’s non-exempt assets. In most cases, under a Chapter 7 filing an individual’s assets are exempted under either state or federal bankruptcy laws. These often include houses and motor vehicles. The case trustee thus files a no-asset report that prevents unsecured creditors from receiving any money. However, if there are assets up for disposal, unsecured creditors must file a petition in court within three months of the first meeting among creditors. The only exemption is a government entity, which has six months.

The most important role of a trustee plays is when a Chapter 7 bankruptcy filing involves assets that the trustee can liquidate. Any proceeds from the sale of non-exempt property go to creditors who can receive some repayment on debt from the liquidation. The property must be free of liens and worth more than the combined value of any securities or liens attached to it.

A case trustee can also exercise avoiding powers – that is, recover money or property by setting aside transfers that can be made to creditors, by undoing security interests and other transfers of property that took place before the bankruptcy petition and were not accurately executed or by pursuing non-bankruptcy claims that exist under Wisconsin’s laws. If a business files for Chapter 7 bankruptcy, the bankruptcy court may allow a case trustee to run the business for a specified period of time if the business can benefit creditors.

Source:¬†USCourts.gov, “Liquidation Under the Bankruptcy Code,” Accessed on Jan. 21, 2015

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