What Does a Bankruptcy Trustee Do in Chapter 7 Proceedings?

When you are drowning in debt and are barely making minimum payments on your accounts — if that — filing for bankruptcy can offer some relief and give you the opportunity for a fresh financial start. Whether you had a health crisis and are now struggling with medical debt or you have overwhelming credit card debt, a chapter 7 bankruptcy is one option. You will meet with a trustee assigned to your case during this process. Understanding the role of the trustee can help you know what to expect and ensure you are prepared as you work through the filing.

Understanding the Bankruptcy Trustee Role

A chapter 7 bankruptcy involves liquidating any nonexempt assets and using the proceeds to pay off your credits. The debt is generally discharged if there are any remaining balances on your accounts. There are some exceptions, however,  student loan debt, some taxes, alimony, and child support payments are generally unable to be discharged. Bankruptcy can be complicated, and a trustee is appointed in a chapter 7 filing to facilitate the process and ensure that the petitioner is adhering to all of the applicable laws. 

The bankruptcy trustee oversees the chapter 7 process, handling everything from selling the assets to investigating potential fraud. One critical thing to remember is that the bankruptcy trustee does not work for you or represent your interests. They are there to represent the bankruptcy estate and ensure that the creditors get as much as possible and that all of the actions are in accordance with the bankruptcy code.

4 Duties of a Chapter 7 Bankruptcy Trustee

The trustee is the main person you will deal with during your bankruptcy other than your attorney. They play an integral role in ensuring that the bankruptcy goes as smoothly as possible and that both the debtor and the creditors are following the laws. While a bankruptcy trustee’s duties are varied, their main responsibilities include those listed below.

1. Reviewing the Bankruptcy Petition

One of the first things a bankruptcy trustee will do when assigned to your case is review your petition. These documents include all of your personal information and details of your finances, such as a list of all of your debts and assets. You will also need to provide a list of creditors that you currently owe and information on your other monthly living expenses, such as utilities, food, insurance, etc… so that the trustee can get an overall picture of your finances.

The trustee will review all of this information to ensure it is accurate and complete. They may verify your income through W-2 statements, pay stubs, or tax returns, and you may have to provide bank statements to give a detailed accounting of your spending. All of this information is also used in means testing, which is required for all debtors filing for chapter 7 bankruptcy.

2. Ensuring the Debtor Passes the Means Test

A means test is a way to make sure that a debtor meets the income requirements to file chapter 7 bankruptcy. Means testing involves comparing your current monthly income to the median income in your state for a family of the same size. If your income is less than the median income, you automatically pass the means test. If it is higher than the median income, you can deduct certain allowed expenses from your monthly income to see if that drops it below the median income. The trustee ensures the debtor has accurately determined their income and passed the means test before the bankruptcy can proceed.

3. Interviewing the Debtor

When you file for chapter 7 bankruptcy, you are required to have a 341 meeting of the creditors. In most cases, the meeting will only include you and the trustee. Your creditors have a legal right to attend the meeting and ask you questions, but they generally do not unless there are exceptional circumstances, such as if they believe you may be hiding assets. During the meeting, the trustee will ask you questions to verify the information in your bankruptcy filing, and you will be sworn in under oath. You can and should have an attorney with you at this hearing. If the trustee believes that everything is in order and represented accurately, the bankruptcy moves forward. 

4. Locating and Selling Assets

One of the primary duties of the trustee is to locate and sell any nonexempt assets and ensure the proceeds are used to pay off creditors. During this process, the trustee will also ensure that any exempt property claimed by the debtor is, in fact, exempt. The trustee also looks for any fraudulent transfers of property or money that may have affected the bankruptcy estate. For example, if someone tries to transfer a large sum of money to a friend or family member just prior to the bankruptcy filing, the trustee may determine that it was an attempt to hide assets and get the money back to pay creditors. 

Filing for bankruptcy is a big decision, and it is not one that should be taken lightly. If you are considering bankruptcy, talk to an attorney about what the process entails, what debts are dischargeable, and how it can affect your finances over the long term. In some cases, there may be alternative options, such as debt consolidation, that can help you avoid bankruptcy while still getting your finances on more solid ground. Get more information about the bankruptcy process and what to do next when you call Gillespie & Murphy, P.A. at 252-659-5045.