Chapter Seven Bankruptcy - The Role Of The Case Trustee

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When a chapter seven bankruptcy petition is filed, the United States trustee (or the bankruptcy court in North Carolina and Alabama) appoints an impartial case trustee to liquidate the debtor's nonexempt assets and administer the case. 11 United States Code, Sub-Section- 701, 704. If all the debtor's assets subject to valid liens or are exempt, usually, the trustee will file a "no asset" report with the court, and there will be no distribution to creditors that are unsecured. Most chapter seven bankruptcy cases involving individual debtors are no asset cases. However, if the case appears to be an "asset" case at the outset, then after the first date set for the meeting of creditors, unsecured creditors (7) must file their claims with the court within ninety days. Fed. R. Bankr. P. 3002(c). However, a governmental unit, has one-hundred eighty days to file a claim from the date the case is filed. 11 United States Code, Sub-Section- 502(b)(9). There is no need for creditors to file proofs of claim because there will be no distribution. This is typical in a no asset chapter seven case. If the trustee later recovers assets for distribution to unsecured creditors, the Bankruptcy Court will provide notice to creditors and will allow additional time to file proofs of claim. Although a secured creditor does not need to file a proof of claim in a chapter seven case to preserve its lien or security interest, there may be other reasons to file a claim. A creditor should consult an attorney for advice in a chapter seven case if they have a lien on the debtor's property.


A estate is created when a bankruptcy case is started. Technically, the estate becomes the temporary legal owner of all the property of the debtor. It consists of all equitable or legal interests of the debtor in property as of the start of the bankruptcy case, This include property held or owned by another person if an interest is held by the debtor in the property. In general, the creditors of the debtor are paid from property that is nonexempt of the estate.

In an asset case, the primary role of a chapter seven bankruptcy trustee is to liquidate the debtor's nonexempt assets in a manner that maximizes the return to the debtor's unsecured creditors. This is accomplished by the trustee by selling the debtor's property if it is clear and free of liens (as long as the property is not exempt) or if it is worth more than any security lien or interest attached to the property and any exemption that the debtor holds in the property. Under the trustee's "avoiding powers", the trustee may also attempt to recover property or money. The trustee's avoiding powers include the power to: undo security interests and other prepetition transfers of property that were not properly perfected under non bankruptcy law at the time of the petition; set aside preferential transfers made to creditors within ninety days before the petition; and pursue non bankruptcy claims such as bulk transfer remedies and fraudulent conveyance available under state law. Also, if the debtor is a business, the bankruptcy court may authorize the trustee to operate the business for a limited period of time, if such operation will enhance the liquidation of the estate and benefit the creditors. 11 United States Code, Sub-Section- 721.

The distribution of the property of the estate is governed under Section 726 of the Bankruptcy Code. There are six classes of claims under this code; and each class must be paid in full before anything is paid to the next lower class. The debtor is only paid if all other classes of claims have been paid in full. Accordingly, the debtor is not interested particularly in the trustee's disposition of the estate assets, except with respect to the payment of those debts which for some reason are not dischargeable in the bankruptcy case. The individual debtor's primary concerns in a chapter seven case are to receive a discharge is to retain property that is exempt and that covers as many debts as possible.

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