Chapter 7 bankruptcy is the fastest and most common form of bankruptcy. It can wipe out different types of debt under the protection of a federal court. You may have to give up some assets, like an expensive car, property, or jewelry, but the majority of filers do not. Chapter 7 bankruptcy erases most unsecured debts such as medical bills, credit card debt, and personal loans. However, some forms of debt, such as back taxes, court judgments, alimony and child support, and student loans generally aren’t eligible.
Filing bankruptcy will allow you to reorganize your finances, pursue debt settlement, and pay off a creditor. However, Chapter 7 bankruptcy will leave a serious mark on your credit report for 10 years. During this time, you’ll likely find it harder to get credit. Even so, you’ll probably see your credit scores start to recover in the months after you file. A reliable Monroe bankruptcy attorney can help you understand how Chapter 7 bankruptcy works.
When a Chapter 7 debtor files for Chapter 7 bankruptcy, the court appoints a bankruptcy trustee to oversee and administer the case. A bankruptcy trustee is a person appointed by the United States Trustee, an officer of the Department of Justice, to represent a debtor’s estate in a bankruptcy proceeding. The article will explain the responsibilities of a bankruptcy trustee by answering the following questions:
- What Does a Bankruptcy Trustee Do in Chapter 7 Bankruptcy?
- How Does the Chapter 7 Trustee Review the Bankruptcy Petition?
- How Does a Trustee Conduct the 341 Creditors Meeting?
- How Do Chapter 7 Trustees Get Paid?
- How Do Chapter 7 Trustees Handle Your Assets?
- What is the Role of a Bankruptcy Attorney?
What Does a Bankruptcy Trustee Do in Chapter 7 Bankruptcy?
A bankruptcy trustee’s duties vary depending on the type of case, as well as the circumstances of a particular debtor and their creditors. Some people may think that the trustee’s job is to help the debtor through the bankruptcy process. The truth is that the trustee protects creditors, not debtors—although the trustee will be polite and help the case move along. Here are some of the primary duties and powers of a trustee in a Chapter 7 liquidation bankruptcy case:
- Round up all of a debtor’s property
- Sell the bankrupt estate’s property
- Challenge creditors’ claims (where appropriate)
- Distribute proceeds to creditors
- Object to a bankruptcy discharge where grounds exist
How Does the Chapter 7 Trustee Review the Bankruptcy Petition?
Your bankruptcy case begins when you file your Chapter 7 petition, schedules, and documents with the court. You need to declare all your debts, assets, income, property, contracts, and the state of finances. A qualified Monroe bankruptcy attorney can help you ensure the accuracy and completeness of your bankruptcy paperwork. After you file, you must send supporting documents to the trustee, including income verification (such as six months of pay stubs or a profit and loss statement if you are self-employed) and usually two years of tax returns.
The bankruptcy trustee reviews your bankruptcy documents to make sure that there are no signs of fraud or abuse. The trustee might ask you for more information if he or she has questions about your financial situation. The review will include both the petition and schedules and the 521 documents you’ll have turned over before the hearing (bank statements, paycheck stubs, profit and loss statements, tax returns, and the like).
How Does a Trustee Conduct the 341 Creditors Meeting?
Every party that files bankruptcy must attend a meeting of creditors. This meeting, which is required by Section 341 of the Bankruptcy Code, is also known as a “341 meeting.” It is scheduled by the clerk of the bankruptcy court shortly after a bankruptcy case is filed.
A “341 meeting” is presided over by the bankruptcy trustee that was appointed in the case. The meeting is an opportunity for the bankruptcy trustee and creditors to question the debtor under oath regarding their assets, liabilities, and other matters that pertain to their bankruptcy case.
The meeting will happen 21 to 40 days after you file for bankruptcy. Five business days before the meeting, the trustee will look through your paperwork to make sure that your identity is accurate, you have accurately depicted your finances, and you have not committed bankruptcy fraud. Some of the documents that the trustee will review may include bank statements, pay stubs, tax returns, deeds to real estate, car titles, mortgages, and proof of insurance. You will need to prove your identity at the meeting, which involves bringing a photo ID and proof of your Social Security number. If you do not provide this information, the trustee will reschedule the meeting.
The bankruptcy trustee will ask a series of questions to confirm the accuracy of the documents filed with the court. The trustee will try to determine whether any assets are not protected through exemptions. In case all your assets are exempt, the trustee will formally end the meeting. You can take your debtor’s education course and wait for your bankruptcy discharge. However, if you can’t answer the trustee’s questions fully, the trustee will reschedule the creditors’ meeting to another date and ask you to submit supporting documents in the meantime.
How Do Chapter 7 Trustees Get Paid?
A Chapter 7 trustee receives a nominal portion of the debtor’s filing fee and a percentage of the debtor’s property sales proceeds, plus costs. If the trustee determines that you have non-exempt property that can be administered in your bankruptcy, he or she will receive a commission based on the amount disbursed to interested parties (such as creditors). In general, the trustee is compensated on a sliding scale and will receive up to:
- 25% of the first $5,000 dispersed
- 10% of any amount over $5,000 but less than $50,000
- 5% of any amount over $50,000 but less than $1,000,000, and
- reasonable compensation for amounts over $1,000,000 not to exceed 3%
Most Chapter 7 debtors can keep all of their property in what’s known as a “no-asset” case. In these matters, the trustee’s only compensation is a nominal administrative fee paid out of the initial court filing fee. If the court grants the debtor a filing fee waiver, the trustee gets nothing.
How Do Chapter 7 Trustees Handle Your Assets?
The Bankruptcy Trustee Sells Your Nonexempt Assets
In a Chapter 7 bankruptcy, the bankruptcy trustee is in charge of selling your nonexempt assets to repay your unsecured creditors. Nonexempt assets are those assets that are not protected by exemption laws. If a particular item of property is protected by an exemption law, then the trustee cannot touch it.
The Bankruptcy Trustee Search for Nonexempt Assets
A bankruptcy trustee is responsible to search your home to look for non-exempt assets that are not declared in the bankruptcy filing. You are expected to cooperate during the search – or else, your trustee will obtain a court order to force the issue.
The Bankruptcy Trustee Abandonment of Nonexempt Assets
If the bankruptcy trustee determines that liquidating particular property in the estate won’t yield much for creditors, the trustee may choose to abandon the property. The trustee may also do this if the property would be hard to sell. This might happen if, after deducting the costs of sale, the trustee’s commission, any amount due to a creditor with a lien against the property, and any exemption owed to you, there is nothing or little left to distribute to creditors.
What is the Role of a Bankruptcy Attorney?
Bankrupt individuals who are struggling with debt may opt to file for bankruptcy as their last resort to pay back all their debts and to have a fresh start. This is also a great opportunity to rebuild your credit and stay out of debt. During the bankruptcy filing, the appointed trustee plays an important role in the success of the bankruptcy petition. It is crucial to know how a trustee can affect your filing. For legal help, do not hesitate to consult our experienced Monroe bankruptcy attorneys at E. Orum Young. We will assist you throughout the whole bankruptcy process as you aim for debt settlement and financial freedom.