U.S. Bankruptcy Courts - Chapter 7 Trustee's Duties

Understanding US Bankruptcy Court Chapter 7 Trustee Duties for Debtors

In summary, trustees collect non-exempt assets under authority of US bankruptcy courts, eliminate improper debts, review all documents filed, and determine if debtors are in compliance with all applicable laws. If a trustee discovers non-conformity, they must file motions in US bankruptcy courts to oppose discharge in chapter 7 cases.

Services trustees provide U.S. bankruptcy courts

Forfeiture of assets of significant value is unusual in consumer cases pending before US bankruptcy courts. Most cases are deemed a "no asset case" by trustees, however all property claimed as exemptions will be reviewed. If debtors own non-exempt property, the trustee may abandon all rights, and the debtor may retain the property. For instance, if a debtor owns a vacation home without equity, in all likelihood a trustee will abandon the right of possession and the debtor is free to either surrender the property and charge off the debt, or reaffirm the debt and retain the possession of the non-exempt asset. If the trustee finds non-exempt assets with significant value, the trustee probably will require surrender and sell the assets at public auction. Proceeds of the sale, after deducting the trustee's expenses, will be applied toward debts owed to creditors.

Notice the net effect of surrendering assets. A non-exempt asset must be valuable, and the cost of administering the sale must net a significant return. If expected sales proceeds of non-exempt property are minimal, trustees routinely abandon non-exempt assets.

During a meeting of the creditors, the trustee must inform all debtors of the potential consequences of seeking a discharge through US bankruptcy courts, including effects on credit histories. The trustee must also explain to debtors the availability of filing under different chapters available in US bankruptcy courts. Finally, the trustee must also explain the effects of receiving discharges and reaffirming debts under supervision of the US bankruptcy courts.

U.S. bankruptcy court statutory authority of trustees

The duties of trustees in US bankruptcy courts are set forth in 11 U.S.C. 704. This section provides trustees shall:

  • collect and reduce to money the property of estates;
  • close estates after administration and account for the dispositions of assets;
  • investigate the financial affairs of debtors filing in US bankruptcy courts;
  • examine proofs of claims filed with US bankruptcy courts and object to improper claims;
  • oppose all discharges through US bankruptcy courts deemed improper;
  • disclose financial information to parties of interest who make official appearances in US bankruptcy courts;
  • if operation of a business is authorized, file reports with US bankruptcy courts describing operations and results; and
  • file final accountings with US bankruptcy courts summarizing the closing of estates.

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