The Role of a Bankruptcy Trustee in the Chapter 7 Cases

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The Role of a Bankruptcy Trustee in the Chapter 7 Cases

Whenever a bankruptcy petition is filed in a court, a trustee is appointed to the case who has certain powers and responsibilities so as to make sure that the bankruptcy procedure is followed as intended. Before discussing the role of trustees in bankruptcy cases, it’s important to discuss the role of the United States Trustee. The Office of the U.S. Trustee is a part of the U.S. Department of Justice and has the responsibility to oversee the bankruptcy cases as well as to appoint, monitor & review the work of the assigned trustees (28 U.S.C. § 586). There are in total 21 regional U.S. Trustee offices in the country and an Executive Office for U.S. Trustees in Washington, DC.

The reason that the United States Trustee is important to your Chapter 7 bankruptcy case is that of many roles included, it also has the power to determine whether there is a substantial abuse of this Chapter by the debtor or not (11 U.S.C. § 707(b)). This will essentially determine whether you will be awarded relief under Chapter 7 or not. Apart from this, the United States Trustee can object to any excessive fees requested by the debtor’s attorney as well as has the power to take appropriate actions against illegal practices adopted by the bankruptcy petition preparers involved in the case.

Once a trustee is assigned to a bankruptcy case by the United States Trustee using the blind rotation method, his/her first role is to scrutinize and verify all the needed documents so as to make sure that the debtor is eligible under the filed Chapter (521. 11 U.S.C. § 704). This includes, in addition to relevant financial and other documents, credit counselling certificate (or waiver certificate) and the Means Test Calculation Form 22A (with Statement of Current Monthly Income). Through these documents, the case trustee ensures eligibility (including correct judicial district) and determines that no substantial abuse has taken place.

Around 30 days after the filing of the petition, a meeting known as the 341(a) meeting of creditors takes place in which the debtors are asked questions by the trustee as well as the creditors or any other party with a vested interest in the debtor’s assets (11 U.S.C. § 704 and 28 U.S.C. § 586) regarding the monthly income, assets, equity in the property, prior bankruptcy filing (if any), exemptions, etc. The case trustee is the presiding officer in this meeting and ensures that various laws relating to debtor’s identification, use of interpreters, administration of oath, questioning format & procedures, absence of debtor or his/her attorney, recording of meeting, etc. are followed diligently.

In most chapter 7 bankruptcy cases there is no (or negligible) non-exempt property left that could be distributed to the creditors; however, if there are non-exempt assets available, then the trustee has the responsibility to distribute them among the creditors according to the law. Also, the Bankruptcy Code sections 544 till 553 provide trustees avoidance powers that could be used to avoid those property transfers by the debtors that are done with unreasonable & unfounded motives.