Understanding the Chapter 7 Bankruptcy Trustee

Chapter 7 bankruptcy trustee


If you file for Chapter 7 bankruptcy, you will probably never sit in a courtroom, or appear before a judge.  Oh, you’ll have a judge, you just won’t ever meet them.  The only person, aside from your attorney, you will ever meet is likely to be your bankruptcy trustee.

At the outset, you should know that most chapter 7 trustees are not government employees.  You can think of them more like contractors.  They get appointed to cases randomly, and their job is two-fold: they ensure that you are eligible for relief and not attempting any fraud on your creditors of the Court, and they examine your assets to see if there is anything to distribute to your creditors.

One of the best ways to explain their motivation is to examine how they get paid.  Trustees receive a small flat fee (in our district, $60) for each case they administer.  They also receive a “cut” of any assets they liquidate, based on a complex compensation scheme.  Most trustees I know tell me that they don’t make any money on “no-asset” cases, which are cases in which they simply get the standard fee.  Their real compensation comes off high-value, complex cases in which they administer assets.

After your case is filed, the trustee is randomly assigned.  The first contact with them will generally come from your attorney, who is required to turn over certain documents in advance of the Meeting of Creditors.  That meeting will be the first time you meet the trustee. I have previously written about this meeting, click the link to read more about it.

When I explain chapter 7 bankruptcy to potential clients, I often use the analogy of a “snapshot.”  That is because we examine a snapshot of your financial situation, both assets and debts, on the date your case is filed.  You can think of the trustee as your photographer (see, now the image makes sense).  They are the ones actually looking at the situation and assessing the state of your finances on the date you filed your case.

It is also important to remember that the trustee is NOT an adversary.  In fact, as a debtor you and your attorney have a duty to cooperate with them.  That is not to say we don’t fight with trustees- we often do!- but most of the time the situation speaks for itself, and the debtors know exactly what to expect.

This is also one part of the bankruptcy process in which it helps to have an experienced attorney.  A good attorney who practices in the district will have a good working relationship with all of the trustees, and can help the case administration go much more smoothly.  The importance of trust and rapport between your attorney and the trustee cannot be overstated.  One long-serving trustee told me that the single most important thing on any bankruptcy petition she examines is the name of the attorney preparing the documents.

Bankruptcy trustees are not judges; often, they are not even attorneys.  They are appointed administrators, and their job is to examine your case, make sure no funny business is going on, and see if there are any non-exempt assets they can liquidate.  They are also real people, and most are reasonable and easy to work with.  They are not your enemy in the bankruptcy process, and you certainly should not be afraid to meet them.



Assets, Hidden in Plain Sight

hidden assets property bankruptcy


Almost every discussion about your financial situation boils down to two important questions:  what do you own, and what do you owe?  While most of us can answer the second question fairly easily (with a little help from a credit report), I am yet to see anybody make a comprehensive list of their assets- the stuff they own- on the first try.

The reason for this is that some assets are obvious- money in your bank account, valuable coin collections, vehicles, real estate- and others are not.  For example, if you have written a story, or invented a process or product, or have a catchy trade-name used in the community, those are assets.  Specifically, those are “intellectual property,” and while it is difficult to figure out how much they are worth, they are worth something.

“The right to sue” is another oft-overlooked asset.  If you can sue somebody, that right has value, and can even (in some situations) be sold.  It definitely can be settled!

Accounts receivable, future tax refunds, and earned but unpaid wages (the money you have already earned, but haven’t yet gotten a check for) are also usually forgotten by my asset-listing clients.  In many states, like California, your vacation time is an asset, since it has cash value.

Knowing how to identify your assets in a comprehensive, detailed way is important in several contexts.  When you are looking to settle debts or assess your net worth, overlooking assets may mean missing opportunities.  When crafting an estate plan, you want to account for all things of value, or else they may be left out of your trust or will.  Finally, when filing a bankruptcy or responding to a judgment debtor’s examination, you need to be complete when listing things that you own.

This is one area where practicing consumer debt law has taught me a thing or two.  “Assets” includes not just the things we see and the things we have, but dozens of different categories of rights, items, and even ideas that, while not obvious, definitely have value.