What does a bankruptcy trustee do?

In all Chapter 7 bankruptcy cases filed in Minnesota, a trustee is appointed by the Office of the U.S. Trustee to administer the case. The exact role that the trustee will play varies on a case-to-case basis, depending on whether there are assets available for liquidation.

Bankruptcy law allows a Chapter 7 debtor to exempt certain types of assets from the case. The debtor keeps these assets after discharge. The theory behind the exemptions is that bankruptcy should not leave the petitioner with nothing; it should put the petitioner in a position to begin again following discharge. Near the outset of a Chapter 7 case, therefore, the trustee examines the debtor's assets to see if any are non-exempt.

If there are non-exempt assets, it is the trustee's responsibility to arrange for their liquidation, and that individual handles the subsequent distribution of proceeds to any creditors who have filed claims against the bankruptcy estate as well. The trustee also oversees any meetings of creditors. In most Chapter 7 cases, though, there are few non-exempt assets.

A Chapter 7 bankruptcy trustee also has avoiding powers and may undo transactions and transfers involving the petitioner that occurred within 90 days prior to the filing of the petition. If the debtor is a business, the trustee has the power to operate the business on his or her behalf.

Each case is unique and the role of the trustee will vary based on the facts of the case. This blog post is meant as an introduction to the process and should not be read as legal advice. Those who have questions about the role of the trustee or bankruptcy generally may want to consult an attorney. A bankruptcy attorney may be able to assist with preparing and filing a Chapter 7 petition, for example, or during interactions with the case trustee.

Source: United States Courts, "Liquidation Under the Bankruptcy Code", October 09, 2014

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