A Closer Look at Chapter 7 Bankruptcy Trustee Responsibilities

Chapter 7 of the United States Code provides an order of financial protection which triggers an automatic stay. This means all creditors and collectors are prohibited from pursuing a debtor or debtors property outside of the Bankruptcy proceeding. This is especially important if a foreclosure notice has been issued.
Chapter 7 Bankruptcy is also known as a liquidation proceeding because the Trustee gathers and sells nonexempt assets and then distributes the proceeds to the creditors in accordance with the provisions of the code. Debtors are permitted to retain certain exempt property but all remaining assets are liquidated by the Trustee.
When the petition is filed, the Trustee is appointed by the United States Trustee. This person should be "disinterested" in the case meaning they have no personal or financial ties or interest. Typically, most chapter 7 cases involving individual debtors are "no asset" cases so there will be no distribution to unsecured creditors. If the case appears to be an "asset" case at the outset, unsecured creditors who have claims against the debtor must file their claims with the clerk of court within 90 days after the first date set for the meeting of creditors.
The primary role of a chapter 7 Bankruptcy trustee in an "asset" case is to liquidate your non-exempt assets in a manner that maximizes the return to your unsecured creditors. To accomplish this, the trustee attempts to liquidate your non-exempt property, i.e., property that you own free and clear of liens and the property which has market value above the amount of any security interest or lien and any exemption that you hold in the property.
Although secured creditors are not required to file proofs of claim in chapter 7 cases in order to preserve their security interests or liens, there may be circumstances when it is desirable to do so. A creditor in a chapter 7 case who has a lien on property should consult an attorney for advice.
Their avoiding powers include:
The power to set aside preferential transfers made to creditors within 90 days before the power to undo security interests and other pre-petition transfers of property that were not properly perfected under different law at the time of the power to pursue claims that may not have been included such as fraudulent conveyance and bulk transfer remedies available under state law.
In addition, if you own a business and file for Bankruptcy protection, the court may authorize the trustee to operate your business for a limited period of time, but only if such operation will benefit the creditors of the estate and enhance the liquidation of the estate.

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