When a Chapter 7 petition is filed, a bankruptcy trustee is assigned to oversee the case. This person plays a major role in the administration of case, which role is discussed in more detail here.
Although this person is court-appointed, he or she is not actually an employee of the court. Most are lawyers who maintain their own legal practices. They receive compensation for their services rendered in a Chapter 7 case in two ways. One, they are paid a flat fee for every bankruptcy case they oversee. This flat fee is paid by debtors, in that it is included in the filing fee for opening a new case. Second, if any nonexempt assets are administered or liquidated, they receive a commission based on the amount disbursed to unsecured creditors.
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For these payments, bankruptcy trustees must perform several duties, including the following three:
1. Review Documents
When a person files Chapter 7, there are several documents that must be submitted to the Court. The bankruptcy trustee will review these documents in detail, verifying that they are completed properly. If any discrepancies are discovered, he or she will investigate. Depending on the type of issue uncovered in the investigation, he or she may be required to report the problem to the court, or even to other federal agencies, such as the U.S. Department of Justice.
2. Conduct Section 341 Meeting of Creditors
Every person who files Chapter 7 must attend a Meeting of Creditors. Notice of this hearing is sent to all creditors listed on the schedules, so that they are given the opportunity to question the debtor in person and under oath. Creditors rarely attend this hearing. However, the bankruptcy trustee will preside over this meeting, and will question the debtor regarding the accuracy and completeness of the documents filed in the case. This line of questioning will occur whether or not creditors are present. He or she will also verify the identity and Social Security number or tax identification number of the debtor.
3. Administer Nonexempt Assets to Pay Creditors
In a Chapter 7 bankruptcy, debtors are allowed to keep certain assets. These assets are defined by state law, and are known as exemptions. If a debtor has assets that exceed their exemption amounts, the bankruptcy trustee may liquidate these assets to pay creditors. Sometimes this is as simple as requiring the person to turn over funds in a bank account. Other times, it may be more complicated, such as hiring an auctioneer to sell personal property and real estate.
This list is by no means all-inclusive, but it should give you an idea of the integral role played by this person in a Chapter 7 proceeding.
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