Chapter 7 Bankruptcy Trustee
Distribution of Nonexempt Assets to Creditors
Section 11 of "The Chapter 7 Bankruptcy Process"
The trustee assigned to a Chapter 7 bankruptcy case is responsible for liquidating any nonexempt assets. If he or she determines the case is an "asset" case, the trustee will proceed with the liquidation process.
Although the debtor's participation in the bankruptcy liquidation process is minimal, it can be a major source of concern and confusion. The case can drag out for months, and sometimes even years, as the Chapter 7 bankruptcy trustee works to liquidate assets and distribute payment to creditors. To add to the confusion, the debtor will likely receive written notices when the trustee takes certain actions.
The liquidation process varies from case to case, but there are a few key things that happen. Following is a basic outline of the steps taken by a bankruptcy trustee in a standard Chapter 7 liquidation:
1. The Chapter 7 bankruptcy trustee will demand turnover of nonexempt asset(s).
After the commencement of the bankruptcy case, the trustee assigned to the case may demand turnover of certain assets. This is explained in more detail in the previous section of this article.
2. The Chapter 7 bankruptcy trustee will file an inventory and request for notice with the Court.
After the trustee makes a determination that assets will be liquidated for the bankruptcy estate, he or she will file a document with the Court listing the potential assets and requesting that the bankruptcy clerk notify creditors and set a claim deadline.
3. The bankruptcy clerk's office will mail a proof of claim form to all entities listed on the creditor matrix and set a claim deadline.
Creditors must complete a proof of claim form and return it to the Court by the deadline to be eligible to receive any distributions from the liquidated assets. Click here to view a sample proof of claim form.
4. The Chapter 7 bankruptcy trustee will review claims.
After the claims bar deadline expires, the trustee will review all proofs of claim filed in the case. If the trustee determines a claim is insufficient or incorrect, he or she will either request additional documentation from the creditor or file an objection.
After all proof of claim issues have been resolved, the bankruptcy trustee will file a document with the Court listing allowed claims.
5. The trustee will file an application for compensation.
A Chapter 7 bankruptcy trustee receives a commission based on the amount of money collected for the bankruptcy estate. In order to be paid this commission, the bankruptcy trustee must file an application for approval requesting that the Court enter an order allowing the payment. The commission is paid from the bankruptcy estate's account.
When the case is closed, the bankruptcy trustee also receives a portion of the Chapter 7 bankruptcy filing fee. This amount is paid regardless of whether any bankruptcy assets were liquidated.
6. The Chapter 7 bankruptcy trustee will file a final report.
The trustee must prepare and file a final report before final distribution to creditors can be made. Among other requirements, the final report lists how the trustee plans to disburse funds. In most circumstances, the trustee must provide a summary of the final report to creditors and set a deadline for any objections.
7. The trustee will distribute bankruptcy estate funds.
If no objections to the final report are filed, the bankruptcy trustee will proceed with distributing funds to creditors based on the allocation included in the final report.
8. The Chapter 7 bankruptcy trustee will file a final account.
After all bankruptcy estate funds have been disbursed and the checks have cleared, the trustee will file a final account. This is usually the last action taken before the case is closed.
9. Other pleadings.
In addition to the above, the bankruptcy trustee may also file other pleadings based on the individual circumstances of each case and local rules. Common examples include:
- applications to employ professionals (i.e. realtors, auctioneers, accountants, lawyers)
- motions to sell assets (by auction, private sale, etc.)
- motions to compel
- preference complaints
As always, if you have any questions or concerns, contact your attorney.
This page is Section 11 of the following 13-part article:
- Introduction to Chapter 7 Bankruptcy
- Investigate Alternatives
- Attend Pre-Bankruptcy Credit Counseling
- Select an Attorney
- Attend Initial Consultation
- Complete Bankruptcy Questionnaire
- Finalize and Sign Bankruptcy Documents for Filing with Court
- Prepare for and Attend Section 341 Meeting of Creditors
- Attend Pre-Discharge Bankruptcy Education Course
- Turn Over Nonexempt Assets to Case Trustee
- Distribution of Nonexempt Assets to Creditors
- Receive Discharge
- Order Closing Case
       
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