What you should know about the bankruptcy trustee’s role in Chapter 7 cases

When someone files a Chapter 7 bankruptcy, a trustee is appointed to administer the bankruptcy estate. Understanding the chapter 7 trustee’s role in bankruptcy can help individuals prepare for the process and know what to expect.

Here is a brief overview of the trustee’s role in Chapter 7 bankruptcy.

A quick note

Every individual in New Mexico has a different financial situation. Therefore, their experience in bankruptcy will be different as well. So, it is critical to note that the trustee’s responsibilities vary by the chapter of the filing, as well as each individual case.

This post only outlines some of the most basic and essential duties that trustees have in the Chapter 7 bankruptcy process.

1. They review and confirm the bankruptcy petition is accurate

It is the trustee’s job to confirm that the individual filed their petition accurately and that they were truthful and listed all of their assets and debts. It is often necessary for individuals to provide the trustee with proof for some of the information they include in their petition.

So, an individual might have to provide a trustee with proof of:

  • Their identification (a photo ID and Social Security card)
  • Their income
  • The ownership of their property
  • Documentation for qualified retirement accounts
  • Tax returns

The trustee also reviews this information at the first meeting of creditors, also called the 341 meeting. The trustee officiates this meeting and determines whether the individual can move forward with their bankruptcy.

2. They collect and sell any non-exempt property of the bankruptcy estate

In Chapter 7 bankruptcy, one of the trustee’s primary concerns is the bankruptcy estate. During the bankruptcy process, the trustee supervises:

  • The collection of non-exempt property in the bankruptcy estate
  • The sale of this property and the collection of funds
  • The fair distribution of those funds to the creditors listed on the bankruptcy petition
  • Recovery of any assets from 3rd parties, such a “preference” payments made to creditors within the 90 days prior to filing bankruptcy or pursing claims against 3rd parties that the debtor could have pursued such as personal injury claims

Individuals might disagree on what property is exempt and what property is not. The trustee does not hold all of the power to determine this. Individuals have a right to dispute a trustee’s decision and take the dispute to the judge to determine if the asset in question is exempt.  It is worth noting that in New Mexico, most cases are “no-asset” cases, meaning that no property is sold by the trustee.  If a debtor might lose assets that they want to keep in chapter 7, chapter 13 may be a better option.

3. They challenge any improper creditor’s claims

Trustees work with the petitioner, not against them. So, it is also the trustee’s responsibility to handle any creditor claims against the individual’s bankruptcy.

They challenge the claims on behalf of the individual, to make sure they stay on track to debt relief.