Minnesota Chapter 7 Bankruptcy: The Trustee in Action

More Chapter 7 bankruptcy petitions are filed than any other type of bankruptcy proceedings. Additionally, more individual consumers file bankruptcy cases than businesses. Roughly seventy percent of bankruptcy filings are Chapter 7 petitions filed by individual consumers.

Power of the United States Trustee

In Chapter 7 cases, the United States Trustee litigates issues that affect the integrity of the bankruptcy system. For example, the United States Trustee might:

  • Argue that granting the debtor a bankruptcy discharge would constitute a “substantial abuse” of the bankruptcy process.
  • Object to excessive fees requested by the debtor’s attorney.
  • Take action against unlawful practices by bankruptcy petition preparers–generally, non-lawyers who receive a fee to prepare a consumer debtor’s bankruptcy papers.

The United States Trustee also appoints and supervises the Chapter 7 trustees who administer consumer debtors’ bankruptcy estates.

Power of the Chapter 7 Trustee

The Chapter 7 trustee is charged with the task of ensuring that the debtor is complying with the rules and being honest throughout the process. If not, the trustee may seek a discharge of the debtor’s bankruptcy case. The trustee is also charged with the task of holding the creditor’s meeting.

In most Chapter 7 cases, no assets are available for distribution to creditors. However, if a Chapter 7 debtor has property that is not exempt from creditors’ reach under state or federal law, the trustee liquidates the property that is not exempt. In other words, the trustee may sell that property and distribute the money to creditors. For this reason, Chapter 7 bankruptcy cases are often referred to as liquidation bankruptcies.

After liquidation, the trustee repays creditors of the debtor with any proceeds of the sale. If the debtor has no nonexempt assets there will be no liquidation and no money to repay any of the creditors of the debtor.

Ultimately, an individual debtor’s dischargeable debts are wiped clear and creditors are not allowed to attempt to collect those debts from the debtor any longer. Not all of a debtor’s debts may be dischargeable. The main type of dischargeable debt is credit card debt, although many other types of debts are dischargeable. The main types of nondischargeable debts include certain debts to the government, such as taxes and student loans.

The Panel

The United States Trustee appoints each Chapter 7 trustee to a panel for up to one year, renewable at the United States Trustee’s discretion; these “panel trustees” are then assigned to Chapter 7 cases on a blind rotation basis. The United States Trustee supervises the panel trustees’ administration of individual debtor estates; monitors the trustees’ financial record-keeping; and imposes other requirements to ensure that the trustees carry out their fiduciary duties.