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What does a trustee do in a chapter 7 case?

No matter where you live, federal courts oversee all bankruptcy cases according to rules established in the U.S. Bankruptcy Code. When you file a petition for chapter 7 bankruptcy in Mississippi, the federal trustee names another trustee to oversee the case and sell any nonexempt assets that you may have, according to U.S. courts procedures. The sale of such assets for the highest return is the central role of a trustee, and the trustee has broad powers to guard against fraudulent transfers of property to avoid creditor repayment.

In most chapter 7 cases for individuals, there are no assets. If this is the case in your bankruptcy, the trustee reports that to the courts, letting creditors with unsecured debt know there is nothing to allocate to them.

If your case does include assets, creditors have 90 days to file a claim with the court following the initial meeting of creditors. If one of the creditors is a government agency, however, it has 180 days in which to file. In cases where the trustee does recover assets at a later time, the court gives notice to creditors and sets a deadline for them to submit proof of claims.

When you file a bankruptcy petition, it creates a type of estate, which then has temporary ownership of your property, including any interests you have in property owned by another. For example, you may hold a minority share in a company or partnership. It is the trustee’s responsibility to sell that interest for the most money possible so it can be used to repay creditors. The trustee must do this with all nonexempt property of the petitioner.

The trustee also has something called “avoiding powers,” to use in recovering property or money. These powers give the trustee 90 days to set aside any transfers favoring certain creditors made up to 90 days before the bankruptcy filing. The trustee also can void property transfers and security interests made before the petition. In cases where the petitioner is a business, the trustee may be able to continue running the business temporarily if it aids creditors and adds to the value of the estate.

This article contains general information about chapter 7 bankruptcy. It is not meant to take the place of legal counsel.

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