The U.S. Bankruptcy Code is the main source of law governing bankruptcy cases in the United States. Bankruptcy is a legal process that typically entails restructuring and eliminating some of a person’s debts.

There are many different chapters of bankruptcy that a person can file for, but most personal bankruptcy cases (i.e., when a person files for bankruptcy due to personal reasons, as opposed to a business) are classified and filed as a Chapter 7 or Chapter 13 bankruptcy.

Generally speaking, Chapter 7 bankruptcy is the more common of the two types of personal bankruptcy petitions. It is usually reserved for persons who have incurred a high level of unsecured debt, but have a low income and need to find a fast form of relief. However, not everyone will qualify simply based on these reasons alone. An individual will have to undergo a series of steps first in order to qualify for Chapter 7 bankruptcy.

Part of those steps will involve completing a required counseling session with a verified credit agency and attending a mandatory 341 meeting of the creditors, which is held at the local bankruptcy court nearest to where a bankruptcy petitioner resides. The court clerk will notify the petitioner with details about this meeting after they file their paperwork to initiate their Chapter 7 bankruptcy case.

At the 341 meeting of the creditors, the petitioner will be placed under oath by a party known as a “Chapter 7 bankruptcy trustee”. A Chapter 7 bankruptcy trustee is an individual who is assigned by the bankruptcy court to administer and oversee certain matters in a Chapter 7 bankruptcy case. The trustee often acts as a mediator or middleman between the petitioner and creditors. In some cases, a trustee may be assigned by the creditors instead of the court.

If you need assistance with filing for Chapter 7 bankruptcy or would like to learn more about the role of a Chapter 7 bankruptcy trustee, you should speak to a local bankruptcy lawyer for further advice on the matter.

What Actions Do Chapter 7 Trustees Perform?

A Chapter 7 trustee is generally responsible for overseeing and administering a Chapter 7 bankruptcy case. This means they may handle everything from verifying a debtor’s identity to answering questions a debtor may have about their case. They also need to ensure that a debtor thoroughly understands the consequences of declaring bankruptcy.

Some other tasks that a Chapter 7 bankruptcy trustee may be required to perform include:

  • Reviewing the bankruptcy petition and any related legal documents that were filed along with it;
  • Questioning the person who filed for bankruptcy under oath at the mandatory 341 meeting of the creditors;
  • Checking that nothing within the bankruptcy filings or answers during the 341 meeting involved fraud or misrepresentation;
  • Liquidating any nonexempt property or assets that belong to a debtor and can be seized or sold off to reduce their debts; and
  • Distributing the proceeds from the sale to creditors or lenders.

In sum, a Chapter 7 bankruptcy trustee’s primary role is to help sell off a debtor’s property and assets to reduce the amount of debt they still owe. This means that the trustee will assist with overseeing, identifying, cataloging, and selling off whichever property or assets a debtor has allocated for the liquidation process. A trustee will also manage any income generated by the sale of those items and restructure them so that they may be distributed to the rightful creditors.

Can Bankruptcy Trustees Be Held Liable for Violations?

In general, bankruptcy trustees are usually immune from personal liability due to the swift manner in which they need to issue decisions based on what might not be a complete picture of a debtor’s situation. However, although it does not happen very often, a bankruptcy trustee can be held liable for violating their fiduciary duties.

In general, there are three main ways this can happen:

  • First, a court may find a Chapter 7 trustee in violation of the law if they intentionally breach the fiduciary duties they have to the bankruptcy court, as well as to the parties in the case (i.e., the creditors and petitioner).
  • Second, a trustee may be held liable if the court finds their actions amounted to a negligent breach of those duties, as opposed to an intentional breach.
  • Third, and finally, a Chapter 7 trustee may also be in breach of these duties when a court finds they have been grossly negligent in performing their fiduciary duties.

If the trustee is found to be in violation of the law based on any of the above reasons, they can be held liable for any losses incurred by either or both of the parties to the case. For instance, if a Chapter 7 trustee keeps any of the money they receive after selling a debtor’s property or assets for their own personal gain, then they can be held criminally liable and may be sued by the parties in civil court to recoup the misappropriated or stolen funds.

Another example of a fiduciary duty that a Chapter 7 bankruptcy trustee may be held liable for is if the court finds they have misrepresented the amount that a debtor actually made from a sale or if they withheld some of the funds that needed to be allocated to a creditor.

Additionally, a trustee may be held in violation if they commit bankruptcy fraud, abuse their position, and/or have made an egregious error in managing a Chapter 7 bankruptcy case.

Do I Need a Lawyer for Help with Chapter 7 Trustee Issues?

Declaring Chapter 7 bankruptcy can be stressful enough on its own without having to worry about any potential side issues that arise. However, when you couple the complications and stress associated with a standard Chapter 7 bankruptcy filing, along with the added pressure of experiencing issues with the Chapter 7 trustee assigned to your case, the situation can feel utterly overwhelming.

To avoid having to deal with these pressures on your own, you should consider hiring a local bankruptcy lawyer if you find you are having problems with the Chapter 7 trustee assigned to your case. A qualified bankruptcy lawyer will not only be able to assist you with the Chapter 7 filing process, but can also help you resolve any issues you may be having with creditors as well as a Chapter 7 trustee.

Your lawyer will be able to explain how a Chapter 7 bankruptcy works, your duties under the law, and the role that a Chapter 7 trustee plays in your case. Your lawyer will also be able to determine if a particular trustee stepped over the line and violated their legal obligations.

If so, your lawyer can discuss what your options are for legal recourse and can request that the bankruptcy court assign a new trustee to oversee the remainder of your Chapter 7 bankruptcy case. In addition, your lawyer can accompany you to your 341 meeting to ensure that the meeting and other attendees are following a process that comports with the law.

Finally, your lawyer can also make sure that filing for Chapter 7 bankruptcy is the appropriate chapter of bankruptcy to file for based on your needs as well as can represent you at any bankruptcy proceedings related to your case and held in bankruptcy court.