The trustee in a Chapter 7 bankruptcy case has a tremendous amount of power over you. The Chapter 7 trustee is charged with the duty of making sure that any asset that can be seized from you is seized and sold and the monies are distributed to the general unsecured creditors who have followed the rules regarding how to apply for a distribution. The Chapter 7 bankruptcy trustee can also pursue claims on your behalf. For example, if you have a breach of contract claim or a personal injury claim, the Chapter 7 trustee can pursue the party that wronged you, pull that money into the bankruptcy case, and distribute that money to the unsecured creditors in your case – after paying himself a commission on the sliding scale set forth in the bankruptcy laws.
Another example, and this is one that debtors often fall into as a trap, is when the debtor repaid within the last year debts owed to family members. Oftentimes, a person who is contemplating filing a Chapter 7 bankruptcy will pay off all debts owed to family members, because the person does not want to erase the debt in the bankruptcy case. But the law is written in such a way that this understandable behavior is impermissible. All creditors are required to be treated alike. Your sweet grandmother who loaned you part of her life savings is looked at by our cold, harsh legal system as no different than a debt owed to a major multi-national bank.
Of course, the banks lobbied hard many decades ago to make sure that individuals are not allowed to pay off their family members before they get paid off – if a bankruptcy case is filed within the relevant time period. In this example, the Chapter 7 bankruptcy trustee would sue your sweet grandmother and force her to repay the court the money that you sent to her within a year prior to your bankruptcy case in order to pay off the loan she had made to you. The bankruptcy trustee will then take that money, pay himself a commission, and distribute the rest to all the creditors pro rata – even the big, cold, uncaring banks get to enjoy some of the grandma’s money.
The trustee in a Chapter 7 bankruptcy case does have lots of power. The trustee can hire an attorney to pursue claims. The trustee can hire an attorney to take depositions, issue subpoenas, and file lawsuits. The trustee can demand that you turn over various documents and if you don’t do so, you can face severe penalties and even criminal action. The trustee is not your friend. Although many trustees are reasonable people who really have no interest in making your life miserable, if your case has issues that need to be addressed by the trustee, the trustee must address those issues or the trustee himself can be sued by the unsecured creditors for not pursuing reasonably available claims and assets.
There are a few trustees who seem to take pleasure in making debtors squirm. It is important to have a competent, experienced bankruptcy attorney on your side. At Thomas Law Office, we will safely guide you through the bankruptcy process and advocate for you against the trustee so that your interests are best protected if it is legally possible to do so.
What is The Process A Chapter 7 Trustee Follows To Sell A Debtor’s Home?
When a person files a Chapter 7 bankruptcy, he usually does not lose his home, at least in Arizona. The reason is that most people do not have enough equity in their property. In order to lose your home, you need to have over $150,000 in equity in your property. If you do have too much equity in your home (and provided that your home is where you reside, because if you don’t reside there you cannot take advantage of Arizona’s homestead exemption), the trustee will have to sell the property. The property will be placed for sale with an agent.
The trustee, who is the person who oversees your case on behalf of your unsecured creditors, will first petition the bankruptcy judge for permission to hire an agent to sell your home. Your home will be placed for sale and sold for the highest possible price. After the property is sold, the trustee must first pay any and all mortgages on the property. After any and all mortgages are sold on the property, the trustee will pay the realtor’s commission. After paying the realtor’s commission, the trustee will then pay you your $150,000 exemption amount, which you can use to purchase another property or use as you see fit. After distributing the money to you, the trustee then pays himself a commission of ten percent of the remaining portion.
After paying himself his commission (which will need to be approved by the judge in a separate document filed with the court), the trustee will review the documents received from all of the creditors who have requested a portion of the proceeds. The trustee may reject some of the creditors’ requests (called “proofs of claims”) because of insufficient documentation or the availability of legal defenses to those claims. Finally, the trustee will generate a report showing how much each creditor will receive. This report is mailed to everyone in the case, and each will have an opportunity to object to the proposed payout to the unsecured creditor class. If there are no objections, the funds are distributed and the case is over.
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