Chapter 7 Bankruptcy Trustee Attributions

Most people typically think in terms of chapter 7 personal bankruptcy when they think pf bankruptcy. Also, there has to be kept in mind that most of a bankrupt person’s debts are cancelled under a chapter 7 bankruptcy. But, in order for his/her debts to be canceled, the debtor may be required to surrender items of property.

A two-part test is applied to determine if a debtor qualifies for chapter 7 bankruptcy, under amendments to bankruptcy law, effective October, 2005.

The two parts comprising the test are:determination of ability to repay, and comparison to state median income. In order to determine if the debtor will be able to repay 25% of his or her “non-priority unsecured debt”, the debtor’s income is examined under a formula which exempts certain necessary expenses.

Then, the debtor’s income is practically being compared to the median state income. An important aspect which has to be taken into consideration is being represented by the fact that the debtor will be ineligible for Chapter 7 protection and must proceed under chapter 13, if he/she earns in excess of the state median income, and is able to repay 25% of his or her “non-priority unsecured debt”. Also, there has to be kept in mind that a chapter 7 bankruptcy trustee appoints an impartial case trustee to administer the case and liquidate the debtor’s nonexempt assets, when a chapter 7 petition is being filed.

The chapter 7 bankruptcy trustee will normally file a “no asset” report with the court, if all the debtor’s assets are exempt or subject to valid liens. Therefore, there will practically be no distribution to unsecured creditors. It is important as well to be considered that most chapter 7 cases involving individual debtors are no asset cases.

To liquidate the debtor’s nonexempt assets in a manner that maximizes the return to the debtor’s unsecured creditors is mainly the primary role of a chapter 7 bankruptcy trustee in an asset case. By selling the debtor’s property if it is free and clear of liens, the chapter 7 bankruptcy trustee accomplishes to liquidate the debtor’s nonexempt assets.