Chapter 7 Bankruptcy Trustee Role In New York

When a Chapter 7 bankruptcy is filed in New York, the Executive Office of the United States Trustee appoints an impartial individual to administer the case; this person’s job is to administer the case and liquidate (sell) any property that cannot be claimed as exempt. This person is known as the Chapter 7 Bankruptcy Trustee and, though it is not required in the law that the person be a lawyer, every trustee in New York is one.

When a bankruptcy case is filed, something called an estate is created. That estate is comprised of all of the debtor’s property owned as of the date on which the case is filed. In fact, the estate becomes the temporary legal owner of all the debtor’s property. Property that is exempt is returned back to the debtor’s ownership, and non-exempt property is sold for the benefit of the creditors.

The trustee’s primary role, then, is to take the exempt property and abandon it and liquidate the nonexempt assets. He or she can set aside certain transfers of property or money, operate businesses owned by the debtor and otherwise maximize the “take.”

Once the nonexempt property is liquidated, he or she is in charge of paying out creditor claims according to their legal priority.

Let’s say you’ve got a house or a car … or anything that can’t be exempted in Chapter 7. The trustee will sell the property, pay out all the costs of sale (auctioneer, real estate broker, transfer taxes and the like). From that pot of money the creditors get paid according to their priority level. Once the priority debts get paid, any leftover money is divided proportionally among your general unsecured creditors such as credit cards, student loans, medical bills and other bills of that sort.

It’s all part of the orderly functioning of the bankruptcy process and, though the vast majority of Chapter 7 bankruptcy cases have no assets that can be liquidated, it’s a necessary function.