Chapter 7 Bankruptcy Process in Washington DC

Understanding the Role of a Trustee in Bankruptcy

After the petition is filed, the court appoints a trustee. Then, the bankruptcy clerk provides notice of the bankruptcy proceedings to all creditors provided by the debtor. The trustee is responsible for administering the case and liquidating the debtor’s non-exempt assets to pay off any debts owed. He/she has a duty to maximize the money paid to the debtor’s unsecured creditors by selling all non-exempt property at fair market value. The trustee has the power to recover money or property under the trustee’s “avoiding powers”. These powers enable the trustee to:

• Set aside preferential payments to creditors made within the 90 days before filing the bankruptcy petition
• Disregard security interests that were not properly perfected under state law when the petition was filed
• Pursue claims, such as fraudulent conveyance suits, as permitted under state law

Sometimes there are no assets for a trustee to liquidate because all of the debtor’s assets qualify as exempt property. In such instances, the trustee may exercise the trustee’s avoiding powers, or the trustee may simply file a “no asset” report with the court. In that case, any unsecured debts will be forgiven with no distribution to the creditors.

Meeting of the Creditors

Twenty to forty days after the debtor files the petition for bankruptcy, the trustee must hold a meeting of the creditors. During this meeting, the debtor must appear and answer, under oath, any questions regarding his or her assets and liabilities. Following the meeting of the creditors, the trustee controls all non-exempt assets and he/she can sell them as he/she sees fit.

Unsecured creditors have 90 days after the meeting of the creditors to file their claims with the court. However, if the case is a no asset case, creditors do not typically file their claims because there will be no distribution. If there are non-exempt assets, the trustee will distribute sale proceeds according to the six classes of claims detailed under §726 of the Bankruptcy Code. Under this scheme, each class of creditors must be paid in full before the next lower class is paid.