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What is a "trustee" in a Chapter 7 bankruptcy?

The economic downturn of 2008 hit many Long Islanders and other New York residents hard. The economic slowdown affected the ability of businesses to hire more staff, leading to higher unemployment. This, in turn, led to people having less money to spend, which continued to result in lower business earnings.

While times have gotten a bit better, many individuals who found themselves jobless, even for a short time, may have racked up debts that they found impossible to pay. For these individuals, a Chapter 7 bankruptcy may be an option to discharge their debts.

One of the key aspects of a Chapter 7 bankruptcy is that a "trustee" (sometimes, called a "panel trustee") will be appointed to oversee the case. While the U.S. Department of Justice appoints them, the government does not employ such trustees. Instead, they are private citizens who have been vetted by the department and are available to serve in bankruptcy cases.

When a Chapter 7 bankruptcy is filed, an interim trustee will be appointed, and will become the permanent trustee, if no other is appointed during a proceeding known as a "section 341 hearing."

The trustee's role is to administer all the non-exempt assets of the debtor who has filed for bankruptcy. And, to ensure that all applicable laws and rules have been followed with regard to reporting and classification of assets, notice to creditors and the like. The trustee will also determine the order in which creditors will receive any payments owing from the liquidation of the debtor's assets, and once such payments are made, will request a discharge of the bankruptcy from the court.

Chapter 7 bankruptcies can be a way for Long Island residents to get a new start financially, but will not always be the best option. Because every case has different circumstances, it may be in a debtor's best interest to consider consulting with an experienced debt-relief attorney before deciding how to proceed.

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