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The trustee and liquidation to unsecured creditors in Chapter 7

When financial challenges make it necessary to consider filing for bankruptcy in New York, the first step is to find out which option is best. Once that is done and a decision is made to move forward with a Chapter 7 bankruptcy, the first hurdle is taken care of. It can often be difficult to come to the final decision to file for bankruptcy and many will feel relief when they gather information about it and get the process going. However, there are many aspects that also need attention such as what the trustee does in the case when it comes to distributing assets.

Once there is a Chapter 7 filing, a case trustee will be appointed by the U.S. trustee. This is done to have an impartial administrator to handle the liquidation of assets that are not exempt. There are many different factors once this process starts. A debtor might have assets that are exempt or not subject to valid liens. If this is the case, then the trustee will make a filing of a "no asset" report. These assets will not be distributed to unsecured creditors. A large number of Chapter 7 bankruptcies filed by an individual are of this kind. It is possible, though, that there will be assets that are nonexempt.

With assets that are nonexempt, the unsecured creditors are able to file a claim. This must be done within 90 days of the initial meeting of the creditors. If it is a governmental unit, they will have twice that amount of time - 180 days - to file a claim. Generally, with Chapter 7, it is not necessary for creditors to make this filing because there will not be a distribution. It is possible that assets will be recovered later and these can be distributed to unsecured creditors. The creditors will be informed of this by the court so they can file proofs of claim.

Secured creditors do not have to file a proof of claim with this type of bankruptcy, but it is possible that there will be other reasons for there to be a proof of claim filed. The handling of assets, liquidation and how unsecured and secured creditors handle are some parts of a Chapter 7 bankruptcy. There is much more to consider. Those who are thinking about filing for Chapter 7 should have a grasp on the entire process with help from an experienced lawyer.

Source:, "Chapter 7 -- Bankruptcy Basics -- Role of the Case Trustee," accessed on Oct. 13, 2015

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