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The responsibility of a trustee in Chapter 7

When someone files a Chapter 7 petition in Pennsylvania, a trustee will be appointed to administer the case. The trustee will liquidate the nonexempt assets that belonged to the debtor. If the debtor does not have any nonexempt assets, the trustee will likely file a no asset report with the court. In that event, no liquidation and distribution to unsecured creditors will take place.

When a Chapter 7 bankruptcy is filed, an estate is created, which becomes the legal owner of all property belonging to the debtor on a temporary basis. The estate is made up of any property in which the debtor has an equitable or legal interest. This includes property held or owned by someone else, if the debtor has an interest in the property. For example, a second home that the debtor co-owns with another person such as a friend or relative. The trustee has the responsibility to sell the non-exempt property of the debtor in such a way as to maximize the return to be distributed among the unsecured creditors who have filed a claim.

The majority of Chapter 7 bankruptcies filed by individuals are no asset cases. If the debtor does own non-exempt assets, then unsecured creditors have 90 days following the first date set for the meeting of creditors to file their claims. If a government entity wishes to file a claim against the debtor, it has 180 days from the day the bankruptcy was filed to file a claim.

There are many considerations that a debtor can evaluate when deciding whether to file for Chapter 7 bankruptcy, including the type of debt and the kind of assets that are involved. A bankruptcy lawyer can review a client's situation and offer advice regarding whether or not Chapter 7 is an appropriate form of debt relief.

Source: United States Courts, "How Chapter 7 Works", October 13, 2014

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