The Progression of an Asset Case
The primary role of a Chapter 7 trustee in an asset case is to liquidate assets, where possible, to pay the debtor's creditors. The trustee accomplishes this either by selling the debtor's property or pursuing litigation, often against the debtor's creditors or other third-parties. The trustee may hire a lawyer, real estate agent, auctioneer or other professional to assist in the liquidation process. Depending on the type of asset involved, it may take years for the trustee to administer the case, especially if litigation is required.
At some point during the administration of an asset case, the trustee will file a Notice of Possible Dividends with the court, prompting the court to instruct creditors of their opportunity to file claims by a stated deadline. Distribution of monies (payment of claims) is dictated by the Bankruptcy Code, but the trustee must review the filed claims to determine which creditors are entitled to be paid a dividend and in what priority (order). The trustee may file objections to claims prior to preparing a final report.
Once all property has been liquidated and converted to money, it takes approximately 9-12 months for the trustee to finalize the administration of the case. Shortly after the liquidation of all property, the trustee's professionals (if any) will file a request to be paid their fees and expenses. Typically, the trustee's attorney and possibly accountant will file fee applications. The money requested is money that will be paid from any funds the trustee has on hand, and not by the debtor.
After payment of the trustee's professionals (if any), the trustee can begin the process of distributing monies. Prior to any distribution, the trustee prepares a Trustee's Final Report ("TFR") and emails that report to the Office of the U.S. Trustee for its review. The TFR is a report of all monies received by the trustee, and all claims filed, and a list of proposed payments, including proposed payments to the trustee for her fees and expenses. Again, these are all to be paid from the money on hand, and not from the debtor.
The U.S. Trustee must review the report before it is filed with the court, a process which takes approximately 30-90 days. After the U.S. Trustee has reviewed the TFR and filed it with the court, the report is mailed to all creditors and parties in interest, including the debtor, all of whom have 30 days to respond or object to the TFR, if desired. Once the 30 day period to object or respond has passed, the court may enter an order approving the TFR, which allows the trustee to pay the dividends to creditors as proposed in the TFR. (Note that some courts did not issue an order; the trustee may simply pay dividends once the objection period has passed.)
The trustee must wait for all dividend checks to be processed (clear the bank). This may take as long as 90 days. After all checks have been negotiated, the trustee prepares a Trustee's Distribution Report ("TDR"), In the TDR, the trustee confirms that the proposed payments listed in the TFR have been made. The U.S. Trustee must also review this report, generally a 30 day process, and file it with the court. The asset case will close approximately 30 days after the TDR is filed with the court, unless a matter unrelated to the trustee's administration of the case (such as a creditor suing the debtor) keeps the case active.
