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The Role of a Chapter 7 Trustee in a Business Bankruptcy

By Ullian Associates of The Law Firm of Ullian & Associates, P.C. on June 22, 2020

A Chapter 7 Trustee’s job in a business bankruptcy is twofold.  First, he or she must verify that the information in the bankruptcy documents filed by the Debtor, such as Statement of Financial Affairs and Schedules of Assets and Liabilities, is accurate.  The Trustee will do this by asking questions to the business owner (or the person with the most knowledge of the business’ financial information) at the 341/creditor’s meeting and by reviewing document such as bank statements, profit and loss statements, and tax returns.  Once the Trustee has a better understanding of the business, he or she may request additional documents such as credit card statements, leases, and payroll records.

The second part of the Trustee’s job is to liquidate any assets and maximize the bankruptcy estate in order to distribute funds to creditors.  The Trustee has many tools to work with to maximize the value of the assets.  The Trustee can seek to sell assets such as vehicles, inventory, furniture, and office equipment.  The Trustee can also seek to get money back that the business paid in certain circumstances.  For example, if the businesses owed its unsecured creditors $200,000.00 and 30 days before filing bankruptcy paid one creditor in full $30,000.00, but paid nothing to the remaining creditors.  The Trustee would seek return of the $30,000.00 as a preference, meaning the Debtor chose to give one creditor an advantage over the others.  The Trustee would then distribute the $30,000.00 evenly amongst the creditors.  The Trustee can also seek to void fraudulent transfers.  For example, George’s construction business, called George’s Builders, Inc. owns a pickup truck outright that George also uses for his own personal use.  George knows the truck is worth $15,000.00 and wants to keep it.  So before George’s Builders, Inc.’s bankruptcy filing George sold the truck to his brother for $1,000.00 knowing he will get it back from his brother after the bankruptcy ends.  George’s sale of the truck is a fraudulent transfer meant to hinder, delay or defraud, and the Trustee could undo the transfer and get the truck back to sell.  Additionally, if the business has any claims it could bring against a person or another business, the Trustee can pursue the lawsuit on behalf of the business.

If you are considering closing down your business and have questions about filing a Chapter 7 bankruptcy, give us a call to schedule your free consultation (in person, telephone or by Zoom) today.

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