Chapter 7 Trustee

Immediately upon a business entity’s filing of a petition under chapter 7 of the Bankruptcy Code, the business entity becomes a “debtor” and its property becomes a chapter 7 “estate” in the custody of a chapter 7 trustee. The chapter 7 trustee is a lawyer or financial professional who has been selected on a rotating basis from a “panel” of chapter 7 trustees. The debtor’s former ownership and management are ousted from control. The chapter 7 trustee collects all assets of the debtor’s estate (which may include potential lawsuits against other parties, including special causes of action under the Bankruptcy Code) and administers it for the benefit of creditors.  Sometimes, the trustee hires lawyers to represent him or her in the case. Under Bankruptcy Code § 326, the chapter 7 trustee receives compensation capped as a percentage of the estate property that is realized and disbursed to creditors. Note: a chapter 7 trustee must be distinguished from a “chapter 11 trustee,” the U.S. Trustee, or the term “trustee” as used in the Bankruptcy Code to denote an entity that holds certain powers in administering the estate formed by the debtor’s property.