The track from filing bankruptcy to getting a Chapter 7 discharge is generally short and straightforward. It takes about 4 months from filing to discharge in most cases.
The Chapter 7 trustee isn’t limited to that window in which to do his work. The administration of a bankruptcy case can sometimes take years.
Think of your journey to a discharge as running on a parallel track with the trustee’s job, not the same track.
What the bankruptcy trustee does
Most individual bankruptcy cases are “no asset” cases. That means that the trustee does not distribute anything to creditors because everything the debtor has is either exempt or of insignificant value.
In a no asset case, the trustee’s entire job is to review the bankruptcy papers and conduct the first meeting of creditors.
Unless the testimony at the first meeting of creditors turns up some unlisted asset or transfer that might be avoided, the trustee submits his report and closes the administration of the case. That might well be before the debtor gets a discharge.
Asset cases are different
The bankruptcy trustee has as long as he needs to evaluate and recover assets for the benefit of creditors. What he is tasked to do has little to do with the discharge, and lots to do with gathering funds from which he and creditors can be paid.
If there is litigation pending in which the estate has an interest or pre filing transfers that are recoverable, the trustee may have months or years worth of work.
Or, his work may be no more onerous than waiting for the debtor to receive a tax refund.
The debtor has an ongoing obligation to cooperate with the trustee. Usually that means providing documents or turning over funds as requested.
Egregious failure to cooperate can result in the revocation of the discharge.
How the trustee gets paid
A fraction of the bankruptcy filing fee goes to the trustee in every Chapter 7. Beyond that $65, the trustee gets paid only from any assets that he distributes to creditors.
The trustee’s commission is a percentage of the funds distributed, starting at 25% of the first $5000, and settling at 3% of amounts over $1,000,000.
So, the trustee is motivated to collect as much as he can. The time value of money is also a factor: the trustee doesn’t get paid til the case is closed. His self interest suggests he work as quickly as possible.
Chances are, you’ll have your discharge and being working on a fresh start long before the trustee sees a dime, even if your case had some assets to administer.
When you want to pay creditors
Image courtesy of Flickr and Anna L. Martin.