How Long Can a Trustee Take My Assets in a Chapter 7 Bankruptcy?

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How Long Can a Trustee Take My Assets in a Chapter 7 Bankruptcy?

Trustee Wants Money Owed By My Ex Long After My Discharge!

A nice lady in Tennessee asked me a question.   She was in a bankruptcy case, I assume a Chapter 7.   She received her discharge of debts over three years ago.    Now suddenly her bankruptcy trustee has stepped back in and demanded certain payments owed from her ex-husband pursuant to a divorce settlement be paid to the Trustee.

Imagine her surprise!  How did this happen?

In the above woman’s case, long before filing her bankruptcy case she had an agreement as part of her divorce decree that her ex-husband was going to repay her for a loan she made to him during the marriage, but he didn’t need to start repaying it until 6 years later.

Two years after she made that agreement, she filed a Chapter 7 bankruptcy case.

She received her discharge a few months later, and thought everything was finished.  Then, over 3 years later when her ex-husband’s payments were supposed to start, her bankruptcy trustee stepped in and demanded the ex-husband’s payments be made to the Trustee instead of her.  That was money she was counting on!

Her confusion stems from a fundamental and common misunderstanding of how the bankruptcy process works.

The Bankruptcy Estate and Your Assets

When one files a bankruptcy case, an estate is created and it consists of, among other things, any and all assets owned by, or to which the debtor filing the bankruptcy case has a right to or interest in.  This includes common things such as real estate, vehicles, money in bank accounts, clothing, jewelry, as well as the rights to receive things like loan repayments, potential claims (right to sue) against someone, interests in corporations/partnerships, etc.

In a Chapter 7 case, all those assets belong to the Trustee on the date your case is filed.

The Trustee gets to keep and sell, pursue,  or liquidate for the benefit of the creditors in the case any and all of those assets unless the person filing the bankruptcy properly exempts  them.

How much one can exempt in assets varies from state to state and depends on which state’s exemption laws apply in your case, which depends on where you resided for the 2+ years prior to filing the bankruptcy.  See more on how to determine which state’s exemption laws apply.   (Chapter 13 and Chapter 11 are somewhat different in that the debtor remains “in possession” and ownership of their assets, but the value of the assets in part determines the amount which must be repaid to creditors).

In the case of our confused Tennessee debtor, I assume that she did NOT exempt the rights to receive her loan repayment from her ex-husband, most likely because the applicable state exemption law did not allow for it, or she was not represented by a competent bankruptcy attorney.

Can A Trustee Hold a Case Open Indefinitely Waiting For Assets?

Well, not indefinitely, but if they are pursuing assets, a Trustee can keep it open as long as necessary.

There are limits, but in the above case there was a definite starting date for the loan repayment (albeit 3 years after the bankruptcy case was filed) and the rights to receive those payments existed prior to the Chapter 7 case being filed, so the Trustee was well within his/her rights to wait for the payments to begin, and take them directly from the ex-husband.

The key here is that this asset (i.e. the right to receive payments from the ex-husband) existed on the date the bankruptcy case was filed.

A trustee can also wait to see if property values increase after a bankruptcy case is filed, such as for real estate, to see if equity is created above any exemptions.  As a practical matter, most Trustees will file paperwork (known as a “no asset report”)  stating they have no interest in any of the assets if they don’t believe there will be sufficient value, even after waiting, to benefit the creditors.

The Discharge is NOT the End of the Case

A little known fact (to non-bankruptcy attorneys, and even some less-experienced bankruptcy attorneys) is that the discharge in a Chapter 7 bankruptcy case is NOT the end of the case.  In fact, in cases where assets are being liquidated and distributed to creditors, the cases can be open for years.

Unless the Trustee has formally abandoned (given back) assets to the debtor prior, they belong to the Trustee until the bankruptcy case is CLOSED, which occurs  after the discharge is entered.    If the Trustee does not file a “no-asset report” then the case will not close.

Thus, it is important to monitor your case to see if it has been closed.  Receiving a discharge isn’t the end of the case.

Assets remain the property of the Trustee in a Chapter 7 case until the case is closed.

If a lot of time has passed without the Trustee deciding whether to sell or administer an asset, a request can be made to the court to have that property returned (abandoned) to the debtor (yet another reason to have an experienced bankruptcy attorney representing you).   Evidence would have to be shown that there is no significant value to the bankruptcy estate in the asset in question.


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By | 2017-08-14T21:54:21+00:00 January 30th, 2013|Categories: asset protection, Bankruptcy Law, bankruptcy procedure, chapter 7, Trustee Issues|19 Comments

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About the Author:

Attorney Mark Markus has been practicing exclusively bankruptcy law in Los Angeles, California since 1991. He is a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization, AV-Rated by, and A+ rated by the Better Business Bureau. Google Plus


  1. Noris September 9, 2016 at 2:26 pm - Reply

    If I would have stumbled on this website, I would not have ended making the horrible mistake of filing for bankruptcy. Not worth mentioning what a nightmare I created with my ignorance, all I know is that nobody should assume anything when it comes to “law”. Get an attorney that knows what he is doing and mostly that communicates with you every step of the way and makes sure you understand everything he is saying to you.

  2. michael May 28, 2015 at 6:57 pm - Reply

    Got a letter from trustee it says “as of the date you filed bankrupsy you were owed wages twenty five percent disposable earnings due to you as of the date you filed bankruspy are not exempt.” What does this mean am I going to have a re occurring charge for this??

    • Mark Markus May 28, 2015 at 9:40 pm - Reply

      Without reviewing your entire case file and the applicable exemption laws in your case, I can’t say for sure. But it seems to mean that under your applicable state’s exemption laws you are entitled to protect 75% of wages owed to you on the date your case is filed. Therefore, you are required to turn over 25% of that amount to the Trustee if you filed a Chapter 7 case. You should check with your (an) attorney as to whether you have other exemptions that can protect the other 25%.

  3. Doreen Lopinto March 24, 2015 at 4:54 pm - Reply

    We filed for chapter 7 April of 2014 and was discharged in Sep of 2014, we’ve since had moved from Louisiana to CA in Aug of 2014, we’re expecting about $10k fed. tax refund for the year of 2014, and about $1k CA state refund. however the trustee demanded all refunds to be sent to her, can you tell me if we’ll get any refund back, and does the trustee have the right to my CA state refund. And if we do get some refund back what is the normal timeframe for the trustee to process everything. (I don’t think there’s any creditor filing claims).

    Thank you in advance for all your help, we just have the worst lawyer whose never there.

    • Mark Markus April 28, 2015 at 8:48 pm - Reply

      The Trustee has the right to any non-exempt portion of the refund that accrued on the date your case was filed. I would take the position that the Trustee is only entitled to a little over 25% of your refund, unless your income for the year was all received prior to April 7. Hopefully you exempted that portion (or have exemptions available to do so) in which case you could argue that you don’t have to turn over any of it to the Trustee. Obviously you need your attorney, or another bankruptcy attorney in Louisiana (if that’s where your case was filed) to review your case and advise you.

  4. Alina February 23, 2015 at 9:20 am - Reply

    I received a discharge in 2013. Attached to the discharge was the Order Closing Case. The order states that the Trustee is discharged, the Trustee’s bond is cancelled and the case is closed.

    Does this mean that the Trustee has abandoned the assets? I have a final judgment that I would like to collect on. At the time of the Ch. 7 BK, I could not locate the company to collect. I think I have tracked down the company and would like to pursue collection. The asset was listed on Schedule B but the value was listed a unknown.

    • Mark Markus February 23, 2015 at 9:24 am - Reply

      Correct. The closing of the case abandons any assets not administered by the Trustee. If you properly listed the potential claim on Schedule “B”, then it is now yours to do with as you please.

  5. LT February 20, 2015 at 5:07 pm - Reply

    Another option is a chapter 11 which could “cram down” the rental homes to market.

    With out being able to cram down the primary – is there a mortgage modification program inside of bankruptcy that could somewhat allow for a principal reduction as well as an interest rate reduction ?

    The rental income could float the new “cram down” carrying charges.

  6. S. February 12, 2015 at 2:28 pm - Reply

    In my Chapter 7 bankruptcy the deadline for creditors to file a claim has passed and no claims were filed. No assets were placed in the bankruptcy estate before the deadline passed. I just received a letter from the trustee saying I have to send them part of my tax return to be placed in the estate. Can I petition the court to be released from this since there’s no claims to be paid out by the estate and so no reason for there to be any assets placed into it.

    • Mark Markus February 12, 2015 at 2:38 pm - Reply

      You are confusing several different things here. First of all, the deadline you are referring to is for creditors to object to your discharge, not to file claims. A claims deadline (called a “bar date”) is not set in a Chapter 7 case unless the Trustee decides to administer assets. Second, assets are “placed” in the bankruptcy estate the moment your case is filed and remain there until the Trustee either abandons them, or the case is closed. This includes everything you own that is not covered by an exemption (and which exemption is not timely objected to).

      When you say tax “return” I believe you mean your tax refund. A tax return is a document that is filed with the taxing agency. Any refund you are entitled to on the date your bankruptcy case is filed belongs to the Trustee unless you have exempted it. This includes the portion of the refund which would have accrued for the tax year in which your case was filed. So, for example, if you file your bankruptcy case on June 30, and you end up getting a refund for that tax year (in the following year), then approximately 1/2 of that would belong to the Trustee, unless you exempted it.

      • S. February 12, 2015 at 2:54 pm - Reply

        My apologies for not using the proper terms. The court sent a letter to the creditors which said creditors must file a proof of claim by a certain date or forever be barred. That date is passed. No creditor filed anything. The court has already granted a discharge. So, what is the purpose of me sending money to the trustee when there is no one who that money can be disbursed to?

        • Mark Markus February 12, 2015 at 3:08 pm - Reply

          With those facts I agree that there would not be any reason to give funds to the Trustee unless he/she is planning on giving creditors another chance to file claims. Are you sure no claims were filed? That would be pretty unusual. How much is the portion of your refund the Trustee is demanding and where is your case filed? Out here in Los Angeles it would need to be a pretty high amount (like over $8,000) before most Trustees would do anything with it.

          A lot of this may be dictated by local practice, and there may be specifics in your case that make this acceptable, which is why you should really be directing this question to your attorney. But absent any other relevant facts, I’d say the Trustee may just be trying to get funds to generate and pay for his/her own fees. And you can object to that. But you have a duty to cooperate with the Trustee and a failure to do so can result in denial (or revocation) of your discharge, so it’s important to know your judge and court system before doing anything.

  7. Donald January 8, 2015 at 6:50 pm - Reply

    In a chapter 7 Bankruptcy, if none of the creditors file a claim, can the Trustee still take & sell non-exempt property?

    • Mark Markus January 8, 2015 at 7:10 pm - Reply

      Technically, yes. Although there wouldn’t be any reason for the Trustee to do so. The problem is the Trustee will usually liquidate the assets before the claims filing deadline (bar date). If there’s reason to believe that no creditors would file a claim (which would be unusual), you might be able to convince the Trustee to wait on selling the property.

  8. CJ August 18, 2014 at 9:37 am - Reply

    Hi. Great article. I filed my chapter 7 pro-se because I am a divorced single mother with two minor kids and am near poverty level. Prior to filing, I had exhausted all of my student loan proceeds and earned income tax credit, all of which I used to help catch up on my bills to keep a roof over my two minors and my heads, food, etc. Consequently, I filed with less than $250 in the bank. Nevertheless, even though I provided the bank statement showing the trustee that I had less than $250 when I filed, he reported that I had assets and insist that I turn over funds (i.e., student loan proceeds and tax refund) that I no longer have. What would you suggest I should do, as I can not afford an attorney and the public ones that I have contacted has indicated that my case is too complex for them.

    • Mark Markus August 18, 2014 at 9:48 am - Reply

      I don’t understand on what basis the Trustee is demanding the student loan proceeds. Did you still have them when you filed your bankruptcy case but fail to disclose them? There’s too much missing information to even guess at what’s going on here. As for the tax refunds, if the refund is for a tax period prior to filing your case, then it clearly belongs to the Trustee unless you exempted those funds under applicable law (and I have no idea which state or federal exemption law applies to your case). There’s no quicker way around this: You need to hire an experienced bankruptcy attorney in your jurisdiction to review your case and figure out what needs to be done. Perhaps you can amend your bankruptcy schedules to cover the amounts the Trustee is seeking; or, perhaps you can object to the trustee even seeking them. It all depends on the facts.

    • RO September 18, 2014 at 7:03 am - Reply

      It seems it would depend on the timing. If you filed right after you received the money from your tax refund, that could be the issue. Do you have receipts to show that you did indeed spend the tax refund and student loan money?

  9. Jack Harpin July 11, 2014 at 4:44 pm - Reply

    I purchased a $49,000 account receivable fro a bk trustee. At the time the debtor file chapter 7 bk, there was 4 months left on the state statute of limitation to collect the AR. The person who wed the AR to the estate bid against me 1 year after the case had been filed. He now claims that he owes the money but does not have to pay it because the statue of limitation expired 4 months after the debtor filed. I was told that the statute of limitations was extended by one day for every day the bk court retained juristic and that I had to file a lawsuit within 4 months after purchasing the AR or the statute of limitation would bar collection, Is this factual or am I barred from collection?

    • Mark Markus July 21, 2014 at 5:01 pm - Reply

      The tolling provisions of the bankruptcy code (Section 108) do not apply to creditors purchasing assets from a bankruptcy trustee, unless that creditor is an actual agent of the trustee. There may be other tolling provisions under state or non-bankruptcy federal law which extend the time. But absent that, you would need to have brought your lawsuit on the receivables by the original deadline under the statute of limitations which, if I’m understanding your facts, would have been within 4 months after you purchased the rights.

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