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An Asset Case in Chapter 7 Bankruptcy and the Phantom Time Line

An asset case in a Chapter 7 bankruptcy is normally a clear and dry cut case, but the time line for a bankruptcy trustee to determine whether or not the case is actually an asset case can be a phantom potentiality.

For instance, this bankruptcy story was recently shared by a debtor on a bankruptcy forum website: “November 17 marked 1 year from filing. We received our discharge at the end of April….I received a small inheritance back in April and our attorney wrote to the trustee telling her and saying if we don’t hear back from her, he will assume it’s mine..never heard back from her. She had asked for our tax returns back in March and heard nothing from her regarding the one asset we did have, which were royalties. …Just received a letter asking for all monies received from these royalties since filing AND the inheritance money AND $25 from our bank account And $35 for a digital camera. She is giving us 3 1/2 weeks to give her all this money. Can she wait this long to change it to an asset case?”

Questions have been raised by the debtor concerning the time line for a bankruptcy trustee to turn a Chapter 7 bankruptcy into an asset case. In the illustrated story, the time line seemed to be a phantom reality because the debtor felt like her attorney had already dealt with the problem, and the debtor was led to believe the phantom time had run out on the potential for making the case an asset case. What is the truth in this matter?

An Asset Case is Not Declared Until it is Declared

Normally, a bankruptcy court clerk sets up a Chapter 7 bankruptcy as a no-asset case until a notice has been sent by the bankruptcy trustee that there may be a distribution of assets. This declaration by the trustee has no time limit. Assets can be discharged but until the case is officially closed by the U.S. Trustee, a court trustee can make a declaration of whether or not the case is an asset case at any time convenient to the trustee.

The court trustee can administer any assets in existence prior to filing or any asset that comes into the estate within 180 days after filing. The debtor has a responsibility to cooperate with the trustee concerning all assets, prior or new, and failure to comply can result in the revoking of the discharge.

Your Bankruptcy Attorney Does Not Determine an Asset Case

Determining whether or not a case is an asset case is a legal matter decided by the bankruptcy court or its representative. In most cases, the bankruptcy trustee makes the declaration as to whether or not the case is an asset case.

Nevertheless, a debtor can challenge the declaration made by a court trustee. To formally challenge the trustee’s decision on an asset, the debtor would need to file a Motion to Abandon the asset in question. The bankruptcy court judge would determine whether or not to abandon the asset.

In the illustrated story, there is no indication the attorney made a formal request to abandon the asset. Therefore the attorney, by sending a letter, did not release the asset from the consideration of the court, contributing to the phantom time line. Only the bankruptcy court can determine whether or not a Chapter 7 is an asset case. A case is not over until the case is officially closed, and a bankruptcy trustee can determine the state of any asset until that time.

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