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What Is a Report of No Distribution in Chapter 7 Bankruptcy?

By Walter Metzen

The Chapter 7 Bankruptcy Trustee’s Report of No Distribution briefly states that, having investigated the question of your assets, the Trustee has determined that there is no value to obtained for creditors of the Bankruptcy Estate.

A Chapter 7 bankruptcy is a “liquidation” bankruptcy.

 

This means that, if you own any property that is worth more than the value of the so-called “bankruptcy exemptions” that can be applied to them in your bankruptcy petition schedules, that property will be seized and sold off in order to pay some of what you owe back to your creditors.

 

After you file for Chapter 7 bankruptcy, how do you know when you can stop worrying that this may happen?

 

Generally, you are in the clear when the Chapter 7 Trustee files something called a Report of No Distribution in your case.

 

What is a Report of No Distribution, and when is it filed? Most importantly, is your case over when a Report of No Distribution is filed?

 

We will discuss these questions below.

 

First, however, let’s lay some groundwork with some basic information about Chapter 7 bankruptcy.

 

Chapter 7 Asset Liquidation

 

Let’s be clear, to begin with: no assets or property are liquidated in the overwhelming majority of Chapter 7 bankruptcy cases filed in Detroit or elsewhere.

 

Why?

 

The bottom line is that the underlying goal of the US Bankruptcy Code—the Federal statute governing the bankruptcy process—is to provide people an opportunity for a fresh start.

 

One can hardly call a legal process which results in the liquidation of all assets a “fresh start.”

 

Thus, the Bankruptcy Code allows a person filing for Chapter 7 bankruptcy to retain the property required to effectuate a fresh start—but only that amount of property.

 

The clothes on your back? Your furniture? Your kids’ toys? Generally not a problem to retain.

 

The Van Gogh hanging over your toilet? Unlikely to retain.

 

This is because the Bankruptcy Code (and, alternatively, Michigan state law—but we’ll keep this simple) includes a list of provisions called “exemptions.”

 

These exemptions allow a Chapter 7 debtor to retain certain types of property up to certain dollar value limits.

 

For example, the Bankruptcy Code includes an “automobile exemption” allowing you to retain your vehicle or truck—but only up to $4,000 (as of this writing) in equity value.

 

Thus, if you own a 2020 McLaren 570S free and clear (value: approximately $192,000!), you will not retain this car through a Chapter 7 bankruptcy.

 

On the other hand, if you’re a normal person driving a normal car, it is likely you will retain the vehicle as most do not retain more than $4,000 in fair market value by the time their loans are paid off.

 

If your car is worth less than you owe on it, you will also not lose the vehicle as it has no equity value.

 

There are other exemptions for household goods (including furniture and home electronics), a certain amount of real estate equity value (for your primary residence only), and many others.

 

Generally speaking, the available exemptions are sufficient to protect all of what most households tend to include.

 

The fact that this is not always true is a darn good reason to consult a bankruptcy attorney if considering filing for Chapter 7.

 

The Role of the Chapter 7 Trustee

 

So who is the Chapter 7 Trustee and what does he or she actually do?

 

The Chapter 7 Trustee, first of all, is a private individual “chartered” by the Office of the US Trustee—a division of the US Department of Justice—for the purpose of administering the “Bankruptcy Estate” for the benefit of the debtor’s creditors.

 

The Bankruptcy Estate is the legal construct within which all of the property owned by, formerly owned by (within certain circumstances) and under claim by the filing Chapter 7 debtor is housed for the duration of the bankruptcy case.

 

Essentially, when you file Chapter 7, all of your property is automatically an asset of this Bankruptcy Estate.

 

The Chapter 7 Trustee is the trustee of the Bankruptcy Estate. He or she has jurisdiction over your assets until such time as that interest is formally abandoned.

 

Until that point comes, the role of the Chapter 7 Trustee is to ensure that all of the assets of the debtor have been properly disclosed and valued and to seize and liquidate those assets to generate a pool of cash for distribution to the debtor’s creditors.

 

It is also the job of the Chapter 7 Trustee to purse assets that have been fraudulently and preferentially transferred. (Preferentially transferred means that the cash or property has been paid or transferred to a creditor out of the order of distribution required by the Bankruptcy Code.)

 

The Chapter 7 Trustee also presides over the single hearing that most Chapter 7 debtors must attend: the 341 Meeting of Creditors.

 

If a particular Chapter 7 case presents “avoidable” transfers or non-exempt assets, the Chapter 7 Trustee will retain an attorney or other professionals to pursue, retrieve, and liquidate those assets.

 

If the case presents none of those things, the role of the Chapter 7 Trustee is to recognize that fact and then allow the case to proceed to discharge and administrative closure.

 

It is the role of the Chapter 7 Trustee to abandon assets when appropriate, in other words.

 

The Filing of the Report of No Distribution and Abandonment of Assets

 

When does abandonment occur?

 

Unless the Chapter 7 Trustee is required to abandon an asset by an Order of the Court (as a result of a motion by the debtor for an Order compelling the abandonment of some asset), assets are abandoned only when the debtor’s discharge is granted and the case is closed by the Court.

 

However, you are not required to sit on pins and needles for the entire 4 (or more) months of the typical Chapter 7 bankruptcy case.

 

Once the Chapter 7 Trustee has conducted his or her “due diligence” and researched the truthfulness of your statements regarding your assets and their values, the Trustee will file something called a “Report of No Distribution” on your court docket.

 

This “report” is actually an electronic docket notation only. No form or document or other document will be mailed or provided to you.

 

In essence, though, the Report of No Distribution briefly states that, having investigated the question of your assets, the Trustee has determined that there is no value to obtained for creditors of the Bankruptcy Estate.

 

The Report of No Distribution is the Chapter 7 Trustee’s means of requesting that the court relieve him or her of further duty in your case.

 

Given that Chapter 7 Trustees are compensated primarily by way of a percentage cut of anything liquidated for creditors, they are generally quick to file Reports of No Distribution where there is no financial benefit to them to keep a case hanging open.

 

Chapter 7 Reports of No Distribution: The Bottom Line

 

The bottom line with regard to Chapter 7 Bankruptcy Reports of No Distribution is that, without an attorney representing you in your bankruptcy, you will never know that one has been filed unless you create a PACER account and figure out how to log onto your court docket yourself.

 

You may well sit wondering for 60 more days after your 341 Meeting of Creditors wondering what the Chapter 7 Trustee is up to and if your assets are safe.

 

For peace of mind and expert guidance through the Chapter 7 bankruptcy process, it is always advisable to retain an experienced attorney to assist you.

 

Attorney Walter Metzen has successfully assisted thousands of Detroit-area Chapter 7 bankruptcy clients for over 30 years.

 

Contact us now to schedule your free consultation.

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