Can a chapter 7 trustee operate the business under section 721?

Yes, for a limited period. Section 721 lets the court authorize a chapter 7 trustee to operate the debtor's business if that is in the estate's best interest and consistent with orderly liquidation. A narrow order covering hosting, a few contractors and export work can keep records intact long enough for an orderly sale or a SourceX license.

The short answer: yes, briefly and narrowly

Yes, but only for a limited period and only with court authorization. Section 721 of the Bankruptcy Code lets the court authorize a chapter 7 trustee to operate the debtor's business if operation is in the best interest of the estate and consistent with its orderly liquidation. For records, the useful version is narrow: pay for hosting and key subscriptions, keep two or three former admins on short contracts and fund export work, then stop.

What section 721 allows, in plain terms

Who decides: the court, on the trustee's request, usually by motion explaining the purpose and the budget.
The test: operation must serve the estate's best interest and fit an orderly liquidation. It is not a rescue tool.
How long: a limited period defined in the order; any extension goes back to the court.
What comes with it: operating costs fall on the estate, and the trustee should expect reporting duties while operating. Check the requirements in your district and with the US Trustee's office.

A motion with an itemized budget, a defined end date and named deliverables is easier to approve and to monitor. Read the current statutory text and local practice with counsel before relying on this summary.

What a records-preservation order can cover

Element	Why it is needed	Keep it narrow by
Hosting, email tenant and SaaS subscriptions	Lapsed accounts start the vendor's deletion schedule	Naming the accounts and setting a monthly cap
Two or three former admins on short contracts	They know where archives and backups live	Fixed hours, confidentiality terms and written assignment of work product
Export and inventory work	Records must be exported and listed before anyone can assess them	Defining deliverables: verified exports and a completed inventory
Cyber and general liability cover	Live systems carry security risk	Matching the policy term to the operating period
A final billing or collections cycle, if any	Receivables may depend on systems staying up	Excluding new sales, new hires and new obligations

The former staff are the hardest part to keep; see retention plans for IT admins in a wind-down. Credentials come first, through the steps in turnover of electronic records and passwords to a trustee.

Common fact patterns and how they tend to resolve

Facts on the ground	Question to answer	Outcome to confirm with counsel
Systems still live, admins gone	Credentials and vendor terms	A short order to pay subscriptions and retain one contractor
Business sold off piecemeal, records left behind	Whether the records were excluded from the sales	Operating authority may be unnecessary; export and store instead
Live customer obligations remain	Whether serving them creates new liability	Wind them down separately rather than widening the order
Records mainly consumer or patient data	Privacy promises and health-data rules	Operating to preserve them for licensing is hard to justify
Converted chapter 11 with a pending transaction	What the debtor agreed and what survives conversion	A narrow order to keep the data room and core systems alive

Do not rewrite the privacy policy while operating

An operating period is not a chance to make customer data licensable. A February 2024 FTC staff post cautioned that a company which starts sharing consumer data with third parties or using it for AI training, and tells consumers only through a quiet, retroactive amendment to its terms of service or privacy policy, may be acting unfairly or deceptively. What SourceX licenses is the record of the company's own operations, so the real question is what those records contain, not how to loosen old promises.

How the operating window lines up with a license

Before the motion: check the company with the company fit checker, which is preliminary and non-binding, so the order is sized to a real possibility.
Early in the window: the estate is introduced through a partner's referral link or form, or the trustee applies directly, and SourceX qualifies it on peak headcount, years of operation, system breadth and rights.
Mid-window: the retained contractors complete exports and the data inventory.
Late window: the trustee and SourceX agree price and terms, and counsel decides the approval route; a chapter 7 notice of intended sale shows one route for lower-value dispositions.
After the window: the operating order can end once exports sit safely in storage. Buyers usually answer within about two weeks of the estate becoming deal-ready, and the estate stays free to walk away until it signs.

When operating authority is not worth seeking

Headcount never reached 50+ full-time employees at peak (contractors excluded).
Archives are already deleted, or nobody can export the data.
Most of the material is client property held under service contracts.
The data is largely about consumers or patients.
Operating costs would plainly exceed any plausible recovery.

In those cases the no-asset report may be the honest outcome.

Referral rewards and the trustee

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company, and rewards become payable only after the buyer pays and SourceX receives its fee. No reward is guaranteed, and the reward never reduces estate proceeds. Trustees and retained professionals should treat any reward tied to an estate matter as off-limits until counsel clears it and the court's disclosure requirements are met.

This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.

Next step

Screen the company before drafting the operating motion. Advisors to chapter 7 estates who want to introduce qualifying companies can register as a partner, and trustees may also apply on the estate's behalf at sourcex.si/apply.

Step 1Share your linkSend your personal link to a company you know.
Step 2Company appliesThe company applies itself at /apply.
Step 3Buyer selects and paysThe buyer selects and pays for the data and SourceX receives its fee.
Step 4You get your rewardYour share of SourceX fees becomes payable.

Common questions

How long can a chapter 7 trustee operate a business under section 721?

For the limited period the court authorizes. The statute does not fix a number of days, so the order defines the period, and the trustee returns to court for any extension. For records preservation, ask for a short window tied to concrete deliverables, such as verified exports and a completed inventory, rather than open-ended authority.

Are the costs of operating paid ahead of other creditors?

Costs the estate incurs while operating are generally administrative expenses, which rank ahead of general unsecured claims. That is why courts and creditors scrutinize the budget, and why a records-preservation order should be capped and itemized. If the benefit is uncertain, a smaller step, such as paying one subscription while exports run, may be wiser than full operating authority.

Can the trustee pay former employees during the operating period?

Usually on short contracts authorized by the operating order or another order, with defined hours, deliverables and confidentiality terms. Contractor agreements that assign anything the worker produces keep ownership clear. Counsel should confirm whether wage, benefit or tax issues arise and whether retaining a former insider needs separate disclosure.

Does keeping one cloud subscription paid require section 721 authority?

Not necessarily. Paying to preserve estate property can sometimes be handled without operating the business, depending on the facts, the amount and your district's practice. Ask counsel before paying, document why the spend protects the estate, and export the data as soon as access is secure so the subscription can end quickly.

Free resources

MCP ROI calculator — Estimate hours saved, implied savings and first-year ROI from MCP.
Business exit readiness assessment — A preliminary exit readiness score and checklist for advisors.
SDE vs EBITDA calculator — Seller's discretionary earnings next to market-rate EBITDA.
All free tools · MCP resource center

By SourceX Partnerships Team · Published 2026-10-09 · Updated 2026-10-09

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