What does a Chapter 7 trustee do with a company's assets and records?

What a Chapter 7 trustee does

A Chapter 7 trustee is the court-supervised person who takes control of a bankrupt company's property, sells it and distributes the proceeds to creditors. When a business files Chapter 7, its officers lose control of the assets, and every decision about records, systems and data rights runs through the trustee.

For a referral partner, the practical point is simple: if a company is in Chapter 7, the trustee is the counterparty. A company in Chapter 7 with no trustee involvement in a licensing conversation is a red flag.

What are the trustee's core duties?

The trustee collects and sells the estate's non-exempt property and pays creditors in the order the Code sets. That differs from Chapter 11 reorganization, where the debtor usually stays in control.

A trustee typically hires counsel, and sometimes an auctioneer or a forensic firm, with court approval. Asking who those professionals are is a good first question.

What happens to a company's records and data in Chapter 7?

They become part of the estate to the extent the debtor owned them. The trustee can preserve them, sell them or abandon them.

• Preserve: the trustee keeps backups and accounts alive because they are evidence or may be worth something.
• Sell: records, software and databases can be marketed as assets, generally under section 363 of the Code, subject to the court's rules on sales outside the ordinary course.
• Abandon: property of burdensome or inconsequential value can be abandoned, after which it generally returns to the debtor or others with an interest in it.

Keeping cloud subscriptions running costs money, and systems can lapse if nobody pays for them, so timing matters in a Chapter 7 case.

When does privacy law limit a trustee's sale of customer data?

Section 363(b)(1) of the Bankruptcy Code restricts a sale of personally identifiable information when the debtor had a privacy policy in effect that prohibited transfers to unaffiliated parties. Under 11 U.S.C. section 363, the trustee may not sell or lease that information unless the sale is consistent with the policy, or the court approves it after a consumer privacy ombudsman is appointed, notice and a hearing, and a finding that the sale would not violate applicable nonbankruptcy law.

The ombudsman's role is set by 11 U.S.C. section 332: the US trustee appoints a disinterested person, no later than seven days before the hearing, who can give the court information such as the debtor's privacy policy.

The lesson for partners is that records full of consumer data are the hardest to license. Business-to-business operating records, process documents and internal communications are a cleaner fit, subject to client confidentiality. This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.

How do you work with a Chapter 7 trustee on data?

Use the "trustee first" order:

1. Confirm the case: court, case number, filing date and the trustee's name from the docket.
2. Contact the trustee's office, not former management, and say only that you are a referral partner and that a licensing review may be possible.
3. Ask whether the trustee controls the systems and whether any sale of assets or records is already planned.
4. Let the trustee and counsel decide whether to engage. Any license will need the trustee's signature and, depending on the transaction, notice to creditors or court approval, which the trustee's counsel will confirm.
5. Leave all records alone. Partners never export, upload or describe confidential material.

The company fit checker gives a preliminary screen, and the who qualifies page lists the baseline: 50+ full-time employees at peak (contractors excluded), several years of documented operations, rights and an authorized sponsor, which here is the trustee.

Chapter 7 compared with other wind-down paths

The ABC vs Chapter 7 comparison goes into the differences, and the exit readiness guide explains how preserving records before a filing changes the options. A virtual data room used in an earlier sale attempt can also show what existed.

How partner rewards work in a trustee situation

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. The reward is paid only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. Trustees and court-appointed professionals face their own fee and disclosure rules; read the program terms and check with your counsel.

When to walk away

• No trustee has been identified or contacted.
• The case is still being decided and a court has not yet addressed the assets.
• The records are mainly consumer personal data with a restrictive privacy policy.
• Systems were switched off and no exports exist.
• The data was already sold or licensed for AI training.

Next step

Pull the docket, identify the trustee and run the fit screen. If the estate holds viable records, register as a partner and introduce the trustee, who can also apply at sourcex.si/apply using your referral link.