Reports of no distribution are the domain of Chapter 7 bankruptcies. In Chapter 7, the trustee takes control of the debtor's nonexempt assets, if any, and sells them to raise as much money as possible to distribute among his creditors. This is in contrast to Chapter 13, where creditors are paid through the debtor's disposable income each month in a court-supervised plan. These creditors invariably receive some money, so a no-distribution report doesn't apply.
According to the Federal Judicial Center, most Chapter 7 bankruptcies are no-asset cases; the debtor owns nothing that the trustee can sell. This might be because the debtor literally does not own any significant property – he might lease both his home and his car – or because he's been able to protect what he owns through the use of exemptions. If no assets exist for the trustee to liquidate, no money can be raised for the debtor's creditors, so there can be no distribution of funds. The trustee therefore files a notice of no distribution, letting the court know that no creditors will receive any payment.
Read More: What Is Considered an Asset in Bankruptcy?
How Exemptions Work
Exemptions are key to no-asset cases and to the resulting reports of no distribution. Most people own some property the trustee can sell. Using exemptions allows debtors to remove certain values in these assets from the bankruptcy proceedings. The federal government offers one set of exemptions, and individual states have their own lists as well. Some states allow you to choose one list or the other, but you must select the whole set; you can't use some federal exemptions, along with a few from your own state. In other jurisdictions, you don't have an option – you must use the state's list. Common exemptions include those for the debtor's homestead, an automobile, and personal property or furnishings. If you use a $3,000 exemption to cover your personal property and it's worth $3,000 or less, the trustee can't sell it. Therefore, it ceases to be an asset of the bankruptcy estate.
When Nonexempt Assets Exist
If nonexempt assets exist, the trustee will file a report of assets with the court instead of a report of no distribution. This doesn't necessarily mean your creditors will receive all of what you owe when the trustee liquidates the property, however. The report simply tells the court and your creditors what assets are available for sale. If your debts exceed the proceeds from the sale of your available property, the trustee apportions the money in an order of priority. For example, taxes and family support payments – such as child support debts – receive payment first. Certain unsecured debts, like credit cards, only receive payment if anything is left over after priority creditors receive payment, and there may not be enough cover the entirety of these debts.
Receiving a Discharge
A bankruptcy trustee usually files a report of no distribution or a report of assets shortly after the 341 meeting, which is also called a meeting of creditors. This is a Chapter 7 formality where the trustee meets with the debtor to ask any questions he has about the bankruptcy petition and to clarify certain facts or issues involved in the case. Creditors can attend and ask questions as well. The meeting takes place relatively early in the proceedings. About two months after the trustee files a report of no distribution, your debts are discharged, even if certain creditors did not receive any payment. Your case closes shortly after that.
- Federal Judicial Center: Distribution of Bankruptcy Estate
- National Association of Bankruptcy Trustees: Bankruptcy FAQ
- Jacoby & Meyers: Role of the Chapter 7 Trustees
- United States Courts: Chapter 7 – Liquidation Under the Bankruptcy Code
- United States Courts: Chapter 13 – Individual Debt Adjustment
Beverly Bird is a practicing paralegal who has been writing professionally on legal subjects for over 30 years. She specializes in family law and estate law and has mediated family custody issues.