Chapter 7 is supposed to be quick. The case behind Phillips v. Goldman (In re Gilman), 176 F.4th 1152 (9th Cir. 2026) (en banc) was filed in the Central District of California in February 2011 and is still open. After years of homestead litigation and the debtor’s 2021 death, a judgment creditor sued the trustee personally for letting a Van Nuys house and a Northridge commercial building decay while the debtor and his wife kept the rent.
On May 7, 2026, an eleven-judge en banc panel held that the trustee could not end that suit on immunity grounds. As a California attorney and a CPA, I read the opinion as a guide to what creditors should watch in a trustee’s paperwork, and as a mirror of a California family trust trustee’s duties.
What did the en banc Ninth Circuit decide about trustee immunity?
Judge Jacqueline Nguyen wrote the opinion, with no concurrence or dissent, and untangled two doctrines. Quasi-judicial immunity is absolute but narrow, covering functions “essential to the authoritative adjudication of private rights” in the estate. Derived immunity protects acts the bankruptcy court approved, but only when the act was within the trustee’s authority, creditors had notice, the trustee candidly disclosed the material facts, and the court signed off.
Collecting rent and preserving buildings make the trustee “a property manager,” not an adjudicator, so quasi-judicial immunity did not apply. Derived immunity failed on the pleadings because no order authorized years of inaction, though the trustee may raise it again on remand.
The larger change is the standard of care. The lower courts, following In re Continental Coin Corp., 380 B.R. 1 (Bankr. C.D. Cal. 2007), had shielded trustees from ordinary negligence. The en banc court rejected tying immunity to degree of fault. Outside immunity, a trustee answers for plain negligence under Hall v. Perry (In re Cochise College Park, Inc.), 703 F.2d 1339 (9th Cir. 1983), and Bennett v. Williams, 892 F.2d 822 (9th Cir. 1989), which asks what an ordinarily prudent person would do.
The trustee has petitioned the Supreme Court in Goldman v. Phillips, No. 26-315, citing a three-way circuit split. The response is due October 13, 2026, and the petition reports that the Ninth Circuit stayed its mandate.
Does a creditor need permission to sue a trustee, and how long does it have?
Under Barton v. Barbour, 104 U.S. 126 (1881), and In re Crown Vantage, Inc., 421 F.3d 963 (9th Cir. 2005), suing a trustee in another forum for official acts requires leave of the bankruptcy court. Phillips sued inside the bankruptcy court, so leave never came up, but a creditor eyeing a state court suit needs it.
The bankruptcy court found the claims time-barred under the four-year catch-all in Cal. Code Civ. Proc. § 343. The district court reversed under a continuous accrual theory, and the trustee did not contest that on appeal. A companion claim on the trustee’s bond under 11 U.S.C. § 322 and Fed. R. Bankr. P. 2010(b) was treated as derivative; section 322(d) bars bond suits filed more than two years after the trustee’s discharge. On oversight, the court spoke to creditors rather than the U.S. Trustee: a trustee who reports regularly shifts the burden of objecting to them, and a silent creditor may be estopped.
Why can a California homestead dispute keep a Chapter 7 open for years?
Under Cal. Code Civ. Proc. § 704.710(c), a homestead is the “principal dwelling” where the debtor or spouse lived when the lien attached and continuously afterward. In the earlier appeal, In re Gilman, 887 F.3d 956 (9th Cir. 2018), the Ninth Circuit vacated because the bankruptcy court looked only at occupancy. With escrow open on a sale the day he filed, the court also had to find whether Gilman intended to keep living there.
Gilman claimed $100,000 under the old tiers. AB 1885 (Stats. 2020, ch. 94) rewrote section 704.730 effective January 1, 2021: the greater of $300,000 or the prior year’s county median single-family price, capped at $600,000, both indexed each January to the California CPI. From Department of Industrial Relations annual averages, I calculate a 2026 floor near $370,650 and a cap near $741,300; no agency publishes an official figure. Barclay v. Boskoski, 52 F.4th 1172 (9th Cir. 2022) fixes exemptions on the petition date, so a 2011 case still runs on 2011 law.
What happens when a Chapter 7 debtor dies before the case closes?
Under Fed. R. Bankr. P. 1016(a), the case continues “as though the death or incompetency had not occurred.” In practice the court looks to the probate personal representative, or the successor trustee of the debtor’s living trust, when the debtor’s participation is needed. Property abandoned under 11 U.S.C. § 554 goes back to the debtor, which after death means probate or the trust administration, liens attached. The homestead statute speaks of the debtor “or the judgment debtor’s spouse,” and section 704.720(d) protects a separated spouse who stays in the home, but the code does not squarely say how a claimed exemption carries over to a surviving spouse.
What should a creditor look for in the trustee’s reports and tax filings?
In asset cases the U.S. Trustee Program requires a Form 1 property record and a Form 2 cash receipts and disbursements record, submitted in an interim report at least annually. If the estate owns a rental, I expect Form 2 to show rent coming in and property tax and insurance going out. A rental that sits on Form 1 for years with no rent on Form 2 is the Gilman pattern.
Post-petition rents belong to the estate under 11 U.S.C. § 541(a)(6), and an individual’s Chapter 7 estate is its own taxpayer under 26 U.S.C. § 1398. It files Form 1041 as a transmittal for a Form 1040 per IRS Publication 908 once it crosses the 26 U.S.C. § 6012(a)(8) threshold. The FTB Form 541 instructions require Form 541, with Form 540 attached, when gross income exceeds $10,000 or net income exceeds $1,000. An estate holding a rental but filing no returns is a red flag.
11 U.S.C. § 704(a)(7) requires the trustee to furnish requested information, and 11 U.S.C. § 105(d) lets a party in interest request a status conference aimed at an “expeditious and economical resolution.” Section 324 allows removal for cause.
How does a California family trust trustee’s exposure compare?
A family trust trustee owes the same core duty with no immunity at all. Cal. Prob. Code § 16040 requires “reasonable care, skill, and caution” judged against a prudent person in a like capacity. Section 16006 requires preserving trust property and section 16007 requires making it productive, so letting a sibling live rent-free in a trust rental breaches both.
Remedies under section 16420 include removal and reduced compensation, and section 16440(a)(3) charges the trustee with profit that would have accrued, which is how lost rent becomes a personal judgment. Section 16460 gives a beneficiary three years from an account that adequately discloses the claim. A trustee unsure what to do can petition for instructions under section 17200(b)(6). I have written about trust accountings and notices and about a trust trustee who files bankruptcy.
What could a neglected Redlands rental cost the creditors?
Here is an illustration. A Yucaipa contractor files Chapter 7 in the Riverside Division in March 2022, owning a Redlands rental worth $560,000 with a $150,000 mortgage. He lives elsewhere, so no homestead applies. The trustee never demands turnover, and the debtor keeps collecting $2,700 a month, pays the $1,100 mortgage, and pockets $1,600.
The house sells in July 2025, forty months later. Diverted rent: $64,000. Tax delinquency penalties paid from escrow: about $2,600. A roof leak that a $9,000 repair would have stopped in 2022 pushes the price to $528,000, or $23,000 below the $551,000 net a prompt repair would have produced. Total loss: about $89,600, or roughly 22 cents on the dollar against $400,000 in unsecured claims before administrative costs.
| Issue | Chapter 7 trustee (after Gilman) | California trust trustee |
|---|---|---|
| Standard of care | Ordinarily prudent person; simple negligence suffices | Prudent person (Prob. Code § 16040) |
| Immunity | Quasi-judicial for adjudicative functions; derived for court-approved acts | None; instructions under § 17200 |
| Rental duty | Collect estate rents (§ 541(a)(6)) or abandon on notice | Preserve and make productive (§§ 16006, 16007) |
| Time limit | Four years (CCP § 343, as applied below); bond, two years after discharge | Three years from adequate account or discovery (§ 16460) |
| Forum | Bankruptcy court, or elsewhere with leave | Superior court probate department |
Frequently Asked Questions
Can a Chapter 7 trustee in California be personally liable for negligence?
Yes, in the Ninth Circuit. The en banc court in Phillips v. Goldman (2026) held that ordinary negligence is enough when no immunity applies. Quasi-judicial immunity covers only adjudication-type functions, and derived immunity requires a court order obtained after notice and candid disclosure. A Supreme Court petition challenging the rule, No. 26-315, is pending.
Does a Chapter 7 case end if the debtor dies?
No. Federal Rule of Bankruptcy Procedure 1016(a) says a Chapter 7 case continues as though the death had not occurred. A probate representative or successor trustee usually steps in where the debtor’s participation is needed. Property the trustee abandons returns to the debtor’s probate estate or trust administration, with existing liens still attached.
How much is the California homestead exemption in 2026?
Code of Civil Procedure section 704.730 sets it at the greater of $300,000 or the county median single-family sale price for the prior year, capped at $600,000, with both figures adjusted each January for California inflation. By my calculation, the 2026 range is about $370,650 to $741,300. In bankruptcy, the amount is fixed on the petition date.
What reports should a creditor review in a Chapter 7 asset case?
Ask for the trustee’s Form 1 property record and Form 2 cash receipts and disbursements record, which the U.S. Trustee Program requires in interim reports at least annually. If the estate owns a rental, look for rent deposits and property tax payments. Also ask whether the trustee filed federal Form 1041 and California Form 541, since post-petition rents are estate income.
How long does a beneficiary have to sue a California trustee for uncollected rent?
Under Probate Code section 16460, a beneficiary who receives a written account or report that adequately discloses the claim generally has three years from receipt to file. Without an adequate account, the three years run from when the beneficiary discovered, or reasonably should have discovered, the problem.
How North Star Law Firm Can Help
North Star Law Firm represents creditors, debtors and fiduciaries in California bankruptcy cases and trust disputes, with a focus on the Inland Empire and the Sacramento region. The firm reviews trustee reports and estate tax filings, pursues or defends claims arising from Chapter 7 cases, advises successor trustees on trust administration, and prepares fiduciary and bankruptcy estate tax returns. Phillip Zagotti is a California attorney and a CPA, admitted to the U.S. Bankruptcy Court for the Central District of California.
If a trustee’s handling of property is costing you money, contact North Star Law Firm or schedule a consultation.