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  1. Bankruptcy Glossary
  2. Bankruptcy Trustee

What does a Bankruptcy Trustee Do?

Who is a Bankruptcy Trustee?

In every case of filing for bankruptcy, an impartial trustee is appointed by the courts. The primary role of the trustee is to act as a representative of the creditor. The role of the trustee and the degree of involvement changes with different types of bankruptcy plans. Although, representative of the creditors, the trustees also have the responsibility to ensure that the debtor’s plan runs as smoothly as possible.

How Does the Trustee Work?

There are various ways in which a trustee goes about carrying out his main objective of protecting the interest of the creditor. For example, a trustee can collect property of the estate, object to discharge or certain exemptions a debtor may claim, liquidate nonexempt property in the estate and distribute the funds to appropriate creditors. Te trustee is appointed by the United State Trustee, an officer of the Department of Justice.

Let’s now look at the two types of bankruptcy filing and the roles the trustee plays therein:

Chapter 7: In a Chapter 7 Bankruptcy filing, the role of the trustee is limited. In most Chapter 7 cases, the debtor would not have any assets available, but in cases where there are assets, the trustee is responsible for the liquidation and distribution of money to the creditors. The trustee will check up on the bankruptcy, look at exemptions, schedules, and ensure that the debtor is sticking to the plan of action laid out by the court. The trustee also participates in creditor meetings, and oversees the process of selling assets. The trustee has the power to deny a discharge to the debtor if any evidence of fraud, perjury, or ineligibility is discovered.

The United States Trustee appoints every Chapter 7 trustee to a panel for a period of one year (renewable).

Chapter 13: No doubt, in a Chapter 13 filing the trustee’s role is not just of an overseer, and is much more involved. Ordinarily, there will be one trustee handling all Chapter 13 work in a particular district or area. There is of course no liquidation involved in a Chapter 13 case so the trustee’s responsibility is to manage the financial affairs of the debtor, in a way that facilitates paying back some of all of the credit. The trustee must be present at all hearings that concern property valuation, must ensure receipt of payments from the debtor and also the disbursal of money to the respective creditors.

The United States Trustee appoints a “standing trustee” to administer cases in a specific geographic area.

Chapter 11: The job of a trustee in a Chapter 11 case is multi-layered. The responsibilities include setting up official committees (usually up to 15 people) to serve a case and choosing members for the same; reviewing all reorganization plans submitted to ensure the information provided is adequate and accurate; ensure that deadlines are met; investigating any case of fraud, or abusive conduct and refer the case to the appropriate department.

In all cases, the United States Trustee oversees (at the minimum) the following functions of the panel/“standing” trustees:

  • Administration of individual debtor estates
  • Financial record-keeping
  • Impose necessary requirements to ensure that fiduciary duties are carried out

The Balancing Act

It’s a literal tight rope walk. On the one hand is the responsibility to keep the creditors interests in mind, and on the other is to provide assistance in the smooth performance of the debtor’s plan. How can a debtor be sure whether a trustee is keeping a close watch on your activity to help in times of need, or to collect as much money as possible? There is no knowing really, and it’s a tough call that you might want to avoid taking. Leave this to the discernment and experienced eye of your attorney to judge. Keeping in mind the tendencies of a particular trustee, your attorney will help you structure the best possible scenario for your bankruptcy plan.