What is a Bankruptcy Trustee?

When you file for bankruptcy, your case and your debts can come under the control of the court in the person of the bankruptcy trustee, whose job it is to ensure that bankruptcy laws are obeyed and that your unsecured debts are paid off as much as possible. However, the trustee’s legal powers go beyond these simple administrative duties, as this person assumes legal control of your property and your debts as of the date you file for bankruptcy. To take an action without the consent of the trustee is to risk having your case dismissed.

Who is the Bankruptcy Trustee?

Shortly after you file your bankruptcy papers, you will receive a notice informing you of the name, business address, and business telephone number of your trustee. This person is appointed by the Office of the United States Trustee, a branch of the Department of Justice. A trustee may be a local bankruptcy attorney, or a non-lawyer who is knowledgeable about chapter 7 and chapter 13 bankruptcy and the rules and procedures followed by the court.

Once your trustee has been appointed, he or she may contact you with a list of documents to be submitted to this person, which may include bank statements, property appraisals, canceled checks, or perhaps other such documents, and the date by which these documents should be sent.

The U.S. Trustee

In addition to the trustee appointed to handle your case, another person called the U.S. Trustee will be involved, though most people who file for bankruptcy will never have to deal with the U.S. Trustee. Most of the time the U.S. Trustee will only take action if your chapter 7 bankruptcy papers and/or testimony at the creditor’s meeting indicate that:

– you earn a monthly income greater than the state median

– your actual income is enough to support a chapter 13 repayment plan

– you are suspected of having engaged in some sort of illegal action which warrants investigation, or

– your case is the one in 250 cases randomly selected for audit

Should the U.S. Trustee take action in your case, all parties to the case will be notified of the proposed action.

Chapter 7 Bankruptcy

When you file for chapter 7 bankruptcy, your trustee will have a vested interest in your property, and how much you claim as exempt. The reason for this is that the trustee receives a commission on property that is sold in order to pay off unsecured debts. The trustee’s commissions may be 25% of the first $5000, 10% of everything from $5000 up to $50,000, and 5% of any additional money up to one million dollars (though most of you won’ t have to deal with that much value in your bankruptcy case).

If all of your property is exempt under the applicable state laws, than your case will be considered a “no-asset” case; in such a case your creditors will be told not to file claims since you don’t have any property to sell off to pay them. In such a case, your trustee will not be too interested unless your papers indicate that you may be hiding assets. In the case that you do have nonexempt assets to be sold off, your trustee will manage the selling of these assets.

Chapter 13 Bankruptcy

If you file for chapter 13 bankruptcy, your trustee’s role will be to oversee your payments under the repayment plan. In the event that you miss a payment, your trustee will help you get back on track, even give you a temporary reprieve if you need it. The trustee will also participate in any hearings on the value of your property. However, in most chapter 13 bankruptcies, you maintain complete control of your money and any property you acquire after your bankruptcy filing, so long as you are able to keep up your payment schedule. Your trustee can also amend your payment plan in the event that your income or property increases during the course of your case.

What Does a Bankruptcy Trustee Do?

Many people who are contemplating filing bankruptcy ask the question, what exactly is the job of the bankruptcy trustee? Is he my friend or foe? Well the answer to this question is really quite simple, once you know the duties of a trustee.

A bankruptcy trustee appointed in a Chapter 7 or Chapter 13, is assigned the task of administering the case file and all assets related to the case.

At the outset he reviews the bankruptcy petition and all the submitted paperwork to see that it meets all the requirements of a proper bankruptcy filing. Once he completes this basic task, his next duty is to conduct a personal examination of the debtor.

The trustee’s examination of the person filing bankruptcy is for the purpose of determining background information relevant to the case. The examination may include production of paperwork documenting the information contained in the bankruptcy petition.

In a Chapter 7 case, the principal purpose of the examination is the discovery of non – exempt assets of the debtor. If a trustee discovers non – exempt assets, he or she will ask the debtor to turn over the assets so that they can be sold at a bankruptcy sale. Once the debtor’s assets are turned over the trustee will convert the assets to cash for the purpose of making distributions to creditors who have filed and had their claims approved by the bankruptcy trustee.

Understand that the trustee has a vested interest in finding non – exempt assets. His interest is twofold. First and foremost, it is his duty to locate and recover assets so that creditors of the debtor can be paid something on their claim. Second, the trustee receives a percentage of any assets that are recovered. So the more assets he finds and recovers the greater his fee for administering the case.
If you are filing a Chapter 7 bankruptcy for a business, the bankruptcy court may authorize the trustee to continue operation of the business for a limited period of time, if it will benefit the creditors of the estate. This typically occurs if the business has inventory that needs to be liquidated and converted into cash. In such cases the trustee will conduct a bankruptcy sale, often at the location of the debtors store or place of business.

In a Chapter 13 case, the trustee’s goal is determine an appropriate amount that a debtor can afford to pay each month in a repayment plan to creditors. The trustee will review the debtor’s income and expenses so that a proposed plan can be confirmed by the court. Here again, the trustee’s compensation is a percentage. In this case, however, the percentage is based upon the monthly payment schedule set up to pay Chapter 13 creditors.

In addition to reviewing the bankruptcy petition, investigating the financial affairs of the debtor and collecting non – exempt property, trustee’s are charged in Chapter 7 and Chapter 13 cases with examining and objecting to proofs of claim, opposing the debtor’s discharge, if the trustee believes there has been some fraud or other inappropriate conduct by the debtor, sending required notices, furnishing information to parties in interest and reporting on the administration of the case.

In some cases, a trustee may act upon the rights of the debtor including filing lawsuits on the debtor’s behalf. Such lawsuits usual involve the trustee’s attempt to collect property due the debtor. In addition, the trustee may file actions to set aside either preferential or fraudulent transfers made by the debtor to friends or preferred creditors.

Apart from the initial inquiry into the appropriateness of the chapter filing all of the actions of the trustee have one purpose in mind, to generate assets for the bankruptcy estate that can be then liquidated, converted into cash and disbursed to creditors of the bankruptcy estate.

The Role Of A Bankruptcy Trustee

If you are into deep financial trouble and are planning to file for bankruptcy, it is very important for you to be aware of the role of a bankruptcy trustee in this regard. For every case that is filed, the court appoints an impartial trustee. No matter whether you are filing under chapter 7 or chapter 13, you cannot ignore the role of the trustee. In every case, the trustee will represent the creditors. However, it does not mean that the trustee will act always in favor of creditors only. In fact, the main duty of the trustee is to make sure that everything is done as per the laws and as per the judgment of the court.

The Role Of The Trustee

The main duty of the trustee is to represent the creditors. However, this role changes, depending upon the different types of cases and the judgment given by the bankruptcy court. These legal professionals are usually the representatives of the creditors, but depending upon case to case, it is also their duty to keep a watch on the debtor’s action. For example, if it is a chapter-7 case, their duty is to make sure that all the assets and properties of the debaters have been liquidated as per the laws. At the same time, they also work in favor of the debtors, by making sure that they get the properties exceptions as per the specific laws of that particular state regarding the same. On the other hand, if it is a chapter-13 case, the bankruptcy trustee keeps a watch on the debtor’s business activity. In some cases, they even work hand in hand with the debtor in order to ensure smooth and profitable running of the business of the debtor. At the same time, they also keep a watch whether the debtor is religiously working on the repayment plan suggested by the court or not.

How Does The Trustee Work?

There are several ways a bankruptcy trustee carries out its work. However, whatever way they follow, their main objective is always to protect the interest of the creditors. For example, the trustee can distribute the funds to appropriate creditors, object to discharge, or certain exemptions a debtor may claim, collect property of the estate, liquidate nonexempt property in the estate, etc.

The Degree Of Involvement

As said earlier, the degree of involvement of the trustee varies from different types of bankruptcy. For example, since in chapter 7 bankruptcy, the role of the trustee is very limited. In chapter 13, the degree of involvement is much more. Moreover, in chapter 11, their job is multi-layered.

Overall, we can see that the job of the bankruptcy trustee is a balancing act. They do not only have to keep the interests of the creditors in mind, but it is also their duty to provide assistance in the smooth performance of the debtor’s plan. In the United States of America, there is an organization “the United States Trustee” that appoints all these trustees.