Bankruptcy trustee

3 key takeaways

• The trustee manages the debtor’s assets and oversees the administration of the bankruptcy case.
• Trustees play a critical role in both Chapter 7 and Chapter 13 bankruptcy cases.
• Their duties include liquidating assets, distributing proceeds to creditors, and investigating the debtor’s financial affairs.

What is a bankruptcy trustee?

A bankruptcy trustee is an individual appointed by the court to manage and administer a bankruptcy case. The trustee’s primary responsibilities are to oversee the debtor’s estate, ensure that the bankruptcy process is conducted according to the law, and distribute any available assets to creditors. The trustee acts as an intermediary between the debtor, the court, and the creditors, ensuring that all parties are treated fairly and that the process runs smoothly.

Trustees are appointed in both Chapter 7 and Chapter 13 bankruptcy cases, though their roles and duties differ slightly depending on the type of bankruptcy.

Roles and responsibilities of a bankruptcy trustee

1. Chapter 7 Trustee

In a Chapter 7 bankruptcy, the trustee’s main role is to liquidate the debtor’s non-exempt assets and distribute the proceeds to creditors. Specific duties include:

• Reviewing the petition: Examining the debtor’s bankruptcy petition and schedules to ensure accuracy and completeness.
• Meeting of creditors: Conducting the 341 meeting where creditors can question the debtor about their financial affairs.
• Liquidating assets: Identifying and selling non-exempt assets to generate funds for creditor repayment.
• Distributing proceeds: Distributing the proceeds from asset sales to creditors according to the priority established by bankruptcy law.
• Investigating financial affairs: Investigating the debtor’s financial history to uncover any potential fraud, preferential transfers, or hidden assets.

2. Chapter 13 Trustee

In a Chapter 13 bankruptcy, the trustee oversees the debtor’s repayment plan and ensures that payments are made to creditors as outlined in the plan. Specific duties include:

• Reviewing the repayment plan: Examining the debtor’s proposed repayment plan to ensure it complies with bankruptcy laws and is feasible.
• Collecting payments: Receiving and managing the debtor’s monthly payments according to the approved repayment plan.
• Distributing payments: Distributing payments to creditors as specified in the repayment plan.
• Monitoring compliance: Ensuring the debtor complies with the terms of the repayment plan and reporting any issues to the court.
• Adjusting the plan: Working with the debtor and creditors to modify the repayment plan if the debtor’s financial situation changes.

Importance of the bankruptcy trustee

• Ensuring fairness: Trustees ensure that the bankruptcy process is fair and transparent, protecting the interests of both debtors and creditors.
• Asset management: Trustees efficiently manage and liquidate assets to maximize the return to creditors.
• Compliance: Trustees ensure that debtors comply with all bankruptcy requirements and that the process adheres to legal standards.

Real-world application

Example: Sarah, a small business owner, files for Chapter 7 bankruptcy. The court appoints a trustee to oversee her case.

Reviewing the petition: The trustee reviews Sarah’s bankruptcy petition and schedules, verifying the accuracy of her listed assets and debts.

Meeting of creditors: At the 341 meeting, the trustee asks Sarah questions about her financial situation and her business’s assets. Creditors also have the opportunity to ask questions.

Liquidating assets: The trustee identifies non-exempt assets, such as business equipment and inventory, and arranges for their sale.

Distributing proceeds: The proceeds from the asset sales are distributed to Sarah’s creditors according to the priority established by bankruptcy law.

Investigating financial affairs: The trustee reviews Sarah’s financial history to ensure there are no hidden assets or fraudulent transactions.

Outcome: The trustee’s efforts result in a fair distribution of Sarah’s available assets to her creditors, and Sarah eventually receives a discharge of her remaining debts.