What Is a Trustee in Bankruptcy?
In practically every individual consumer bankruptcy case, regardless of whether it falls under Chapter 7 bankruptcy or Chapter 13 bankruptcy, there will be a bankruptcy trustee with various obligations and powers, depending on the case.
The Bankruptcy Estate and Bankruptcy Trustee
In order to understand what a trustee is and what they do, it is best to first get a clear understanding of the concept known as the "bankruptcy estate." Under bankruptcy law, at the time someone files for bankruptcy, a bankruptcy estate is created which is composed of the debtor's property. The bankruptcy estate is its own distinct legal entity separate from the bankruptcy debtor.
Of course, since the bankruptcy estate is not a person, that's where a bankruptcy trustee is needed to step in to play the role of overseeing the bankruptcy estate. The trustee will perform various duties required by law, as well as the circumstances of a given bankruptcy case. Trustees are people who are appointed or selected to oversee particular bankruptcy cases or a particular type of bankruptcy.
What Does a Bankruptcy Trustee Do?
A bankruptcy trustee's duties vary depending on the type of case, as well as the circumstances of a particular debtor and their creditors. In short, a bankruptcy trustee will not be doing the same things in every case, but below are some of the basic duties they have, depending on the type of bankruptcy that is filed.
The Trustee in Chapter 7 Bankruptcy Cases
The duties and powers of trustees in both chapters (Chapter 7 and Chapter 13) are similar in some ways, and many of the distinctions come down to the difference between each type of bankruptcy. Here are some of the primary duties and powers of a trustee in a Chapter 7 liquidation bankruptcy case:
- Rounding up all of a debtor's property
- Selling the bankruptcy estate's property
- Challenging creditors' claims (where appropriate)
- Distributing proceeds to creditors
- Objecting to a bankruptcy discharge where grounds exist
The Trustee in Chapter 13 Bankruptcy
Unlike the gathering and sale of property that is involved in Chapter 7 liquidation bankruptcy, debtors in Chapter 13 reorganization bankruptcy keep possession of their property during the course of the bankruptcy. A trustee's main duties in these cases deal primarily with handling payments as well as:
- Reviewing the debtor's proposed repayment plan
- Making objections to the plan as necessary
- Receiving/collecting payments from the debtor according to the established repayment plan
- Distributing payments to creditors
As the duties above suggest, in the great majority of consumer bankruptcies the trustee will play a big part. Whether reviewing claims by creditors, claims by debtors, or challenging other aspects of a bankruptcy case, the bankruptcy trustee will play a central role in how the bankruptcy proceeds.
Are Bankruptcy Trustees Federal Employees?
The bankruptcy trustee is appointed by the United States trustee, an employee of the Department of Justice, to administer the bankruptcy estate. However, private trustees who administer bankruptcy cases under the various chapters are not themselves government employees.
More Questions About a Trustee in Bankruptcy? Talk to an Attorney
Maybe you haven't quite gotten to the stage of filing for bankruptcy, but you're awfully sure you are headed in that direction. Why not save yourself time, worry, and money and learn more about the process by talking to an experienced bankruptcy attorney in your area.