Can you trust your bankruptcy trustee?

As you consider bankruptcy as an option for relief from severe indebtedness, you’re bound to come across some terms and concepts that require a little bit of additional explanation. For many people, the role and purpose of the bankruptcy trustee is one such question mark.

Who or what exactly is a bankruptcy trustee? How are they appointed, and what are their duties during the bankruptcy process? Do they work on your behalf, or for someone else? What exactly is the trustee’s job, and what does it mean for you?

Let’s answer some of those questions by exploring the role of the bankruptcy trustee in two common types of bankruptcy cases, Chapter 7 and Chapter 13.

What Is a Bankruptcy Trustee?

In broad strokes, a bankruptcy trustee is an official who is appointed by a bankruptcy court; their purpose is to oversee and complete the many administrative tasks that come along with a bankruptcy case. We’ll get into some more of those specifics in a minute. The actual day-to-day for a bankruptcy trustee will depend on a number of factors, including the unique circumstances of the debtor’s situation, and the type of bankruptcy they’re pursuing.

Bankruptcy trustees are often lawyers or accountants, though there is not necessarily a specific job requirement to serve as a trustee.

When you file for bankruptcy, a trustee is appointed to your case. To ensure fairness and thoroughness, you do not get to choose your own bankruptcy trustee. It’s also worth noting that bankruptcy trustees do receive compensation; they typically receive a nominal fee for each case they take on, and are usually given a percentage commission on the assets that they can collect from the debtor, on behalf of their creditors. This incentivizes trustees to be thorough when it comes to finding assets and ensuring that debts are collected.

As we’ve noted, the exact duties performed of the bankruptcy trustee will vary from case to case. Importantly, bankruptcy trustees have slightly different roles and responsibilities when it comes to different types of bankruptcy filings.

The Role of the Bankruptcy Trustee in Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also commonly referred to as “liquidation” bankruptcy, and is the most common type of bankruptcy among individual consumers. Chapter 7 bankruptcy will typically  allow a consumer to discharge many of their unsecured debts.

The bankruptcy trustee plays a critical role in overseeing and administering Chapter 7 bankruptcy proceedings. Their responsibilities will generally include:

  • Reviewing and investigating the filer’s bankruptcy forms
  • Conducting a meeting between the debtor and his or her creditors, in order to establish facts about their history and financial situation
  • Investigating fraud or inappropriate behaviors by the debtor
  • Collecting the debtor’s eligible property/assets
  • Selling the assets of the bankruptcy estate
  • Distributing proceeds to creditors, as appropriate

The Role of the Bankruptcy Trustee in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is also thought of as “reorganization” bankruptcy. It is intended for debtors with a regular income, who are able to pay back at least some of their debts in line with a structured repayment plan. In Chapter 13, consumers use a repayment plan to pay back creditors, either in part or in full, over a set period of time, based on factors such as income, expenses, type of debt, and so on.

In Chapter 13, the bankruptcy trustee will be responsible for handling administrative and oversight duties, and plays a key role in handling the debtor’s repayment plan. Broadly speaking, trustees in Chapter 13 bankruptcy are responsible for:

  • Reviewing the debtor’s proposed repayment plan
  • Listening to objections from creditors, and raising objections and changes to the plan, as appropriate
  • Collecting payments from the debtor under the terms established by the repayment plan
  • Disbursing payments collected from the debtor under the repayment plan to creditors, as appropriate

In short, the trustee plays the vital role of making sure that the structured repayment plan is fair and feasible, and then oversees its execution.

Understanding the Many Moving Parts of the Bankruptcy Process

Bankruptcy is a practical option for many consumers seeking to get out from their debts and move into the future on surer financial footing. There are many myths, misconceptions, and inaccuracies out there about bankruptcy, and it’s important to make sure you’re taking every step you can to head into this process with maximum education and insight.

That’s where the Gunderson Law Firm can step in and help. Our attorneys and staff have extensive experience in the area of bankruptcy law. Every day, we work to protect our clients’ assets to the highest degree possible under current laws.

We will take all steps possible to protect you and your assets immediately and throughout the bankruptcy process, and can also counsel you on realistic ways to avoid such serious debt issues in the future.

Whether you are a business owner, a wage earner, retired, or otherwise, we can address your specific situation with strategic plans to help put severe indebtedness behind you, so that you can begin to enjoy life again.

Have any further questions about the role of the bankruptcy trustee, or any other aspect of the bankruptcy process? Drop us a line whenever you want to keep the conversation going.