Bankruptcy Trustee

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What is a Bankruptcy Trustee?

A bankruptcy trustee is a person that is responsible for managing the estate of a bankrupt individual or organization, the debtor. The trustee is appointed by the United States Trustee within the court.

Trustees are typically attorneys or financial professionals with experience in bankruptcy law.

While a bankruptcy trustee evaluates and makes recommendations during the bankruptcy proceeding, within the guidelines of the U.S. Bankruptcy Code, the final authority of asset distribution lies with the bankruptcy judge.

The bankruptcy trustee cannot make any final decisions or actions without court approval.

Bankruptcy Trustee Responsibilities 

A trustee is responsible for collecting the assets of the bankrupt estate, selling any non-exempt assets, and distributing the proceeds to the creditors. The trustee also has the authority to challenge any debts that he or she believes are not dischargeable in bankruptcy.

In addition, the trustee is responsible for overseeing the bankrupt estate’s compliance with the bankruptcy process. For example, the trustee may require the debtor to provide information about his or her financial affairs, or to attend a 341 meeting with creditors.

Who Does a Bankruptcy Trustee Represent?

In a bankruptcy case, the trustee doesn’t officially represent anyone from a defense perspective. They are intended to act as a neutral party to oversee the bankruptcy process and distribution of the debtor’s estate.

Ultimately, the trustee’s goal is to maximize the value of the estate for the benefit of all creditors.

What Does the Trustee Investigate?

The trustee has the power to investigate the debtor’s financial affairs and bring suit against creditors or other parties who have engaged in fraud or other illegal activities.  

The main investigation is typically focused within the debtor’s financial history and affairs. This includes looking into assets, income, and expenses.

The trustee will also investigate any transfers of property or assets that the debtor made in the years leading up to filing for bankruptcy.

The investigation is important because it helps to ensure that the debtor is not hiding any assets or income and to ensure that they have not made any recent transfers of property that could be considered fraudulent. If the trustee finds any evidence of fraud or dishonest dealing, they may file a motion with the court to have the case dismissed.

Who Pays the Bankruptcy Trustee?

The trustee is typically paid a percentage of the debts that are discharged in bankruptcy. However, the trustee’s fees are set by the court and must be approved by the creditors. In some cases, the debtor may be required to pay the trustee’s fees directly. In other cases, the fees may be paid out of the proceeds of the bankruptcy estate.

Ultimately, it is up to the court to determine who pays the bankruptcy trustee.

Bankruptcy Trustees for Different Bankruptcy Types

A bankruptcy trustee is appointed in all types of bankruptcies, but has a different role with varying responsibilities depending on the Chapter.

Chapter 13 Bankruptcy Trustees

In Chapter 13 bankruptcies, the trustee works with an individual to either liquidate or retain some assets in an effort to create a repayment plan to resolve their debts. The trustee also has the power to object to certain actions taken by the debtor or creditors, such as attempts to modify the repayment plan.

Chapter 7 Bankruptcy Trustees

A Chapter 7 bankruptcy trustee is responsible for administering the bankruptcy estate. The trustee’s duties include liquidating any non-exempt assets and distributing the proceeds to repay creditors.

Chapter 11 Bankruptcy Trustees

Chapter 11 bankruptcies are applicable to corporations and business organizations seeking debt reorganization, in which a trustee will organize assets and debts within the bankruptcy process to create a plan.