What Is a Bankruptcy Trustee and What Do They Do?

FT Contributor
A bankruptcy trustee providing information for a man handing over his bankruptcy petition.
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Filing for bankruptcy is a complicated process. Federal bankruptcy courts will expect an individual or business to submit a variety of forms, financial reports, and other documents. The court appoints a bankruptcy trustee to work with the debtor through the entire process.

The bankruptcy trustee plays an important role in a bankruptcy petition — they’re the go-between for the debtor and the creditors and will verify all statements and documents submitted to ensure the process was fair and transparent to both the debtor and the creditors.

What Is the Role of a Bankruptcy Trustee?

The trustee works between the debtor, creditors, and the court to ensure the petition is administered properly. A bankruptcy trustee is not a government employee. The individual is appointed by the Department of Justice, whose main role is to oversee bankruptcy cases and uncover bankruptcy fraud. The role of a bankruptcy trustee varies with the type of bankruptcy. Here’s a closer look:

Chapter 7 Bankruptcy Trustee

A Chapter 7 bankruptcy is the simplest (and most common) of all the bankruptcy types. In this type of bankruptcy, the debtor’s assets belong to the bankruptcy estate once a petition is filed. The assets must be classified by which are exempt from being sold and which can be sold to pay off all or part of the debtors’ debts.

If you’re filing for bankruptcy, the main job of the Chapter 7 bankruptcy trustee is to sell your eligible, nonexempt assets and distribute the cash to your creditors. A Chapter 7 bankruptcy trustee’s responsibilities include:

  • Reviewing and verifying that the financial information you submit is correct and true;
  • Hosting a meeting where creditors can question the debtor;
  • Managing and accounting for all your exempt and nonexempt property;
  • Selling nonexempt property to pay down the debt;
  • Distributing the sales to the creditors as ordered by the court;

Chapter 13 Bankruptcy Trustee

A Chapter 13 bankruptcy does not involve the sale of any property or assets. Instead of selling assets, the debtor will show they are employed and propose a plan to pay back all or a portion of their debt in installments over three to five years.

The bankruptcy trustee is responsible for overseeing the creation and execution of the repayment plan. The bankruptcy trustee will work with the debtor longer than in a Chapter 7 case because they receive and distribute the agreed-upon payments over the course of three to five years after the ruling. The role of the Chapter 13 bankruptcy trustee includes:

  • Reviewing and verifying that the financial information submitted is true and correct;
  • Hosting a meeting where creditors can question the debtor;
  • Making sure the repayment plan is realistically affordable;
  • Collecting monthly payments as outlined in the plan;
  • Reporting to the court on the debtor’s progress in meeting their obligations;
  • Distributing the payments to the creditors as agreed upon in the plan;

The Office of the United States Trustee

The Department of Justice’s Office of the U.S. Trustee supervises bankruptcy cases, divided into 21 regions and 92 field offices. Most states have one or more field offices with the exception of Alabama and North Carolina (not under the jurisdiction of the U.S. Trustee Office) as well as D.C., North Dakota, South Dakota, and Vermont, which are administered by neighboring regional offices.

Bankruptcy trustees are appointed by the Justice Department to “work in concert with the United States Trustee to ensure the efficiency and integrity of the bankruptcy system” and are not government employees.

Panel Trustee

The panel trustee is the bankruptcy trustee that handles a Chapter 7 bankruptcy case. They’re called panel trustees because they’re appointed to a panel in each court district to administer Chapter 7 bankruptcies.

Standing Trustee

The standing trustee administers a Chapter 13 bankruptcy case. They’re called standing trustees because they U.S. Trustee Office awarded them with a standing appointment to administer Chapter 13 cases.

What Happens When You Work With a Trustee?

Once you decide to file for bankruptcy and file the petition, your case will be handed off to a trustee. The trustee will be your point of contact and will learn everything there is to know about your finances, obligations, spending habits, and more. They use this information to report your financial case accurately to the court. Here is what typically happens once you file for bankruptcy:

  • You’ll receive a written notice informing you of who your appointed bankruptcy trustee will be (with contact info).
  • The bankruptcy trustee will organize a meeting of creditors where you will meet your trustee and creditors in person for the first time for an under-oath question-and-answer session.
  • At the meeting of creditors, you will present your financial documents to the trustee and verify your identity.
  • During the meeting, you will answer questions from the trustee and creditors about your financial situation and documents presented under oath.
  • You will turn over any nonexempt property that may be sold to pay your debts in a Chapter 7 bankruptcy case.
  • In a Chapter 13 bankruptcy case, once your plan is approved by the creditors and court, you’ll start to make your monthly payments to the trustee.
  • In Chapter 13 cases, the trustee will report to the bankruptcy court regularly on your payment progress over the next three to five years.

A trustee plays a vital role in your bankruptcy. Their job is to ensure that the process is carried out impartially and without any fraud involved. It’s important to respond to your trustee’s requests in a timely and upfront manner so that the process runs smoothly and in your favor — a bankruptcy trustee will carefully investigate and verify all your financial documentation.

The trustee will be your point of contact during (and sometimes after) the bankruptcy. In the case of a Chapter 13, they will work with you for three to five years after the initial filing, until all your payment obligations agreed upon in the payment plan are met.

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