What Is A Bankruptcy Trustee?

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Whenever a Debtor files Bankruptcy, a trustee is assigned to the case. Trustees are selected as part of the United States Trustee Program, which is overseen by the Department of Justice (DOJ). At times, instead of a U.S. Trustee overseeing the case, a private trustee is appointed and supervised by the U.S. Trustee. The role of the trustee varies on whether the Debtor files Chapter 7 or Chapter 13 Bankruptcy. Essentially, the trustee plays the role of the “Bankruptcy Police,” who makes sure that the Debtor is not filing Bankruptcy fraudulently, and is not hiding any assets that can be used to pay creditors. Below you will see the summary of trustee’s role in Chapter 7 and 13 cases.

Trustee’s Role In Chapter 7 Bankruptcy

When a Debtor files Bankruptcy, the filing will include the petition along with other papers disclosing their personal and financial information. Information disclosed on these documents includes their current debts, property, income, and state of financial affairs. The trustee overseeing the case, reviews their Bankruptcy petition and verifies that all the information provided is accurate.

One of the biggest roles the trustee plays in Chapter 7, is liquidating non-exempt assets. When a Debtor files Bankruptcy, certain assets will be qualified exempt under state law (or federal in some cases). Assets that are not exempt, will be liquidated by the trustee. In other words, the trustee will sell off the non-exempt assets and give the maximum amount of return to the Debtor’s creditors.

Another role the trustee plays in Chapter 7, is making sure that there aren’t any preferential transfers occurring before filing Bankruptcy. If the Debtor forfeited or transferred property (or assets) to pay back certain creditors, it might be classified as a preferential transfer. This is because the Debtor paid a creditor over others before filing Bankruptcy.

Trustee’s Role in Chapter 13 Bankruptcy

In Chapter 13 Bankruptcy, the U.S. Trustee supervises the private trustee who administers the Chapter 13 case. Similarly to the Chapter 7 role, the trustee in Chapter 13 also verifies that the Debtor’s personal and financial information is being accurately reported. Once the Debtor’s forms are submitted, the trustee may raise objections to the proposed repayment plan, expenses, exemption, etc.

Unlike Chapter 7, a trustee in Chapter 13 does not liquidate non-exempt assets. Instead, the trustee begins to collect payments within 30 days of filing Chapter 13 Bankruptcy, in accordance to the Debtor’s proposed repayment plan. The payments made by the Debtor to the trustee are held in a temporary trust fund for creditors to collect from after the plan is approved. When the plan is approved, the Debtor will continue to make payments to the trustee, according to the repayment plan. The trustee will be responsible for tracking and distributing the funds to the creditors accordingly.

The trustee can also provide some relief for the Debtor in the form of objecting to improper claims by creditors. Creditors must file a “proof of claim” in order to get paid through the Chapter 13 plan. If a Chapter 13 trustee finds that a proof of claim was not filed out properly or does not have the correct documentation, it can object to it and possibly have it barred from being paid through the Chapter 13 plan.

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It is very important that every Debtor cooperates with the Trustee, and remember that they are not there to represent you or your best interests. We at the Law Office of William Factor, Ltd., are very experienced in dealing with trustees. If you, a family member, or a friend are considering Bankruptcy and have questions please contact one of our distinguished Northbrook Bankruptcy attorneys at the Law Office of William J. Factor at (312) 878-6976, for your free, no-obligation consultation!