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Duties of a Bankruptcy Trustee

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In both Chapter 7 and Chapter 13 cases, the bankruptcy trustee is the official the debtor will have the most contact with and the person who will recommend whether the bankruptcy judge signs off on a dismissal.

Bankruptcy Trustee Seizes Assets in a Chapter 7 case

The trustee determines whether there are any assets in the state that are not exempt from seizure. The trustee conducts the Section 341 debtor's meeting, and can ask the debtor questions about any property in question. About 90 percent of all Chapter 7 cases involve no assets because of state and federal exemptions, but it is the duty of the trustee to make that determination and to seize any assets not protected by an exemption. The trustee then sells property and files reports with the bankruptcy judge to detail how much cash was collected after property was sold and how the total was divided among creditors.

Other Chapter 7 Responsibilities of a Bankruptcy Trustee

  • Representing the interests of the unsecured creditors. Secured creditors who has liens on property backing up their debt are normally unaffected by bankruptcy. But how much - if any - creditors receive in a Chapter 7 case is totally dependent on the actions of the bankruptcy trustee.
  • Examines all proofs of claim filed by creditors. The trustee makes sure the any proof of claim filed follows the proper format and is received before the deadline in the case. Any objection to a proof of claim comes from the trustee.
  • Making a final determination on a discharge for the debtor. Part of that responsibility includes looking over the bankruptcy filing to make sure the information is proper and there is not suggestion in the debtor's finances that there may be additional income available to pay to creditors. Trustees have the duty to uncover any fraud in a Chapter 7 case, such as concealing assets, making payments to insiders and running up debts immediately prior to the filing date. The trustee can oppose a debtor's discharge if any significant fraud is discovered. The bankruptcy judge makes the final decision whether to uphold the findings of the trustee.

Bankruptcy Trustee Duties in a Chapter 13 Case

  • Some of the duties are the same as a Chapter 7 case: such as representing the interests of unsecured debtors and looking over the filing and question the debtor to make sure there is no fraud involved.
  • The Chapter 13 bankruptcy trustee also is in charge of overseeing the bankruptcy repayment plan proposed by the debtor. The trustee pores over the plan to look for any information missing or reason it may not be successful. The trustee also mediates any disputes from other creditors over the repayment plan.
  • The trustee also works with the debtor about any revisions to the plan over the course of the 3 or 5 years it is in effect. The trustee also makes sure that the debtor continues to make all required payments under the plan.
  • It is the trustee who holds the confirmation hearing and considers any challenges to the reorganization plan.

How Bankruptcy Trustees are Selected

Bankruptcy trustees are chosen by the U.S. Trustee among private citizens, often lawyers, in each bankruptcy district. There are usually several available to handle cases and each trustee serves a 1-year term that can be renewed by the government.

In a Chapter 11 bankruptcy plan, the debtor usually remains in control of his company, acting much like a trustee. If creditors or other parties in a Chapter 11 case claim the debtor is acting improperly, a trustee can be appointed to the case.

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