What Does the Bankruptcy Trustee Do?

Let's review the rights and responsibilities of professional bankruptcy trustees. When a debtor files for a Chapter 7 bankruptcy, the United States Trustee appoints a trustee to liquidate the debtor's assets and divvy them up for creditor collection. The rules by which the trustee may liquidate and divide said monies are typically set forth in state's statutes but may depend sensitively on details of each case.

During Chapter 13 and Chapter 12 reorganizations, the trustee oversees the post-bankruptcy repayment project and ensures that the debtor meet his or her obligations under the bankruptcy code. The trustee is also responsible to prevent abuse and fraudulent activities relating to the disbursal of a debtor's estate.

At the same time, the trustee acts as an advocate of the debtor by ensuring that any professional costs associated with liquidation and disbursement are reasonable and that creditors avoid harassing the debtor after the court has implemented an automatic stay. The trustee has the power to refer violations of the law to the prosecutor's office and therefore acts as a custodian of good faith for the bankruptcy arrangement.

In professional bankruptcy cases -- specifically Chapter 11 situations -- trustees gather together committees of creditors to develop sound reorganization plans. The trustee also has some leeway over how to define procedural rules vis-à-vis statements of disclosure.

There have been situations in which court trustees have been deemed inappropriately one-sided, and both debtors and creditors can appeal trustee decisions that they feel are inappropriate or in discord with the pertinent statutes in the bankruptcy code. But by and large, the decisions that the trustee makes stand, and both creditors and debtors have to jump through major legal hoops to contest the actions of the trustee, unless those actions are flagrantly inappropriate or biased one way or the other.

Many trustees focus on particular types of bankruptcy filings in order to dispatch cases with expertise. Although trustees are expected to be versed in Chapter 7, Chapter 11, Chapter 12, and Chapter 13 bankruptcy filings, today's convoluted bankruptcy code means that there are fewer and fewer jack-of-all-trade trustees.