Who is the Bankruptcy Trustee?
Updated: Feb 8
When you file bankruptcy, a trustee is appointed by the Office of the United States Trustee to administer your case. Barring an unusual case of a conflict of interest between the debtor and the trustee or a request by creditors to remove the trustee, this person will remain your trustee throughout your case.
It is important to note that while the trustee has powers, it does not have legal authority to force a debtor to do anything. If there ever is a dispute between a debtor and the trustee that cannot be resolved, the two sides can always take the matter in front of the assigned judge, who will be the arbiter.
While many bankruptcy cases come and go without the debtor meeting his/her assigned judge, the debtor will always meet the trustee. The debtor must appear in front of the trustee for his/her meeting of creditors, also known as a debtors exam or 341 hearing. In that hearing the trustee will put the debtor under oath and ask him/her various questions relating to the filed petition.
The trustees role in a chapter 7 case is much different than in a chapter 13 case. In a chapter 7 case, the trustee is looking to determine if the debtor has non exempt assets, meaning the debtor has more assets than he/she is allowed to exempt in a chapter 7. In such an event, the trustee will liquidate the asset and pay and use the money to pay creditors who file a proof of claim with the court. The trustee will take a percentage commission for this liquidation, and it is possible that the debtor will also receive a sum of money from this sale. It is important to note however that the majority of chapter 7 debtors do not have any assets to liquidate, and are considered no asset cases.
In a chapter 13 case, the trustee does not liquidate assets. In fact, many debtors choose the chapter 13 alternative to chapter 7 so that none of the assets they want to keep are liquidated. In a chapter 13, the debtor pays the chapter 13 trustee a monthly payment for a period of 36 to 60 months, and the trustee in turn distributes the money among the debtors creditors who have filed a proof of claim. The trustee receives a commission not exceeding 10% for making the distributions.
Since chapter 13 involves a payment plan, whereas chapter 7 does not, there must be confirmation of the plan in a chapter 13. One of the trustees jobs is to make sure creditors are treated fairly and that the debtor contributes all of his/her disposable income into the plan, so the trustee will often object to confirmation. The two sides will then attempt to resolve any disagreements so that the trustee will allow the plan to be confirmed.
Although the trustee seems like an opponent of the debtor, in actuality the trustee is not for or against the debtor. The trustee is merely doing the job assigned under the bankruptcy code, and as long as the debtor is honest and thorough in describing his/her financial condition to the trustee, the actions the trustee takes in the case are often very predictable.