Legal Professional?
Build Your Business

A Trustee's Role in Bankruptcy



A bankruptcy trustee is an impartial, court-appointed officer charged with administering the debtor's estate. The trustee is an appointee of the Department of Justice's United States Trustee. She serves as a representative of creditors and protects their interests.

The duties, roles, and extent of involvement of a trustee vary according to the chapter of bankruptcy a debtor files. The range of tasks performed include collecting estate property, court appearances, objecting to discharge, objecting to exemptions claimed by a debtor, liquidating non-exempt estate property, and distributing funds to creditors.

Chapter 7 Trustee (Panel Trustee)

The United States Trustee appoints each Chapter 7 trustee to a panel of trustees for at least one year, with the potential for renewals. In a Chapter 7 bankruptcy, the trustee's role is rather limited in scope. A trustee is charged with liquidating non-exempt debtor property if there are assets. However, in most Chapter 7 cases, there are no assets to administer. Those cases are referred to as no-asset cases.

The trustee distributes non-exempt property, if any, in accordance with the priority scheme of the Bankruptcy Code. This task involves the trustee collecting assets, selling them, and distributing funds to creditors. She evaluates the case to ascertain whether there are preferences (prohibited payments made by the debtor to preferred creditors at the expense of others during a proscribed period) that can be avoided or fraudulent transfers that can be reclaimed. A trustee may bring a dismissal motion if she finds evidence of the debtor's abuse of the bankruptcy system. She has the power in the Bankruptcy Code to deny a debtor of the privilege of a bankruptcy discharge if she discovers evidence of perjury, fraud, malfeasance, or ineligibility under applicable statutes.

The trustee has the duty to ensure that a debtor's plan operates in as smooth a manner as possible. She presides over initial meetings of creditors. She also attends key hearings during the lifespan of debtor's case.

Chapter 13 Trustee (Standing Trustee)

The United States Trustee appoints a standing trustee to oversee and administer cases in a specific district. There is usually only one trustee assigned per area unless the volume of cases warrants more.

The Chapter 13 trustee assumes an involved role, performing more than mere perfunctory oversight of the case. He is responsible for reviewing a debtor's proposed plan, statements, schedules, and disclosures. The trustee collects payments made by the debtor during the plan and distributes payments to creditors under the priority schemes of the Bankruptcy Code. The trustee's role is to manage the debtor's financial affairs and repay creditors. He must appear at hearings that regard valuations of property, ensure plan payments are made by debtors, and take care of payment disbursals to creditors.