The Trustee's Role in a Personal Bankruptcy

The basic role of the trustee in bankruptcy is to make sure that all parties, including the creditors, are treated fairly. The trustee is also responsible for making sure that any assets are sold for the most money and that the money is distributed to the creditors.

When you and your attorney file your bankruptcy papers, it is not automatically assumed that everything listed is the exact truth. Attorney’s generally will not file any claims that they know are inaccurate, but they are relying on you to provide all of the appropriate information.

In most bankruptcy cases, the attorney will go through the paperwork to determine if any claims being made are inaccurate. Once the case is filed, the trustee will go over all the information supplied looking for inaccuracies or reasons to believe fraud may be involved. At this point, the trustee is acting almost like an auditor, or an advocate for the creditors. In addition to the trustee’s inspection, your filing can be formally audited. The audit involves the verification of the income, expenses, and assets reported on the bankruptcy schedules and statements.

Bankruptcy attorneys usually work with a trustee on many different cases and know how to file your paperwork to meet a specific trustee’s concerns. Any issues with how a trustee handles a case should be left up to the attorney to deal with. This is yet another reason to hire a bankruptcy attorney.

The trustee is appointed by an officer of the Department of Justice called the United States Trustee. The trustee will participate in all creditor meetings and has the power to discharge a creditor’s claims if evidence of fraud or ineligibility is found with the creditor. In this case, they are acting as an advocate for you. The trustee will also make sure that you are meeting any requirements you may have for budgeting and money management.

Trustees working with Chapter 7 filings generally serve a one-year term. The trustee’s role in a Chapter 7 bankruptcy include liquidating any non-exempt assets in a manner that maximizes the return to the unsecured creditors. The trustee does this by selling your property, then distributing the money to the creditors. The trustee also has the power to consider if there are preferences or fraudulent transfers that can be recovered from which creditors can be paid. Trustees working with Chapter 7 filings earn a fixed amount for each case (at the time of this writing, $60 / case).

Trustees working with Chapter 13 filings may be standing trustees serving a geographic area or a court region. In a Chapter 13 bankruptcy, the trustee’s job is more administrative as there are no assets to liquidate. They will make sure the balances claimed are true and they have approval power over the repayment plan. The trustee will accept payments from you and distribute them to the creditors according to the repayment plan. Trustees working with Chapter 13 filings earn a percentage of the money collected during the case.

In the end, it’s important remember that even thought the trustee wants to insure that everyone is treated fairly, this necessarily means recovering as much money as possible for the creditors.