What Is a Bankruptcy Trustee?
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The bankruptcy trustee doesn’t represent the filer and they don’t represent any specific creditor. They review the filer's forms and conduct the creditors' meeting.
Written by Attorney Andrea Wimmer.
Updated November 13, 2021
A bankruptcy trustee is an independent official who handles certain aspects of a bankruptcy case. There are Chapter 7 bankruptcy trustees and Chapter 13 bankruptcy trustees and while their job descriptions are different, their goal is the same: to make sure unsecured creditors receive as much as bankruptcy law requires. Many bankruptcy trustees started out as bankruptcy attorneys, but that is not required.
Who Do Bankruptcy Trustees Work For?
They don’t really work “for” anyone but they’re appointed and regulated by the U.S. Trustee Program, a division of the Department of Justice. Each district has a number of Chapter 7 trustees, called the trustee panel. Chapter 13 trustees are considered “standing trustees” because they have a standing appointment to handle all Chapter 13 cases in their judicial district. Large states can have multiple Chapter 13 bankruptcy trustees, but it’s also not uncommon for a single trustee to handle all Chapter 13 cases in a single state.
How Are Trustees Appointed to Bankruptcy Cases?
The appointment is made by the local U.S. Trustee’s office. The bankruptcy court’s clerk’s office handles the assignments once a bankruptcy petition is filed. It’s done based on a blind rotation. The filer finds out the name and contact information of their bankruptcy trustee when they get their Form 309A.
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What Does a Chapter 7 Bankruptcy Trustee Do?
The Chapter 7 trustee oversees the administration of the bankruptcy estate. There are a few “standard tasks” they have to complete in all Chapter 7 bankruptcy cases.
They review and confirm the information contained in the bankruptcy forms.
They review the filer’s bankruptcy forms, paycheck stubs and tax returns. This is to make sure that the information on the bankruptcy forms matches the information that was submitted to the I.R.S. in the tax return. If the bankruptcy trustee finds that the filer is trying to hide assets or otherwise skirt tax or bankruptcy law, they can ask the U.S Attorney's office to start a criminal investigation.
The trustee also reviews the debtor’s property (usually just by looking at the bankruptcy forms) to see if there are any nonexempt assets. The Chapter 7 bankruptcy system is based on the premise that the filer is able to keep only those assets that are protected by an exemption. It’s the trustee’s job to review the debtor’s property and make sure all exemptions claimed as part of the bankruptcy filing are proper.
If the trustee’s office determines that an exemption was improperly claimed, they can file an objection with the bankruptcy court. Then it’s up to the bankruptcy judge to decide whether the property is protected. The deadline to file an objection to a claimed exemption is 30 days after the meeting of creditors is done.
They conduct the meeting of creditors.
The bankruptcy trustee runs the meeting of creditors. Most Chapter 7 bankruptcy cases don’t involve a bankruptcy judge, but they all involve a meeting of creditors. During this meeting, one of the trustee’s duties is to check a picture ID and proof of the debtor’s social security number. Although creditors are allowed to attend these meetings, they rarely do so.
They act on behalf of the bankruptcy estate — whatever that may look like.
The bankruptcy estate is a fictional entity that is created as soon as a bankruptcy petition is filed with the court. It holds all of the debtor’s property. In addition, the trustee, as the representative of the bankruptcy estate, can take certain actions to recover property that should be in the estate, but isn’t.
They sell nonexempt property.
They sell property of the bankruptcy estate (i.e. the filer’s property) that is not protected by an exemption. If the nonexempt asset is money, like a tax refund or cash on hand, they collect this money. The funds are used to pay unsecured creditors in order of priority and provide a detailed report about everything to the court and the U.S. Trustee’s office.
They recover certain debt payments.
If the debtor’s property or income was used to pay an unsecured creditor in the 90 days before the bankruptcy case is filed with the court, the trustee can get this payment back. The point is to make sure that all creditors get a fair share; that one one is preferred. This is not limited to voluntary payments, but includes money that was taken by a garnishment. If the creditor who received the preferential transfer is a family member or friend, the bankruptcy trustee can recover everything they received in the 12 months before the filing date.
They recover property the debtor gave away.
This is not about the birthday present you gave your niece last spring. Or even the donation you made to the Salvation Army last Christmas. It’s about property that is given away or sold for less than its actual value so that creditors can’t get to it. In other words, you can’t “sell” your diamond bracelet to your friend for $5 so it’s not considered a nonexempt asset. This is called a fraudulent transfer. The trustee can get this property back and sell it for the benefit of unsecured creditors.
In most cases, they don’t actually do any of these things.
In most personal Chapter 7 bankruptcy cases there are no assets to be sold or recovered. The trustee still completes a full review of everything and conducts the meeting of creditors and files a Report of No Distribution with the bankruptcy court. This report tells the court, the U. S. Trustee, and the creditors that the trustee has determined that there are no assets to be distributed. These no-asset cases are closed shortly after the bankruptcy discharge is entered by the court.
What Does a Chapter 13 Bankruptcy Trustee Do?
This type of bankruptcy does not involve the sale of the debtor’s property so the trustee’s office makes sure that the terms of the Chapter 13 plan reimburses unsecured creditors for any nonexempt assets the filer has. In fact, the Chapter 13 bankruptcy trustee reviews the debt repayment plan proposed by the person filing bankruptcy to make sure it meets all of the requirements under the Bankruptcy Code. Then they act as a sort of middleman between the parties. The debtor sends the monthly payments to the Chapter 13 trustee, who in turn disburses the funds according to the terms of the Chapter 13 plan.
How Are Bankruptcy Trustees Paid?
Chapter 7 trustees get a flat fee of $60 for every single Chapter 7 bankruptcy case assigned to them. In no-asset cases, that’s all they get. In an asset case, on the other hand, the trustee also receives a percentage of the total amount paid to unsecured creditors. It’s a little bit like a commission system, but it’s on a sliding scale. They get 25% of the first $5,000 they disburse. The percentage goes down as the amount paid to creditors goes up.
Chapter 13 bankruptcy trustees are also paid a percentage which is determined by the monthly payments the trustee’s office is processing each month. Most Chapter 13 bankruptcy trustees have office staff and this percentage is used to pay for their office expenses. There is a limit to how much a Chapter 13 trustee can receive as a salary from these funds.
What if I Have a Complaint About My Bankruptcy Trustee?
If your complaint is about a trustee’s unprofessional conduct, you can let the local United States Trustee’s Office know. They’re in charge of reviewing and addressing complaints like this. Keep in mind, though, that complaining because the trustee is selling nonexempt property won’t get you far. It may not be what you want them to do, but it’s their job to do exactly that.
The bankruptcy trustee doesn’t represent the filer and they don’t represent any specific creditor. Instead, they act as an independent third party that moves the case through the bankruptcy process and makes sure that unsecured creditors get as much as they’re due. In most Chapter 7 bankruptcy cases, that means $0.