What Is a Bankruptcy Trustee and What Do They Do?

When filing Chapter 7 or Chapter 13 bankruptcy, you will likely hear the word “trustee” used quite a bit.

Not only are trustees often a requirement during many bankruptcy filings, but they will also have a major impact on how the bankruptcy process in general flows.

When an individual or businesses is filing for bankruptcy, there will often be a lot of steps that need to be executed when it comes to handling estates and assets. Simply put, the trustee is the third party who is in charge of various administrative and distribution tasks during the bankruptcy procedures.

The specific roles and responsibilities of the trustee will largely depend upon the type of bankruptcy filing and other circumstances.

Here are 3 critical roles of a bankruptcy trustee:

Examining Your Estate

In order for the courts to determine the portion of your assets that will be used to pay creditors, it is essential for you to accurately report and document your estate. When you file, you will also distinguish which assets will be exempt from this process.

In essence, the trustee is responsible for examining your assets to validate that what you have claimed on your documents matches what you have. This will include a review of your income records, tax returns and other financial records. If the trustee or the creditors find any instances of discrepancies or mistakes, they can object to your bankruptcy petition or to your exemptions.

Mediating Your Creditor’s Committee

During a creditor’s committee, the trustee will give you the chance to answer questions regarding your assets, income and other financial information. A bankruptcy attorney is often present to help the debtor answer these questions.

Creditors are also invited to attend the hearing in order to have their best interests represented in the matter. In most cases, creditors do not tend to speak at these meetings, unless there is a large company filing for bankruptcy and substantial debts are being discussed.

Collecting and Administrating Your Estate

When you file for Chapter 7 bankruptcy, your trustee will be responsible for collecting all of your non-exempt assets. This includes all liquid and non-liquid assets, and those assets that are currently being held by friends and family, but belong to you.

Once they have collected all of the non-exempt capital, all of the non-liquid assets will be sold to the highest bidder. The resulting cash collected will be used to pay unsecured creditors.

The trustee is responsible for holding all assets in the estate, and ensuring that these items stay safe and secure. This does not include exempt assets. Exempt assets are not applicable for administration by the trustee, and are to be returned to the debtor after the bankruptcy process is completed.

Chapter 13 Bankruptcy Trustee Responsibilities

When filing for Chapter 13 Bankruptcy, you are required to design a plan of how you will be repaying your debt to your creditors in order to receive approval from the courts. The trustee will often have the responsibility of reviewing the plan to ensure that it complies with bankruptcy laws before submitting it to the courts.

Once the plan has been approved, the trustee again takes on an administrative role in the bankruptcy. Payments are made to the trustee who then makes payment to creditors in accordance with the plan. A small percentage of the payments made to the trustee go toward wages for the trustee.