Bankruptcy trustee

What is a bankruptcy trustee?

Individuals and companies that file for bankruptcy under Chapter 7 or Chapter 13 of the U.S. bankruptcy code are assigned bankruptcy trustees. Under bankruptcy law, when a person or company files for bankruptcy, the court forms an estate to hold the bankrupt person’s assets and property. The estate is a separate legal entity and the bankruptcy trustee oversees the estate.

Deeper definition

Bankruptcies are filed in federal bankruptcy court, and trustees work for the Department of Justice. The role of a trustee depends on the type of bankruptcy filed.

The duties of a bankruptcy trustee in Chapter 7 cases include:

  • Gathering property in the bankruptcy estate.
  • Selling the bankruptcy estate’s property.
  • Investigating the financial affairs of the person filing for bankruptcy.
  • Challenging any creditors’ claims that appear to be incorrect.
  • Distributing proceeds from the sale of property to creditors.
  • Objecting to bankruptcy discharge when proper grounds exist.
  • Furnishing information regarding the bankruptcy estate as requested.
  • Filing a final account of the estate with the bankruptcy court.

Chapter 13 bankruptcy is sometimes referred to as a wage earner’s plan. It allows individuals to come up with a plan to repay all or part of their debt, normally over the course of three to five years. A trustee in a Chapter 13 case has another set of duties, including:

  • Reviewing the proposed repayment plan.
  • Making any necessary objections to the plan.
  • Receiving and/or collecting payments pursuant to the agreed-upon repayment plan.
  • Monitoring income and expense reports as required.
  • Monitoring previous federal and state tax returns while the Chapter 13 case is pending.
  • Distributing payments to creditors in a timely manner.
  • Proving information to the payee and the state child support enforcement agency in the event the person filing bankruptcy owes back child support.

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Bankruptcy trustee example

Bankruptcy trustees have a great deal of power, but they still need the bankruptcy court’s approval before they can take particular actions. A company has 10 creditors and makes regular payments to five of them in the months leading up to a Chapter 7 bankruptcy filing. A trustee can demand that the five creditors return the payments so they can be distributed among all 10 creditors.

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