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.
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.