In every bankruptcy case, a trustee is appointed by the US bankruptcy court. The main role of the trustee is to represent the creditors in a bankruptcy case. However, he/she has to act in an impartial manner and ensure that the debtor’s plan runs as smoothly as possible. The exact role of a trustee and the degree of involvement varies according to the type of bankruptcy case.
In every bankruptcy case, the judge takes the final decision; however, it is the trustee who runs the show. The trustee manages and oversees the whole bankruptcy case. He/she is the main contact between the debtor and the creditors.
In most cases, a trustee is a bankruptcy attorney. However, in some cases, he/she can be someone who has extensive experience in business such as accountants, bankers, appraisers, real estate brokers, investment brokers and insurance agents.
Main Functions
The main functions of a trustee in a bankruptcy case include the following:
• The trustee has to ensure that the debtor complies with all the rules and regulations relating to the bankruptcy case. The trustee has to ensure that the debtor is not committing a fraud. If the trustee finds that the debtor is not following the rules and regulations or is being deceitful, he/she can get the case dismissed.
• The primary role of the trustee is to ensure that the unsecured creditors are repaid as much as possible.
• To hold the creditors’ meeting.
• If child support issue is involved in the case, the trustee has to contact the child support agency or the holder of the claim to inform about the debtor’s bankruptcy.
341 Meeting
As discussed above, one of the main functions of the trustee is to hold the creditors’ meeting, which is referred to as a 341 meeting. The meeting is attended by the creditors, debtor, debtor’s lawyer, and of course, the trustee. The trustee acts as the hearing officer. The trustee is the first person to question the debtor. The questions usually relate to the forms and the documents submitted. The creditors present then question the debtor.
In a Chapter 7 case, usually there are no creditors present at the 341 meeting. This is because they cannot stop the bankruptcy process. However, in a Chapter 13 case, usually creditors are present at the meeting. Generally, they attend the meeting to question the repayment plan.
Bankruptcy Estate
When a debtor files for bankruptcy, his/her assets come under the bankruptcy estate. In other words, the assets are now under the legal control of the trustee. The debtor cannot sell or transfer any of his/her property without the permission of the trustee.
In a Chapter 7 bankruptcy, the debtor has the right to keep exempt property, which is determined by the state laws. However, the debtor can also claim for federal exemptions. Anything else that does not fall into the exempt property list is then sold off by the trustee to pay the unsecured debtors.
Trustee Pay
For handling a Chapter 7 bankruptcy case, the trustee is paid part of the bankruptcy filing fee. This usually comes around to $60. In cases where the fee is waived, the trustee is paid nothing. However, the trustee is always paid a commission for selling the debtor’s property and paying the unsecured creditors.
Since the primary role of the trustee is to ensure that the unsecured creditors are paid as much as possible, he/she will take a thorough look at what the debtor owns. He/she will look for any unreported assets and assets that have been transferred within the year before filing for bankruptcy. If assets have been transferred to a relative, the trustee can go back as much as ten years. If the trustee finds that the transfer has been done with the intent to defraud the creditors, he/she can include the asset in the bankruptcy estate.
The trustee will also look at payments that have been made to creditors 90 days before filing for bankruptcy. If the trustee finds that some creditors have been given preferential treatment, he/she can get such payments back and add them to the bankruptcy estate.
So, you can see that the trustee has a very important role to play in a bankruptcy case. In order to do justice to the case, the trustee has to be impartial to both the creditors and the debtor.