RIghts and Duties of a Bankruptcy Trustee

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The bankruptcy trustee doesn’t represent you or the creditors. When you file for bankruptcy, a bankruptcy estate is created. The trustee is the representative of that estate. It’s the trustee’s job to collect all the property of the estate, including nonexempt property. They then convert it into cash and use that money to pay the creditors that have valid claims.
Duties of the Bankruptcy Trustee

The trustee has several duties to fulfill as the representative of the bankruptcy estate. These duties include:

  • Objecting to your claims for exemptions where appropriate
  • Objecting to creditors’ claims that aren’t appropriate
  • Preserve and protect the assets of the estate
  • Pursue avoidance actions against creditors who receive fraudulent or preferential transfers
  • Pursue avoidance actions against creditors who previously received fraudulent or preferential transfers
  • Investigate financial transactions and review records where appropriate

In addition, the trustee has the right, and the duty under certain situations, to object to your discharge if the facts show that you are not entitled to get it under bankruptcy law.

In most areas, the trustee is supervised by the Office of the United States Trustee, a division of the Department of Justice. The trustee has to follow the U.S. Trustee’s training and guidelines. They must also provide the U.S. Trustee regular reports on the status and finances of all the cases the trustee is administering.
The Role of a Trustee in a Chapter 7 Bankruptcy

When a Chapter 7 bankruptcy is filed, an impartial trustee is appointed to the case. The Chapter 7 trustee has many responsibilities:

  • Review the bankruptcy petition and documents
  • Examine the bankruptcy filer under oath
  • Liquidate nonexempt assets
  • Avoid certain transfers or security interests

The Role of a Trustee in a Chapter 13 Bankruptcy

A Chapter 13 bankruptcy usually takes 3-5 years to complete before getting a discharge. During this time, the trustee performs duties, including:

  • Review the bankruptcy petition and repayment plan
  • Conduct the meeting of creditors
  • Administer the bankruptcy repayment plan
  • Object to improper claims of creditors

The U.S. Trustee in Bankruptcy

When you file for Chapter 7 or Chapter 13, a trustee is appointed to your case. There is also another trustee involved: the U.S. Trustee. The U.S. Trustee’s role is usually behind the scenes, but it can play a more up-front roll in certain situations. The U.S. Trustee is a more active participant in Chapter 11 cases.

This doesn’t necessarily mean that the U.S. Trustee is not taking an active role in your case. They may assume a more visible role if:

  • You are trying to discharge consumer debts without making a genuine effort to repay them when you can afford to do so
  • You fraudulently conceal assets (a bankruptcy crime)

In Chapter 7 cases, the U.S. Trustee is required to review the debtor’s financial situation and report to the court whether the debtor has qualified for relief.

In a Chapter 13 case, the U.S. Trustee in primarily responsible for appointing and monitoring the performance of the case trustee.

In a Chapter 11 bankruptcy, there is no case trustee. Instead, the debtor, called the “debtor-in-possession,” is charged with performing most of the duties of the case trustee. The U.S. Trustee will:

  • Hold the creditors meeting
  • Determine whether an official creditors meeting is necessary
  • Monitor professionals (lawyers, accountants, witnesses)
  • Monitor the debtor-in-possession
  • Monitor reorganization plans and disclosure statements
  • File motions to dismiss or convert Chapter 11 to 7 when necessary
  • Request the appointment of a case trustee if it appears that the debtor-in-possession in not performing their duties according to bankruptcy law

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