Working with a trustee in bankruptcy is an essential part of the bankruptcy petition and process, but for many people the question of who these trustees are and precisely what their role is can be a mystery. This post provides some basic information on the topic.
In a sense, a bankruptcy trustee’s role is similar to an estate administrator after the death of a person: as the deceased is no longer present to handle his or her remaining affairs It is the estate administrator’s role to serve as a trustee for the estate to wrap things up. When a person petitions for bankruptcy protection, legally a new “bankruptcy estate” is formed that comprises the property of the debtor. As this estate is now independent of the debtor, the equivalent of an estate administrator, a bankruptcy trustee, is needed to oversee the bankruptcy estate’s affairs.
For a Chapter 7 bankruptcy, the trustee’s duties are largely connected to the formation of the bankruptcy estate, determining what property of the debtor to include in it, and the disposition of the estate’s assets to satisfy creditor claims. The trustee also acts as an arbiter, challenging either debtor claims or the discharge of particular debts as circumstances warrant.
For a Chapter 13 bankruptcy, the nature of the bankruptcy estate is different from a Chapter 7. A hallmark characteristic of Chapter 13 is that instead of liquidating the debtor’s property through the bankruptcy estate, the debtor is allowed to keep possession of property. Instead, the trustee is concerned with administering the payment plan that the debtor puts together. This involves reviewing and where necessary challenging parts of the payment plan, as well as collecting the debtor’s payments into the plan and disbursing those amounts to creditors.
Although this post is only an introduction to the role of a trustee in bankruptcy, it is important to remember that in either a Chapter 7 or a Chapter 13, the trustee does not represent the debtor, and can make decisions or take actions that can be adverse to the debtor’s interests. Dealing with a bankruptcy trustee requires a thorough understanding of both federal and state bankruptcy laws, as well as knowing the trustee’s proper role in the bankruptcy process.