When someone files for bankruptcy under Chapter 7 or Chapter 13, a bankruptcy trustee oversees that case. Appointed by the court, a bankruptcy trustee works to ensure that the bankruptcy process follows federal laws and that creditors are treated fairly.
While debtors often think of a trustee as someone working against them, the trustee’s primary job is to manage each case efficiently and follow the law, not to make a debtor’s life difficult. Understanding the trustee’s responsibilities can help bankruptcy filers better navigate the process accordingly.
Chapter 7 bankruptcy
In a Chapter 7 bankruptcy context, a trustee is responsible for reviewing a debtor’s financial situation and determining whether any significant non-exempt assets can be liquidated to pay creditors. This is rare, but it does occur in a small fraction of cases. Most Chapter 7 cases are considered “no-asset” cases, meaning that a debtor does not have property that can be liquidated.
Even in those cases, however, the trustee has to verify the accuracy of the debtor’s financial disclosures and work to ensure that there are no fraudulent transfers or hidden assets left uncovered. If misconduct is suspected, the trustee can object to the discharge of debts or refer the case for further investigation.
The trustee also conducts the meeting of creditors, known as the 341 meeting, where the debtor must answer questions under oath about their finances and assets.
Chapter 13 bankruptcy
In a Chapter 13 bankruptcy, a trustee has different responsibilities because a debtor is proposing a repayment plan rather than (possibly) liquidating assets. A trustee reviews a proposed repayment plan to ensure it complies with bankruptcy laws and that the debtor at issue has enough income to meet their obligations. If there are concerns, the trustee can object to the plan and request modifications before it is approved by the court.
Once the repayment plan is confirmed, the trustee collects monthly payments from the debtor and distributes them to creditors according to the terms of the plan. The trustee also monitors the debtor’s compliance, ensuring they make payments on time and follow any additional court-ordered requirements. If the debtor falls behind, the trustee may request a case dismissal or modification of the plan.
At the end of the day, by understanding the role of the trustee, debtors can better prepare for the bankruptcy process and avoid unnecessary delays or challenges. Whether filing for Chapter 7 or Chapter 13, knowing what to expect from the trustee’s involvement can make the experience less stressful.