When people hear the term “trustee”, they automatically think of a trustee in terms of wills and trusts. That trustee is an individual who manages the trust’s assets, with legal obligations such as fiduciary duties including the duty of loyalty, acts in the sole interest of the beneficiaries, and is an integral part of the function of the trust. In the world of bankruptcy, the trustee takes on a similar role—managing the bankruptcy estate’s assets. However, there are many distinctions that one should know about.
In Bankruptcy Court, a trustee is a person appointed by the United States Trustee to represent the debtor’s estate in the bankruptcy proceedings. There is a trustee assigned to nearly every bankruptcy case except for Chapter 11 (reorganizations) and Chapter 9 (municipality cases) bankruptcies. The trustee’s role varies depending on the type of bankruptcy case the debtor files as well as the circumstances surrounding the particular debtor and their creditors. As such, the bankruptcy trustee will not be doing the same thing in every case.
The main function of the bankruptcy trustee is to review the bankruptcy petition and other various documents filed by the debtor to ensure the accuracy of these documents and to avoid any fraudulent filings. Depending on the chapter of bankruptcy filed, the trustee will have different specific roles. The trustee is a key component to the consumer bankruptcy system.
How is the trustee compensated?
In bankruptcy, the trustee is generally an independent contract appointment by the bankruptcy court to oversee your bankruptcy case. They are not an employee of the bankruptcy court and often times could even be practicing attorneys.
The trustee is compensated for his or her time and work on the case depending on the type of bankruptcy he or she is assigned to. In a Chapter 7 (liquidation) bankruptcy, the trustee earns a commission. In a Chapter 7 case, the trustee is required to liquidate your assets—essentially, sell all of your non-exempt assets and distribute the proceeds to your creditors. The trustee will take a percentage of the proceeds which can range anywhere from 3-35%. However, if there are no assets required to sell the trustee does not earn a commission and would be compensated a flat fee for that particular case.
Whereas in a Chapter 13 bankruptcy case, the trustee’s fees are built into the monthly payment plan. His or her service fees may vary but they are a based on the amount of the funds they disburse to the creditors. For example, if a debtor’s Chapter 13 monthly payment is $2,000.00 and if the trustee’s fee is 7%, the trustee would earn $140.00 per payment and thus, the debtor’s required chapter 13 payment would increase to $2,140.00.
When do I meet the trustee?
Typically, you will meet the trustee at the 341 hearing—meeting of the creditors. This hearing is intended for the trustee to examine the debtor and the information contained in the debtor’s bankruptcy documents. Here, the trustee will verify your government-issued photo ID and Social Security card to make sure you are who you say you are. Under oath, the trustee will ask you questions related to the financial information filed with the court. Prior to this hearing, you will be required to supply the trustee with various financial documents including proof of income, bank statements, tax returns, mortgage statements, vehicle valuations, and other financial documents. All of this information may be questioned at this hearing.
What is the role of the trustee?
The role of the trustee—his or her powers and duties—varies depending on the case filed. Although similar in a lot of ways, there are many distinctions as each type of bankruptcy is different. For example, in a Chapter 7 Bankruptcy—a liquidation case, some of the main duties and powers of the trustee are as follows:
- Review the filed petition to ensure the accuracy of the filing;
- Review certain financial documents of the debtor;
- Avoid certain transfers or security interests;
- Sell the property subject to the bankruptcy estate that is non-exempt;
- Distribute sale proceeds to creditors;
- Object to a bankruptcy discharge if there are grounds to do so.
The duties of the trustee in Chapter 7 is governed by 11 U.S.C. § 704.
Given that a Chapter 13 Bankruptcy is intended for reorganization, the trustee is not selling your property. Debtors who file a Chapter 13 Bankruptcy will keep his or her property and, as such, the trustee’s role is a bit different. In a Chapter 13 Bankruptcy, the main duties and powers of the trustee are as follows:
- Review the filed petition to ensure the accuracy of the filing;
- Review certain financial documents of the debtor;
- Review the proposed repayment plan and ensure it follows the guidelines set by the Court and Bankruptcy Code;
- Collect payments from the debtor per the repayment plan and distribute the funds per the Chapter 13 Plan.
The duties of the trustee in Chapter 13 is governed by 11 U.S.C. § 1302.
Conclusion
In sum, the trustee plays a critical role in most consumer bankruptcy cases. He or she acts as the gatekeeper by reviewing petitions, claims submitted by creditors, and objection to aspects of the case. Moreover, the trustee is central to how the case proceeds and how long the case will drag on.
Thus, it is most important that debtors fully cooperate with the bankruptcy trustee and supply all of the information requested. Further, in developing a good rapport with your trustee, it is advised that you are truthful and accurate from the start of your case—with the petition—and throughout the bankruptcy process.
If you are considering filing for bankruptcy, it is advised that you discuss your particular situation with a highly trained bankruptcy attorney. Here at Sacramento Bankruptcy Lawyer, we would love the opportunity to discuss your case with you and assist you in choosing the most beneficial option.
We help clients in the following areas: Sacramento, Elk Grove, South Sacramento, West Sacramento, Natomas, Citrus Heights, Antelope, Fair Oaks, Gold River, Rancho Cordova, Roseville, Rocklin, Lincoln, Wheatland, Yuba City, Marysville, Woodland, Davis, and Lodi.
