What is a bankruptcy trustee?

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In a Nutshell

A bankruptcy trustee plays a major part in determining whether your bankruptcy case will be approved. Whether you’re filing Chapter 7 or Chapter 13 bankruptcy, your trustee is there to make sure you’re providing honest information and to make impartial decisions about your bankruptcy case.

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A bankruptcy trustee is an administrator assigned to your case if you file for bankruptcy. Trustees are assigned in several types of bankruptcy, including Chapter 7 and Chapter 13, which are the two types of bankruptcy that we’ll focus on here.

Trustees have some important duties: They review your financial documents to make sure your financial information is complete and correct, and they recommend whether the court should dismiss your bankruptcy case.

Trustees can have a big impact on a bankruptcy case, so it’s important to understand what they do. Keep reading to learn more.



Who is a trustee?

Trustees have been a part of the bankruptcy system in the U.S. for more than 150 years. The role was created so that creditors and courts wouldn’t have to be responsible for collecting and distributing a bankruptcy debtor’s property.

The laws that dictate a trustee’s place in the legal system have changed over the years. At one point, the law required trustees to be assigned by the court or even by creditors.

But since the passing of the Bankruptcy Reform Act of 1978, trustees have been assigned by the United States Trustee Program, which is part of the Department of Justice.

Today, bankruptcy trustees are private individuals (or corporations) supervised by both the court and U.S. trustee officers. This arrangement helps provide the debtor with an impartial party to take charge of their assets.

What does a trustee do?

In both Chapter 7 and Chapter 13 bankruptcies, it’s the trustee’s duty to review your bankruptcy forms and investigate and verify your financial information.

One of the trustee’s responsibilities in doing this is to make sure your bankruptcy claim is not fraudulent.

In addition to ensuring you have a legitimate claim, your trustee in a Chapter 7 bankruptcy is responsible for managing your assets. That includes …

  • Collecting your property
  • Converting your assets to cash
  • Distributing the proceeds to your creditors

The trustee will also facilitate the meeting of creditors.

FAST FACTS

What is the meeting of creditors?

Also known as a “341 meeting,” the creditors meeting is conducted by your trustee. It’s mandatory for you to attend. During the meeting, your trustee or creditors may ask you questions about your financial situation and bankruptcy documents. These meetings are often very brief, and your creditors can choose to attend, but they’re not required to.

In a Chapter 7 bankruptcy

The main job of a Chapter 7 bankruptcy trustee is to sell your nonexempt property and repay your creditors as quickly as possible.

The Chapter 7 trustee is also required to decide if your nonexempt property can be sold in order to pay back a significant portion of your debt. If so, you’ll have to turn that property over.

In a Chapter 13 bankruptcy

A Chapter 13 trustee is responsible for overseeing your repayment plan. That includes …

  • Making sure your plan is reasonably affordable
  • Collecting your payments according to the plan
  • Distributing payments to your creditors

The trustee also holds the meeting of creditors in a Chapter 13 bankruptcy.

Working with a trustee

Once you’ve filed for bankruptcy, your case will be assigned a trustee. You’ll receive a notice with your trustee’s contact information, but you may not actually meet your trustee until the meeting of creditors.

At the meeting of creditors

During this meeting, the trustee will verify your government-issued photo ID and Social Security card or proof of Social Security number. The trustee will also need your proof of income, bank statements and other financial documents, like tax returns and loan statements.

It is the trustee’s job to ask you questions under oath and verify that your financial information is complete and accurate.

After the meeting of creditors

Whether you’re filing Chapter 7 or Chapter 13, you may come across the trustee again in an additional hearing for your bankruptcy.

In a Chapter 7 bankruptcy case, you may also interact with the trustee to turn over any nonexempt property. In a Chapter 13, you’ll begin making your monthly payments to the trustee once your plan has begun.

Who pays the bankruptcy trustee?

The trustee’s pay depends on which type of bankruptcy is filed.

The trustee in a Chapter 7 bankruptcy can earn a commission. When the trustee sells your assets and distributes cash to your creditors, the trustee keeps a percentage ranging from 3% to 25%. But if there are no assets to sell, the trustee doesn’t earn commission.

In a Chapter 13 bankruptcy, the trustee’s fee is typically built into the monthly payment plan. The amount a trustee withholds for services can vary, but legally it can’t exceed 5% of the total payment amount.


Bottom line

A bankruptcy trustee can have a lot of impact on a bankruptcy case. That’s why it’s important to cooperate fully with your trustee when filing forms and answering questions. You can help build a positive relationship by doing your best to be upfront and accurate throughout your bankruptcy process.

Keep reading: What happens to your credit when you file for bankruptcy?