An Exhaustive Writeup on Trustees in Bankruptcy Proceedings in USA

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Trustee is somebody who is given the legal authority to manage money or property on behalf of somebody else. In bankruptcy as specified in the United States a trustee holds an important position. He is the pivot around which a case filed by a debtor for bankruptcy revolves. The banking act of 1978 and amended as late as 2005 has a specific role for a trustee. In fact there can be no bankruptcy proceedings without a trustee as specified in the act. A debtor filing for discharge from his debts in a bankruptcy court cannot get a discharge in case there is no Trustee. A bankruptcy trustee is a pivot around which the bankruptcy proceedings are heard and discharge given. A trustee is appointed under authority of the United States Courts and has his powers as defined in the act.
The role of a trustee is of paramount importance as per Captor 7 and chapter 13 of the Act. All cases filed under chapter 7 which is a straight forward bankruptcy come under the purview of the bankruptcy trustee. The bankruptcy trustee is the person who administers all cases filed under chapter 7 of the act.
The bankruptcy trustee has his role cut out. He is the person who has to establish whether a debtor filing for bankruptcy under chapter 7 has any assets to sell or settle to pay off the debts. The bankruptcy Trustee also has an additional task to review claims of exemption and the debtor’s entitlement to a discharge. It must be borne in mind that the trustee is generally represents the interests of the creditors, who may be any in number. Thus he has to be extra diligent to ensure that the creditors are not left high and dry. He is essentially a representative for the creditors as a group.
A bankruptcy trustee draws his powers from the United States constitution and the act as enacted by Congress. He is appointed by the United States Trustee who is an officer of the United States department of justice. The United States trustee not only appoints the bankruptcy trustee but also reviews his performance at periodical intervals. Complaints if any against the bankruptcy trustee are attended by the US trustee. The bankruptcy trustee is not an official of the United States government or a government employee. He is generally an eminent person or a practicing lawyer or accountant.
The first meeting of the creditors with the debtor is presided over by the bankruptcy trustee. He has power to file objections to any claims of exemption that may be put forward by the debtor or oppose the debtor’s discharge. These questions are however not decided by him which is the prerogative of the judge hearing the case.

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Another role of the trustee is to evaluate whether there have any fraudulent transfers that can be recovered from which creditors can be paid. The trustee may bring a motion to dismiss the case as an abuse of the bankruptcy system or to deny the debtor a discharge if the trustee finds evidence of fraud, perjury etc.
Trustees draw their compensation from the filing fee paid to the court at the commencement of the case. Any compensation they receive above that is a fee based on the money they handle as part of the estate. If there are no funds in the estate at the end of the day, the trustee gets only his $60 per case.

The bankruptcy trustee’s role has is slightly different in a chapter 13 case filing. Under chapter 13 the trustee is also a private individual appointed by the UST. He serves the same review function as a Chapter 7 trustee (that is, read the schedules and sees if the case complies with the Bankruptcy Code and oppose matters that don’t comply with the law.) He also serves as the disbursing agent for payments made by the debtor into the plan.
Usually a single Chapter 13 trustee serves all the cases in his/her division or district. The trustee gets a small percentage of the funds that flow through the Chapter 13 case. That percentage is fixed by the UST after review of the Chapter 13 trustee’s operating expenses. A major role of the chapter trustee under Chapter 13 is to review the debtor’s plan of repayment. He also collects and distributes all payments made by the Chapter 13 debtor to the creditors.

Lastly we have the United States trustee who is a paid government employee. He works under the authority of the United States Supreme court. He has the onerous task of appointing and overseeing the work of the trustees under Chapter 7 and Chapter 13 cases. The United States Trustee has a standing brief to appear before the court as an interested party at any time during the hearing. UST is also empowered to review Chapter 7 cases which concern abuse of the judicial process or a denial of discharge for any reason to the debtor . The ’05 amendments have given the US trustee a more active role in the bankruptcy process. The US trustee also takes an oversight role in chapter 11 cases, especially where there is no creditors committee.
The role of Bankruptcy trustees in a bankruptcy proceedings cannot be underestimated. Lastly a bankruptcy trustee has to be fair in his dealings with both the creditors and the debtor.

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An Exhaustive Writeup on Trustees in Bankruptcy Proceedings in USA, Seekyt
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Janice is a writer from Chicago, IL. She created the "simple living as told by me" newsletter with more than 12,000 subscribers about Living Better and is a founder of Seekyt.