When you file for bankruptcy the courts appoint an impartial third party, known as a trustee, to manage your bankruptcy filing, including all assets and documentation related to the case itself.
The actual responsibilities of the trustee will depend on whether or not you’re filing for Chapter 7 or Chapter 13 bankruptcy. The purpose of this blog post is to examine these responsibilities in a little more detail.
Chapter 7
The trustee is obliged to protect and oversee the interests of all involved parties. This includes the creditors who are owed money, and fairly managing and protecting the exempt assets of the debtor, while also ensuring that all non-exempt assets are liquidated to repay some or all of the secured and unsecured debts. During a chapter 7 filing all non-exempt assets become part of a “bankruptcy estate”, which is then administered by the trustee
Documentation
It is the trustee’s job to gather together all documentation relevant to your bankruptcy case, including pay stubs, and all other personal and financial documents in relation to your filing. Once the trustee has these documents they must then examine for veracity and whether they are consistent with the content of the bankruptcy petition which was filed with the Court.
341 Meeting
This is also known as the ‘creditors meeting’ where you will be asked certain questions under oath about your bankruptcy filing. Creditors rarely attend 341(a) meetings because they understand the debt owed to them is about to be discharged and in fact in reality creditors do not need to appear, in that they have an agent namely the trustee representing their interest at the meeting. During this meeting your trustee’s job is to ensure that you’re not committing bankruptcy fraud – this includes the transfer of any debtor assets to third parties just prior to the bankruptcy filing. If assets have been transferred in this manner the trustee can seek their return.
Asset Liquidation
Once the trustee has analyzed your assets, setting aside those which are non-exempt, they will then proceed to sell off those assets to help repay your debt. They will only sell assets which are non-exempt, meaning you’re allowed to retain some personal assets which are necessary for you to maintain a certain standard of living e.g. your car, furnishing etc.
Object to Discharge
If the trustee finds that you’ve filed deliberately incorrect information, or you’ve made any attempt to defraud the bankruptcy court, they can object to the discharge of your debts.
Chapter 13
In this type of bankruptcy filing the debtor establishes a repayment plan with their creditors, usually lasting between 3 and 5 years. The trustee will obviously be involved in administration of your plan.
Petition Review
As with a Chapter 7 filing your trustee’s primary responsibility is the correct management of documentation relating to your case. This includes a full breakdown of your current income and expenses, demonstrating how much you can actually afford to repay each month as part of your plan. The amount you’re able to repay must also be deemed fair to your creditors.
Creditors Meeting
The process for the 341(a) meeting is the same as with a Chapter 7 filing in that your trustee is obliged to ask you certain questions under oath about your income and assets. This is done to ensure that you’re not hiding any assets which could be used to pay off your creditors.
Your Repayment Plan
Once the trustee has established your repayment plan it must then be approved by the courts. During this time the trustee holds all funds repaid as part of your plan in trust for your creditors. Once your repayment plan is approved your trustee then manages the monthly repayments to your creditors until your 3 or 5-year repayment plan is complete.
Managing Creditors
In as much as the trustee is there to manage your repayments to creditors, it’s also their duty to ensure that creditors are actually due to be repaid in the first place. If a creditor makes an incorrect or fraudulent claim against your bankruptcy filing the trustee is well within their legal rights to object to such claims. This could also happen simply because the creditor didn’t file the correct claim documentation in a timely manner.