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The role of a trustee in Chapter 7 and Chapter 13 bankruptcy cases

On Behalf of | Aug 25, 2022 | Business Bankruptcy, Chapter 11, Chapter 7 |

Almost every consumer bankruptcy case has a bankruptcy trustee or an administrator with different roles and obligations. The court usually appoints the trustee, who plays a significant role in overseeing the debtor’s bankruptcy estate in a bankruptcy case. According to bankruptcy law, a “bankruptcy estate” is formed when a debtor files for bankruptcy and includes the debtor’s property.

There are two main types of bankruptcy cases: Chapter 7 and Chapter 13 bankruptcy cases. The roles of a bankruptcy trustee differ in accordance with the type of case or the situation of a specific debtor and their creditors. Read on to read more about bankruptcy trustees in both chapters.

How bankruptcy trustees are appointed

Bankruptcy trustees are federal employees working under the U.S Trustee Program, which the U.S. Department of Justice runs. They are also private trustees who help oversee bankrupt estate but not working under federal programs and not government employees.

Roles of a bankruptcy trustee in a Chapter 7 bankruptcy case

In a Chapter 7 case, the central role of a trustee is to control the sale of the nonexempt property or the property that is not protected in bankruptcy. Other main roles include:

  • Gathering up all the debtor’s property
  • Opposing to a bankruptcy discharge where appropriate
  • Holding the Section 341 meeting of creditors
  • Addressing issues with a security interest that were not well created
  • Disputing creditor’s claims, if necessary
  • Solving issues with debts and assets

It is worth noting that if all the debtor’s property has been covered by an exemption, the trustee must inform the creditors that the particular case is a no-asset case that has no payments.

Roles of a bankruptcy trustee in a Chapter 13 bankruptcy case

The primary duty of bankruptcy in Chapter 13 bankruptcy proceedings is to collect the debtor’s monthly earnings and pay them to the creditors through a proposed payment plan. The trustee may also hold the monthly payments in trust as the debtor waits for the court to approve their repayment plan.

Other primary duties of a bankruptcy trustee include:

  • Check if the debtor has enough funds to cater to the planned payments
  • Review the proposed payment plan
  • Hold the Chapter 13 meeting of creditors
  • Evaluate the filer’s income details
  • Document the filer’s payments
  • Challenge the payment plan if necessary
  • Review the details in the bankruptcy petition
  • Assess creditor’s proofs of claims