If you file for bankruptcy, you can count on hearing the word “trustee” quite frequently. Both the “bankruptcy trustee” and the “U.S. trustee” will play major roles in your bankruptcy proceedings. But who are these trustees? How do they become involved in your case? And whose side are they on? It’s important to understand the distinction and role of each of the trustees involved in your bankruptcy proceeding. The two types of trustees are:
A bankruptcy trustee is a private individual, usually a lawyer or an accountant, appointed to assist in reviewing financial paperwork, paying off creditors, and discharging debt. A bankruptcy trustee’s role differs depending on the type of bankruptcy proceedings he is involved in.
In a Chapter 7 bankruptcy, the bankruptcy trustee is responsible for collecting the non-exempt property from the debtor, liquidating such property, and using the funds from the liquidation to pay off all or a portion of the debtor’s existing debt. In a Chapter 7 proceeding, the bankruptcy trustee generally speaks for the creditors. He presides over the creditor’s meeting and can oppose requests for discharge or claims of exemption. However, the Bankruptcy Judge still has the final say in these matters.
Like a Chapter 7 bankruptcy trustee, a Chapter 13 trustee is a private individual appointed to review the debtor’s financial information, help negotiate a payment plan between the debtor and creditors, and determine if the debtors should have any of his debts discharged. Additionally, a Chapter 13 trustee facilitates the payments made by the debtor to the creditors pursuant to the payment plan. Often, one Chapter 13 trustee handles all cases in a given Bankruptcy Court or entire district.
Unlike bankruptcy trustees, who are private citizens, the U.S. Trustee is a government employee. The U.S. Trustee appoints the bankruptcy trustees and supervises their work. Additionally, the U.S. Trustees reviews Chapter 7 cases to make sure that every party who files for Chapter 7 is eligible to do so following the enactment of the Bankruptcy Abuse and Consumer Protection Act of 2005. Furthermore, the U.S. Trustee will review all discharges of debt to determine whether or not they were warranted. Since the changes to the U.S. Bankruptcy Code in 2005, a major function of the U.S. Trustee is to force debtors out of Chapter 7 bankruptcies and into Chapter 13 bankruptcies.