What is a Trustee in Bankruptcy?

Jessica Hobby

A trustee in bankruptcy is an impartial person, assigned by the courts to oversee and administer the bankruptcy process for an individual or a corporation. Trustees are nongovernmental employees who are usually licensed attorneys. They are appointed by the United States Trustee and held to be an officer of the Department of Justice to uphold and administer United States Bankruptcy Code. The responsibilities and level of involvement of a trustee in bankruptcy are determined by what type of bankruptcy has been filed.

Bankruptcy courts appoint a trustee to oversee the administration of a case for an individual or corporation.
Bankruptcy courts appoint a trustee to oversee the administration of a case for an individual or corporation.

Whether it be an individual filing Chapter 7 or Chapter 13 bankruptcy, or a corporation filing Chapter 11 bankruptcy, the primary role of a trustee in bankruptcy is to represent the creditors throughout the bankruptcy process. When a debtor claims discharge with asset exemptions, which is very common in Chapter 7 bankruptcy processes, trustees review the entitlement of a debtor discharge and may file objections against exemptions or they may completely oppose a discharge. A trustee in bankruptcy is also responsible for liquidating the assets of the debtor, so that the creditors may get their piece of the pie. Many times the trustee will act as a negotiator between debtor and creditors.

In addition to representing the creditors during bankruptcy proceedings, a trustee in bankruptcy must monitor the debtor's plan to make sure it is carried out. After liquidation of non-exempt assets, the trustee in bankruptcy will receive payments from the debtor's estate and distribute them to the creditors in order of priority. When an individual or a corporation files a Chapter 7 or Chapter 11 bankruptcy reorganization plan, the trustee plays a more active role. Not only does he disperse funds, but he must oversee the reorganization plan and has the power to reject it. When a corporation files bankruptcy, the trustee in bankruptcy will help form a committee of creditors to review the reorganization plan, keep important deadlines, and investigate any potentially fraudulent activity.

While upholding United States Bankruptcy Code, trustees in bankruptcy can be compensated with the filing fee in a non-asset Chapter 7 bankruptcy. As the bankruptcies have more assets and more funds flowing through them, the trustee is paid a percentage of the monies that are being paid out from debtor to creditor.

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