Many people who are contemplating filing bankruptcy ask the question, what exactly is the job of the bankruptcy trustee? Is he my friend or foe?
Well, the answer to this question is really quite simple, once you know the duties of a trustee.
A bankruptcy trustee appointed in a Chapter 7 or Chapter 13, is assigned the task of administering the case file and all assets related to the case.
At the outset he reviews the bankruptcy petition and all the submitted paperwork to see that it meets all the requirements of a proper bankruptcy filing.
Once he completes this basic task, his next duty is to conduct a personal examination of the debtor.
The trustee's examination of the person filing bankruptcy is for the purpose of determining background information relevant to the case. The examination may include production of paperwork documenting the information contained in the bankruptcy petition.
In a Chapter 7 case, the principal purpose of the examination is the discovery of non - exempt assets of the debtor. If a trustee discovers non - exempt assets, he or she will ask the debtor to turn over the assets so that they can be sold at a bankruptcy sale.
Once the debtor's assets are turned over the trustee will convert the assets to cash for the purpose of making distributions to creditors who have filed and had their claims approved by the bankruptcy trustee.
Understand that the trustee has a vested interest in finding non - exempt assets. His interest is twofold. First and foremost, it is his duty to locate and recover assets so that creditors of the debtor can be paid something on their claim.
Second, the trustee receives a percentage of any assets that are recovered. So the more assets he finds and recovers the greater his fee for administering the case.
If you are filing a Chapter 7 bankruptcy for a business, the bankruptcy court may authorize the trustee to continue operation of the business for a limited period of time, if it will benefit the creditors of the estate. This typically occurs if the business has inventory that needs to be liquidated and converted into cash. In such cases the trustee will conduct a bankruptcy sale, often at the location of the debtor's store or place of business.
In a Chapter 13 case, the trustee's goal is to determine an appropriate amount that a debtor can afford to pay each month in a repayment plan to creditors. The trustee will review the debtor's income and expenses so that a proposed plan can be confirmed by the court.
Here again, the trustee's compensation is a percentage. In this case, however, the percentage is based upon the monthly payment schedule set up to pay Chapter 13 creditors.
In addition to reviewing the bankruptcy petition, investigating the financial affairs of the debtor and collecting non - exempt property, trustees are charged in Chapter 7 and Chapter 13 cases with examining and objecting to proofs of claim, opposing the debtor's discharge, if the trustee believes there has been some fraud or other inappropriate conduct by the debtor, sending required notices, furnishing information to parties in interest and reporting on the administration of the case.
In some cases, a trustee may act upon the rights of the debtor including filing lawsuits on the debtor's behalf. Such lawsuits usual involve the trustee's attempt to collect property due the debtor.
In addition, the trustee may file actions to set aside either preferential or fraudulent transfers made by the debtor to friends or preferred creditors.
Apart from the initial inquiry into the appropriateness of the chapter filing all of the actions of the trustee have one purpose in mind, to generate assets for the bankruptcy estate that can be then liquidated, converted into cash and disbursed to creditors of the bankruptcy estate.