What Does the Bankruptcy Trustee Do?
When you file for bankruptcy, one of the key persons who becomes involved in your case is the bankruptcy trustee. Many individuals are unfamiliar with the trustee’s role and may wonder whether the trustee is working on their behalf, for their creditors, or the court. Understanding what the bankruptcy trustee does is essential to preparing for the bankruptcy process and knowing what to expect as your case moves forward. Learn more below about this critical player in the bankruptcy process, and contact Rounds & Sutter, LLP, for advice and representation from an experienced and dedicated Southern California bankruptcy lawyer serving Oxnard, Ventura, Camarillo and surrounding areas.
Bankruptcy Trustee Basics
The bankruptcy trustee is appointed by the court to oversee and administer your case. Although the trustee is not a judge, they hold significant authority and responsibility in bankruptcy proceedings. The trustee’s role differs depending on whether you are filing under Chapter 7, Chapter 13, or Chapter 11, but in every case, the trustee serves as a neutral party tasked with ensuring that the bankruptcy process is conducted fairly and in accordance with the law.
The Trustee’s Role in Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, the trustee is primarily responsible for identifying and liquidating non-exempt assets to pay creditors. After you file your bankruptcy petition, the trustee will carefully review your financial documents, including your assets, debts, income, and expenses.
The trustee’s first major responsibility is conducting the 341 meeting of creditors, which is a mandatory hearing where you answer questions under oath about your financial situation. Creditors can also attend and ask questions, although they rarely do so in consumer cases. The trustee will use this meeting to verify the accuracy of your bankruptcy paperwork and to clarify any uncertainties. In most instances, this meeting is very brief and conducted online, and your attorney will attend the meeting with you.
If you have non-exempt property—assets that are not protected under state or federal exemption laws—the trustee could seize and sell these items, with the proceeds distributed to your creditors. However, in most Chapter 7 cases, debtors do not have non-exempt assets, and the trustee will declare the case a “no-asset” bankruptcy, meaning creditors will not receive any payment. Your lawyer plays a critical role in helping ensure you do not lose any property in Chapter 7.
The trustee also investigates potential fraudulent transfers or preferential payments made to creditors before the bankruptcy filing. If the trustee finds that you improperly transferred assets or gave preferential treatment to certain creditors, they may pursue legal action to recover those funds for the benefit of all creditors. Again, an experienced bankruptcy attorney can identify these issues prior to filing bankruptcy and develop pre-bankruptcy strategies to deal with such transfers.
The Trustee’s Role in Chapter 13 Bankruptcy
In Chapter 13 bankruptcy, the trustee’s responsibilities shift from liquidating assets to managing the repayment plan. Chapter 13 allows you to keep your property while repaying all or a portion of your debts over a period of three or five years under court supervision.
The trustee reviews your proposed repayment plan to ensure it meets legal requirements and treats all creditors fairly. If the plan is feasible and submitted in good faith, the trustee will recommend that the court approve it. Throughout the repayment period, you will make monthly payments to the trustee, who then disburses those funds to certain creditors according to the terms of your plan.
The trustee in a Chapter 13 case monitors your payments and compliance with the plan. If you miss payments or fail to comply with court orders, the trustee can file motions to dismiss your case or request modifications. The trustee’s role is to balance your ability to successfully complete the plan with the rights of creditors to receive repayment.
The Trustee’s Role in Chapter 11 Bankruptcy
In most Chapter 11 cases, the debtor retains control of their assets and continues operating the business as a “debtor-in-possession.” A trustee is not automatically appointed unless the court finds evidence of mismanagement, fraud, or significant creditor concerns. If a trustee is appointed in a Chapter 11 case, their role is more akin to that of a court-appointed manager, overseeing the business’s financial decisions and ensuring that the reorganization plan is properly implemented.
In smaller Chapter 11 cases, particularly those filed under the streamlined Subchapter V process, a trustee is assigned to facilitate the development of a repayment plan and ensure the process runs efficiently. Unlike in Chapter 7, the Subchapter V trustee does not take control of the business’s assets but serves as a mediator and supervisor.
Key Duties Shared by All Trustees
Regardless of the chapter, bankruptcy trustees share some core responsibilities:
- Reviewing bankruptcy documents for completeness and accuracy
- Investigating financial affairs to uncover fraud, omissions, or improper asset transfers
- Protecting the interests of creditors by ensuring fair treatment and appropriate distribution of assets
- Conducting the meeting of creditors to gather information and verify the debtor’s testimony
Trustees must act impartially, neither favoring the debtor nor the creditors, but upholding the integrity of the bankruptcy process. They are empowered by the Bankruptcy Code to pursue assets, object to discharge in cases of fraud, and challenge improper exemptions.
Working with the Bankruptcy Trustee
It is essential to cooperate fully with the trustee during your case. This includes providing all requested documentation, appearing at scheduled hearings, and answering questions truthfully. Failing to comply with the trustee’s requests can jeopardize your case and may result in dismissal or denial of discharge.
While the trustee is not your advocate, their involvement does not mean you are at odds with them. In most bankruptcy cases, especially consumer filings, the trustee’s review is routine and straightforward. By providing honest, complete information and working with an experienced bankruptcy attorney, you can help ensure that your case proceeds smoothly.
Contact Rounds & Sutter for Bankruptcy Help in Ventura County
At Rounds & Sutter, we understand how intimidating and complicated the bankruptcy process can seem. We guide individuals and small business owners in Ventura County through each step, from the initial filing to working with the trustee and beyond. If you are considering bankruptcy, contact us today to discuss your options and find out how we can help you achieve a fresh financial start.Top of Form