Understanding the Role of the Bankruptcy Trustee

Bankruptcy is a system that is designed for the honest but unfortunate debtor. It is not a system that can be used and abused by deceitful companies or individual debtors. To ensure that the system is not abused, bankruptcy law places certain people as “watchdogs” over the bankruptcy administration process. One such watchdog is referred to as the “bankruptcy trustee.”

Who Is a Bankruptcy Trustee?

Technically speaking, there are two types of trustees involved in your bankruptcy case. The first is referred to simply as the “trustee” while the second is the U.S. Trustee. The United States Trustee works for the United States government to administer the bankruptcy process. However, the U.S. Trustee cannot oversee every individual case that is filed in the nation. As a result, regional and local trustees are used to facilitate the bankruptcy administration process. That means that the trustee is really an extension of the U.S. Trustee’s office.

In individual cases, when someone refers to the “trustee,” they are usually talking about this regional or local player. In more complex cases that involve businesses going through Chapter 7 or Chapter 11 bankruptcy, the U.S. trustee may be more actively involved.

The Role of the Bankruptcy Trustee in Individual Bankruptcy Cases

Chapter 7 bankruptcy involves an orderly liquidation of all assets that are not exempt by state or federal law. The trustee administers this process to ensure that any financial gain obtained from the liquidation is passed out to creditors in accordance with bankruptcy law.

The trustee’s other major function is to ensure that the debtor is not taking advantage of the bankruptcy system by hiding assets or spending money that should rightfully belong to creditors. The trustee does this by:

  • Reviewing bankruptcy documents that have been filed for accuracy. The trustee will also examine your tax returns and related financial information to catch any discrepancies or potential problems.
  • Examining the debtor under oath. The trustee will conduct a meeting of creditors, often referred to as a 341 meeting, which is based on the bankruptcy code that requires it. During this meeting, the trustee will examine the debtor and ask particular questions about assets, taxes, and other financial concerns. Your creditors can also attend this meaning to ask questions as well.
  • Avoiding transfers or security interests. The bankruptcy trustee has considerable latitude in setting aside certain transactions that violate bankruptcy law. Part of his or her duties in your bankruptcy case will be to examine certain transactions to determine whether they can be set aside to increase the amount that creditors can be paid from your bankruptcy estate.

The trustee has specific duties to the court and your creditors. It is his or her job to ensure an orderly bankruptcy process. That can mean that he or she is not acting in your best interest as a debtor. Having an experienced bankruptcy attorney on your side to deal with any potential issues that the trustee may assert can be an invaluable asset. Our firm can often help resolve these issues. Call 248-246-1166 for more information.