What Does a Bankruptcy Trustee Do in Chapter 7 and Chapter 13?

Once you file for bankruptcy, a trustee becomes involved in your case. A bankruptcy trustee is the person responsible for overseeing key parts of your case, but what that involves depends on the type of bankruptcy you file. In Chapter 7, the trustee reviews your finances and may sell non-exempt property to pay creditors. In Chapter 13, the trustee has a longer-term role that includes reviewing your repayment plan, collecting payments, and distributing money to creditors.

For legal help with a bankruptcy case, use the Super Lawyers directory to speak with a bankruptcy lawyer who can explain what to expect.

What Is a Bankruptcy Trustee?

A bankruptcy trustee represents the estate going through bankruptcy. The federal Bankruptcy Code defines the duties a trustee must perform. Those duties generally benefit the creditors to whom the estate owes money.

The trustee is an independent fiduciary or administrator in the bankruptcy process. They are not the debtor’s lawyer or advisor. They are also not simply an employee of the bankruptcy court. The U.S. Trustee Program appoints and supervises private trustees in Chapter 7 and oversees Chapter 13 trustees in most federal judicial districts.

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What Does a Chapter 7 Bankruptcy Trustee Do?

A Chapter 7 bankruptcy trustee reviews the debtor’s financial information, identifies assets available to pay creditors, and administers those assets through the bankruptcy process.

The trustee also reviews the debtor’s bankruptcy paperwork and may ask questions about income, property, debts, and other financial matters.

Identify and Liquidate Non-Exempt Assets

One of the trustee’s primary responsibilities in a Chapter 7 case is determining whether the debtor owns property that is not protected by bankruptcy exemptions. Bankruptcy exemptions allow a debtor to protect certain property from creditors. The specific exemptions available depend on the case circumstances and applicable law.

If the trustee identifies non-exempt property with enough value to benefit creditors, the trustee may administer and liquidate assets. The trustee can then use the proceeds to pay eligible creditors. If all of the debtor’s property is protected by exemptions, there may be no assets for the trustee to liquidate.

Review Claims and Distribute Available Funds

If the trustee liquidates assets, creditors may receive a portion of the proceeds based on the rules governing distribution in bankruptcy. The trustee reviews creditor claims and distributes available funds under the Bankruptcy Code.

The trustee also helps identify potential problems in the case. For example, the trustee may raise issues about the debtor’s eligibility for a discharge or object to discharge when the circumstances warrant it. The trustee typically meets with the debtor at the 341 meeting of creditors, where the debtor answers questions under oath about the bankruptcy filing and financial affairs.

What Does a Chapter 13 Bankruptcy Trustee Do?

A Chapter 13 trustee has a different role because the debtor keeps their property while repaying creditors through a court-approved repayment plan. Instead of liquidating non-exempt property, the trustee oversees the plan’s administration and handles payments made during the bankruptcy.

Collect Payments and Pay Creditors

The debtor makes monthly payments to the Chapter 13 trustee according to the terms of the approved repayment plan. The trustee then distributes those funds to creditors as required by the plan and bankruptcy law.

The trustee also monitors the case while the repayment plan is in effect. This can include reviewing whether the debtor is making the required monthly payments and addressing issues that arise during the repayment period. Because Chapter 13 cases can last several years, the trustee may remain involved much longer than a Chapter 7 trustee.

How Does a Bankruptcy Trustee Review a Case for Problems?

As part of their role, trustees review the initial bankruptcy petition, payment schedules, and other financial documents. They look for inconsistencies, hidden assets, undisclosed property, fraudulent transfers, or other issues requiring further investigation.

The trustee reviews the debtor’s financial affairs and filings and may investigate issues that arise. However, the U.S. Trustee Program has broader system-wide responsibilities for monitoring bankruptcy fraud and abuse.

What Happens If the Bankruptcy Trustee Asks You for More Information?

As the debtor, you have a duty to cooperate with the trustee. This includes providing the requested information or documentation. The trustee could request additional information, such as proof of income, bank records, tax returns, property ownership, or any other information related to the bankruptcy filing.

Do not ignore these requests for information. If you have an attorney, consult with the lawyer about the appropriate response. This is especially important if the trustee requests information about a property that wasn’t listed on the bankruptcy petition or questions a money transfer in the records.

A lawyer can also help if you are unsure what information to provide or need to correct information you provided earlier. A trustee’s questions or document requests don’t automatically mean the debtor has done something wrong. The trustee may simply need additional information to administer the case properly.

Speak with a Bankruptcy Attorney

Bankruptcy trustees handle much of the behind-the-scenes work that keeps a Chapter 7 or Chapter 13 case moving. An attorney can help you prepare your case, understand your responsibilities, and respond when the trustee raises questions.

Use the Super Lawyers directory to find a bankruptcy attorney in your area.