The Trustee: What do They do in Bankruptcy Cases?

The unpopular role of the Trustee in a bankruptcy case is a difficult one. There are many reasons why they’ve been so often disliked. Chief among them is the designated part of liquidating the debtor’s assets and properties.

You’ve heard of a trustee in a trust, right? The role is the same except the task is much more defined under the law. What they do is oversee the liquidation of assets used to be paid for the debts an individual owes in a bankruptcy case.

What is a Trustee?

In a bankruptcy case, a trustee is a third party or a neutral person appointed by the courts to manage the property and assets of an individual filing for relief. They deal with the creditors because they guard the assets for the purpose of selling them and then decide where to distribute the money.

The trustee is usually a member of the Department of Justice, assigned by the Office of the US Trustee.

The Breakdown of Duties of a Trustee

All bankruptcy cases are filed under the cited provisions from Chapter 7, 11, 12 and 13, Title 11 of the US Bankruptcy Code. Once appointed, the trustee begins to assume any of the following duties and responsibilities:

  1. Guardian against fraud – If a case is filed under Chapter 7, the trustee reviews the petition to see if any of the assets and property submitted by the debtor is accurate and free of fraud.
  2. Collection of Non-exempt assets – Not all of the assets can be liquidated by the trustee. Part of the trustee’s duties is to determine which ones are non-exempt.
  3. Meeting of Creditors and Distribution– Assets and properties are to be sold and distributed to the creditors to satisfy a debt. All meetings with creditors are done under oath; if you’ve retained a bankruptcy lawyer to prepare your petition, representation at the creditors meeting is included.
  4. Takes over Managing a Business – In a case filed under Chapter 11, a trustee assumes the responsibilities of a company CEO. He shall manage the assets of the business for the same purpose of paying off debt and all obligations.
  5. Finding the assets – A Trustee is paid a small fee from the proceeds of the sale of all the property and assets. However, there are cases where the court allows him to find “hidden assets” under the incentive of getting a commission for every asset obtained.

The rest of the duties are defined under the Chapters of the Bankruptcy Code that governs the conduct of the bankruptcy case. As lawyers or accountants, all trustees are generally professionals who conduct their affairs honestly and with integrity.