What Does the Bankruptcy Trustee Do?


If you’re considering bankruptcy and have been educating yourself about the process, you’ve undoubtedly seen many references to the bankruptcy trustee. But, it may be unclear exactly what the bankruptcy trustee does, or how he or she will impact your bankruptcy case. Even those in the bankruptcy process may be unsure about the role of the trustee—he or she isn’t the judge and can’t make rulings, but does preside over the meeting of creditors.

Understanding the bankruptcy process and the role everyone plays can make the process allows for better preparation and reduces stress. Here’s what you need to know about the bankruptcy trustee.

What is a Bankruptcy Trustee?

The legislative history of the Bankruptcy Reform Act of 1978, which created the U.S. Trustee Program (USTP), describes the trustee’s role as “watchdog over the bankruptcy process.” The USTP’s mission statement describes its purpose as “to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders—debtors, creditors, and the public.”

Bankruptcy trustee’s are charged with some general responsibilities that apply across all types of bankruptcy. These include reviewing the bankruptcy petition for completeness and accuracy, assessing the validity of creditor claims, monitoring cases for potential fraud and taking appropriate action, referring criminal fraud for investigation and prosecution, and ensuring that attorney fees are reasonable.

In addition, there are specific responsibilities associated with different types of bankruptcy. The exact duties of the trustee in a Chapter 7 case differ somewhat from the responsibilities of a Chapter 13 trustee. And, of course, the specific actions the trustee takes will depend on the specifics of the case.

In some cases, this may extend to opposing a discharge or requesting dismissal of a Chapter 13 plan. Note, though, that the trustee doesn’t independently decide such issues as whether a debtor should be granted a discharge or that an asset should be converted for the benefit of creditor. Rather, the trustee raises these issues with the bankruptcy court through objections, motions, and other processes. The decision lies with the court.

The full list of duties of the trustee is set forth in Section 704 of the U.S. Bankruptcy Code.

The Chapter 7 Bankruptcy Trustee

A Chapter 7 bankruptcy case can typically be resolved in 4-6 months, and usually involves only a few steps, so the bankruptcy trustee’s role is more limited than the Chapter 13 trustee’s. The most significant job of the Chapter 7 trustee is to identify and claim any non-exempt property of the debtor and to liquidate that property and distribute proceeds to creditors in appropriate shares.

The trustee is also responsible for reviewing property transfers preceding the bankruptcy to determine whether any of those transfers might constitute actual or constructive fraud, and then taking appropriate action to recover any lost value for the creditors. And, the trustee presides over the meeting of creditors, also known as the 341 meeting.

The Chapter 13 Bankruptcy Trustee

The Chapter 13 trustee, of course, has the same responsibilities regarding fraud, reasonableness of attorney’s fees, ensuring efficiency of administration, and running the meeting of creditors. In addition, the trustee in a Chapter 13 case is tasked with assessing the debtor’s proposed plan to ensure that it is both realistic for the debtor and fair to creditors.

In a Chapter 13 case, the trustee is also responsible for collecting monthly payments from the debtor and distributing those payments to creditors in keeping with the plan.

Who Can Serve as a Bankruptcy Trustee?

The U.S. Trustee Program is administered by the Department of Justice (DOJ). However, bankruptcy trustees are not employees of the DOJ or the USTP. Rather, “private trustees” are appointed and—in most states, including Nevada—overseen by the USTP.

Some bankruptcy trustees are former bankruptcy attorneys, but neither a law degree nor prior bankruptcy experience is required to be appointed trustee. Generally, anyone with the appropriate financial and administrative skills who passes a background check and is eligible for bonding can be appointed.

How Does the Bankruptcy Trustee Get Paid?

A bankruptcy trustee receives a small flat-fee payment per case administered. In addition, the trustee may receive an incentive payment in the form of a percentage of funds recovered on behalf of creditors. Depending on the amount recovered, this “commission” can range from 3% to 25%.

Most Chapter 7 cases are “no asset” cases, meaning that the trustee determines that there are no non-exempt assets available for the payment of creditors and there is no percentage-based compensation. In a Chapter 13 case, the trustee receives a percentage of funds collected through plan payments.

A Las Vegas Bankruptcy Attorney Can Guide You Through the Process

The exact role the trustee will play in your bankruptcy case will depend on the type of bankruptcy you file, the issues that arise in your case, and other factors. While general information can help to demystify the bankruptcy process and reduce the stress many people associate with legal proceedings, the best source of information about what to expect in your particular case is a Las Vegas bankruptcy attorney.

If you’re considering filing for Chapter 7 or Chapter 13 bankruptcy in Las Vegas, a free consultation with one of the experienced bankruptcy lawyers at Freedom Law Firm can be your best starting point. Just call 702-903-1254 or fill out the quick contact form on this website to schedule an appointment.

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