What does a Bankruptcy Trustee Do?

Budget Your MoneyA bankruptcy trustee is an attorney that works for the Office of the U.S. Trustee.  Their purpose is to review the case and make sure the bankruptcy rules are being followed, to provide several types of notices, and to obtain money for the unsecured creditors.  What their job actually entails depends greatly upon whether they are a Chapter 7 trustee or a Chapter 13 trustee.

Chapter 7 trustees are generally looking for property that can be liquidated so that the proceeds can be paid to the unsecured creditors.  They look for nonexempt property, which is property that is part of the bankruptcy estate.  They also look for instances where property was inappropriately transferred to a third party by the debtor.  In these instances they may be able to avoid the transfer and seize the asset.  They also look for preferences.  A preference is when a debtor pays a specific creditor a significant amount of money before filing bankruptcy.  For example, if a debtor pays off a large debt to his father right before filing bankruptcy, that would be a preference.  The trustee will ask the debtor’s father for the money so that it can be divided up amongst the unsecured creditors as a class.

Chapter 13 trustees are involved in the bankruptcy case from the filing date until the discharge or dismissal, which can be three to five years.  These types of trustees do not liquidate property.  Chapter 13 cases are funded by the plan payments made by the debtor during the pendency of the bankruptcy case.  The Chapter 13 trustee takes the money paid into the bankruptcy case and disburses it to creditors as per the terms of the plan.  The trustee also reviews the debtor’s petition to make sure that the rules are being followed, and files objections to confirmation as needed.  These types of trustees are also looking for money for unsecured creditors as well, so they often object to plans that don’t provide as much to these creditors as they are entitled to receive in the case.