Just Who Is the Bankruptcy Trustee Anyway?

A bankruptcy trustee is assigned to every Chapter 7 and Chapter 13 bankruptcy case soon after filing. Although the trustee in bankruptcy is not a judge, he or she has tremendous influence over a debtor’s case. Yet, few people know what this person does. So just who is the bankruptcy trustee?

What Does the Trustee Do?

The United States Trustee at the Justice Department appoints and supervises each bankruptcy trustee. Typically, the appointee is a lawyer with extensive experience in bankruptcy. His or her job is to review the debtor’s petition and schedules, administer the bankruptcy estate, conduct the meeting of creditors, and make sure there is no fraud.

In a Chapter 7 case, the bankruptcy trustee administers the bankruptcy estate and distributes any non-exempt property to creditors. The Chapter 7 trustee is paid a percentage of any funds he or she can find for creditors and can be said to be acting on the creditors’ behalf. However, when the debtor has no non-exempt assets, the trustee is paid only a nominal amount.

In Chapter 13 cases, the trustee’s duties include reviewing and administering the Chapter 13 plan and distributing payments to creditors. The Chapter 13 trustee collects a percentage of funds paid through the plan and remains on the case as long as it is active.

Although it does not happen in most cases, trustees can raise objections to the debtor’s exemptions, file motions, and take other actions against the debtor. However, they do not have the final say. The bankruptcy judge is the final decision maker in all cases. If a bankruptcy trustee makes a decision with which the debtor disagrees, and a negotiated settlement cannot be reached, the debtor can take the matter up with the judge.

Quick Note: In addition to supervising the bankruptcy trustees, the United States Trustee’s office plays an active role in bankruptcy cases by conducting random and targeted audits. For that reason, debtors need to double-check the accuracy of the information they provide to their bankruptcy lawyers.

Meeting the Trustee

In a typical case, the only interaction a debtor will have with the trustee is at the meeting of creditors, when the trustee will ask them questions under oath about their petition, schedules, and documents. Clients in my Philadelphia area bankruptcy practice are sometimes nervous about this meeting and surprised when it isn't nearly as bad as they thought it would be.

Quick Note: There are typically several Chapter 7 “panel” trustees and two Chapter 13 trustees in the Eastern District of Pennsylvania, which covers all of Philadelphia, Montgomery, Delaware, Berks, Bucks, Chester, Lancaster, Lehigh, and Northampton counties.

Dealing with trustees in bankruptcy can be tricky, particularly in complicated cases. Therefore, it is wise to find an experienced bankruptcy attorney who understands the trustee’s role. That being said, it is important to know that bankruptcy trustees are not out to get debtors or make things unnecessarily difficult. They have a job to do, and, in my experience, carry it out in a professional and courteous manner.

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Philadelphia Bankruptcy Attorney is published by Harborstone Law. Harborstone Law represents clients in bankruptcy and debt relief cases throughout Philadelphia and the surrounding Pennsylvania counties.

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Authors
Dan Mueller is a bankruptcy attorney and partner at Philadelphia-based Harborstone Law. Dan helps people and small businesses resolve serious financial and legal issue through bankruptcy and non-bankruptcy debt solutions.
Paul Midzak focuses his practice on debtor defense, dispute resolution, consumer protection law, and Chapter 7 and Chapter 13 bankruptcy. He also advises businesses on a variety of legal matters.
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Harborstone Law represents clients in bankruptcy, debt, consumer, and small business matters throughout Philadelphia, Montgomery, Delaware, Chester, Bucks, Berks, Lancaster, Lehigh, and Northampton Counties in Pennsylvania.
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