What is a “Bankruptcy Trustee”?
It is common for clients considering bankruptcy or who have already filed, to ask what a “bankruptcy trustee” is. This question is usually followed quickly by, “What does the bankruptcy trustee do?” The trustee is a person assigned to your bankruptcy case to represent the interests of the people and companies to whom you owe money, your creditors.
Each state has trustees that are appointed by the court to your bankruptcy case. In Arizona trustees usually specialize in handling Chapter 13 or Chapter 7 bankruptcies. Trustees live all over the state to serve individuals filing bankruptcy no matter where they are located in Arizona.
The Role of the Trustee in Chapter 7 Bankruptcy
A Chapter 7 bankruptcy is often referred to as a straight or liquidation bankruptcy. The trustee is responsible for collecting property and liquidating or converting the property to cash. The trustee then distributes money to your creditors.
When you file bankruptcy, all of the property that is dealt with by the court is considered the “bankruptcy estate.” During bankruptcy, you are allowed to exclude some property from the process (such as pensions and education savings accounts for children). Excluding property means that it won’t be touched in your bankruptcy case.
In addition, there is a long list of property you can exempt when you file bankruptcy, meaning you get to keep that property. The exempt property has some limitations, but includes clothing, furniture, your home and car (up to certain amounts). Property that is exempt is meant to give you the chance to move forward after your bankruptcy. When you submit your list of exempt property, the trustee in your bankruptcy case can object to exemptions that you are claiming.
At the end of your bankruptcy case, you also receive what is called a discharge. A discharge means that you are no longer personally responsible for the debts covered in the discharge. However, it’s important to remember that if you have a loan that is secured by property (such as a house or car) the bank can repossess or foreclose if you stop making payments.
The trustee in your case can also object to a discharge in your bankruptcy. In addition, if you are responsible for making alimony or spousal support payments as the result of a divorce, the trustee must send notices to the person receiving support regarding their rights in your bankruptcy.
Because the law allows you to keep the property you need to start over after a bankruptcy, most people who file bankruptcy under Chapter 7 will keep the majority of their property. So the main obligation of the trustee is to review your file, including the schedules and exemption claims prepared by you and your attorney. The trustee also ensures that you follow through with whatever you indicated you will do with property that was used to secure a loan, such as a car or house.
For example, if you own a car and plan to sell it rather than continue to make payments on the loan, the trustee ensures that you do this as part of your Chapter 7 bankruptcy. The other responsibility of the trustee is to make a final accounting report of your case to the United States bankruptcy trustee. We’ll discuss the U.S. trustee a bit later in this article.
In a Chapter 7 bankruptcy (as well as in Chapter 13) there is a hearing referred to as a meeting of creditors. The trustee is in charge of this meeting. He or she reviews documents at the meeting and asks you any questions they have about your case. The trustee can decide whether or not to object to your discharge as well as decide whether to claim that your bankruptcy filing was improper.
As the debtor, you need to cooperate with the trustee. You can’t actively block the work of the trustee. But you aren’t required to spend a substantial amount of money or time to comply with the trustee’s request. If a request from the trustee seems particularly difficult to comply with, we encourage your to discuss this with us as your attorneys.
The Role of the Trustee in Chapter 13 Bankruptcy
Under Chapter 13 bankruptcy, the trustee has all same responsibilities as in Chapter 7, plus much more. Because Chapter 13 is used for individuals who have a regular source of income and are able to make payments, you’ll submit a bankruptcy payment plan that we’ll help you prepare. The additional responsibilities of the trustee are related to the plan of payment and administering that plan.
The trustee is responsible for presiding over all hearings to confirm or modify your plan. She or he also must preside over any meetings regarding the value of property that secures loans (such as a house or car). Once your plan is approved, you submit payments to the trustee. The trustee is then responsible for distributing the payments to your creditors.
It is helpful to work with experienced local bankruptcy attorneys because they will often know the trustees assigned to your bankruptcy case. At times knowing how a particular trustee works can be taken into account when we create a filing strategy for your bankruptcy.
If for some reason you need to modify your payment plan, then the trustee would be involved in any requests for changes, including conducting another meeting to confirm any modifications you are proposing.
The United States Bankruptcy Trustee
Every state, except for Alabama and North Carolina, is part of a larger United States bankruptcy district. The U.S. trustee supervises and appoints the Arizona trustees. Their role is to make sure administrative matters run smoothly. The overall role of the trustees is to handle all of the paperwork and management of bankruptcies so that U.S. Bankruptcy Courts are left only to resolve conflicts or disputes in bankruptcy cases.
How Does the Trustee Get Paid?
You might be wondering, given the responsibilities of the trustee, how much they get paid and who pays them.
In a Chapter 13 bankruptcy, the trustee gets paid a percentage of the payment you make. Usually this percentage is between 4-10% of the total amount you pay into your case. From this payment, the trustees cover all their expenses, including any office costs or paying for additional staff to assist with the bankruptcy cases assigned to them.
In a Chapter 7 bankruptcy, the trustee gets paid out of the filing fee you pay when you file for bankruptcy. In addition, the trustee gets paid a percentage of any property that they convert into to cash (or liquidate). In many individual cases, because you’re able to keep much of your property through exclusions or exemptions, the trustee only gets paid the flat fee out of your filing fee.
If you have more questions about the role of the trustee or whether bankruptcy is right for you, we encourage you to call our office and set up an appointment for a free consultation. Because of our decades of experience with bankruptcy in Arizona, including Tucson and Phoenix, we can give you the answers you need and guide you through the bankruptcy process.
My name is Stephen Trezza and I am a Tucson bankruptcy attorney. I have been based in Tucson, Arizona since 1992 and I specialize in chapter 7 and chapter 13 bankruptcy cases. I have been awarded a "Superb" rating by Avvo and an "A" rating by the BBB. I have been President of the Tucson Association of Consumer Bankruptcy Attorneys 2011, 2012 and 2013.
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