The major functions of a bankruptcy trustee are to administrate, liquidate, and litigate.
In the world of bankruptcy, there are two types of trustees that will interact with your case. The first is your case’s bankruptcy trustee. If you are filing under Chapter 7, this will be a Chapter 7 Trustee. If you are filing under Chapter 13, this will be a Chapter 13 Trustee. The second type of trustee that will interact with your case is the United States Trustee. The United States Trustee oversees the administration of bankruptcy cases and Chapter 7 and 13 trustees under the bankruptcy laws. The United States Trustee’s mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of debtors, creditors, and the public. The United States Trustee Program consists of an Executive Office in Washington, DC, and 21 regions with 92 field office locations nationwide.
Administrate – This means that the trustee will administer your case since much of the bankruptcy process is administrative. Much of the bankruptcy process is administrative and is conducted away from the courthouse. This administrative process is carried out by a trustee who is appointed to oversee the case. The Chapter 13 process is extremely administrative, as you will be making payments regarding your case through the Chapter 13 Trustee to your creditors. Your Chapter 13 payment is based on your anticipated income over the life of the Chapter 13 plan. The United States Trustee will administer your case if there are problems or concerns about your eligibility for filing a particular chapter of case. For example, in order to file for Chapter 13, you must earn a wage. Income from social security or unemployment would not count. In order to file for Chapter 7, your income must be under the median income for the size of your household.
Liquidate – The Trustee may liquidate your assets if you file a Chapter 7 case. A chapter 7 bankruptcy trustee gathers and sells your nonexempt assets and uses the money to pay creditors in accordance with the Bankruptcy Code. A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13 case. You can, however, in a Chapter 7 case keep certain “exempt” property; but a chapter 7 trustee will liquidate your remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property. This is an important reason to speak with a bankruptcy attorney – to determine what property, if any, may be lost or liquidated in a Chapter 7.
Litigate – Finally, if needed, the bankruptcy trustee will litigate your case if problems arise. These problems could include a creditor filing an objection to your case, an ex-spouse wanting to deny you a discharge for your debt, or issues regarding fraud or bad faith. There may also be litigation over unexpired leases. Personally, I litigated regarding taxes that were dischargeable under the bankruptcy laws. I also litigated where an ex-spouse tried to discharge an alimony claim. I also litigated whether any potential monies owed in a sexual harassment lawsuit was dischargeable in bankruptcy. The bankruptcy trustee may take positions on these litigation cases. Since they are the gatekeeper to your bankruptcy case, they also play a role in the litigation.