What Is the Role of A Bankruptcy Trustee in Chapter 7 Bankruptcy?

A chapter 7 bankruptcy trustee is a lawyer hired by the court and appointed to chapter 7 bankruptcy cases that are filed in a particular county or jurisdictions. The role of the chapter 7 trustee is to review the documents filed by the debtor and in chapter 7 to make sure that the assets are properly listed and that the exemptions claims are appropriate under the circumstances. A chapter 7 trustee also looks at potential transactions such as sales of assets prior to filing or gifts that the debtor may have done prior to the bankruptcy case being filed, in which the chapter 7 trustee may be able to claw back some of the assets or funds received because of those transactions. In short, the chapter 7 trustee is a fiduciary for the creditors and that person represents the interest of the creditors in the bankruptcy case.

How Is That Different From The Duties Of A Trustee In A Chapter 13 Bankruptcy Case?

There are a lot of similarities, but there are some differences as well. In a chapter 7 bankruptcy, the trustee is really focused on assets, exemptions, and transfers. That’s because those are the most lucrative places for a chapter 7 trustee to potentially get money turned over to the creditors. Very often, we’re able to protect everything for our clients: all of their assets and make sure that there are no transfer issues prior to filing. The chapter 7 trustees very often don’t get anything for the creditors, but when they do, it’s from the areas of an improperly scheduled asset, an exemption that doesn’t apply or an inappropriate transfer. So that’s really the focus of a chapter 7 trustee.

In a chapter 13 bankruptcy, while we still look at the assets and the exemptions, the chapter 13 trustee is more focused on income and monthly expenses. That’s because the format of a chapter 13 is a payment plan in which you are paying an amount to your creditors through the chapter 13. The amount that you pay depends upon your monthly income and your monthly expenses. Therefore, the chapter 13 trustee is focused on having you report all of your income and making sure that the monthly expenses you are claiming are reasonable and necessary as opposed to luxury expenses or unduly burdensome expenses to which the trustee could potentially object. In sum, there are a lot of similarities between the chapter 7 and the chapter 13 trustee, but their focus is slightly different in the different cases.

Who Does The Bankruptcy Trustee Represent? How Are They Elected?

The bankruptcy trustee represents the bankruptcy estate. When a case is filed, a bankruptcy estate is automatically created. That bankruptcy estate is populated by any assets that are non-exempt; that’s another way of saying they’re not protected, and any funds that the trustee is able to get back because of a fraudulent transfer or a preferential payment, for example, before the bankruptcy was filed. So that bankruptcy estate and the assets within it are what ultimately are liquidated on behalf of the creditors. The trustee has the fiduciary duty to the creditors to make sure that he or she is getting all available assets into the bankruptcy estate to then be turned over to the creditors. So the chapter 7 trustee represents the interests of the creditors.

What Kind Of Communication Will I Have With The Bankruptcy Trustee?

If you’ve hired an attorney, you won’t have any contact with the bankruptcy trustee (other than the 341 hearing which you attend with your attorney) because all the communications will go through your attorney. Communications from the trustee are actually pretty rare in a chapter 7. You’ll get communications from the court but those are not necessarily communications from the trustee. For example, on the date your case is filed, the court will issue a Notice of Case Filing and this will alert all of your creditors that you have filed for bankruptcy and they are not to attempt collections from you. The Notice also states that there is a 341 hearing that they can attend if they wish. So you as the filer (commonly referred to as the “debtor”) will receive a copy of that notice but that’s actually from the clerk of court, not from the trustee.

Communications from the trustee are typically around clarification of assets. So for example, if you had scheduled a motorcycle on your petition as an asset and you gave a value of a particular amount, a trustee may very well state in a letter to your attorney, “I’ve done some research about this year, make and model of motorcycle and it appears that the value you’ve provided is much lower than what I’m finding for similar motorcycles online. Can you provide some pictures, some documentations, some evidence to support the value that you used,” and that communication would be addressed to your attorney and then obviously your attorney would provide that to you and ask for the supporting documentation.

In the vast majority of cases, we’re able to protect all of our clients’ assets, so these communications are actually not that common at all.

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