Several different parties play a role in a bankruptcy proceeding: the debtor, the creditors, the Court and the Bankruptcy Trustee. However, the title “Bankruptcy Trustee” does very little to explain exactly what this individual does.
What is the role of a Bankruptcy Trustee and why is this role so important to the proceedings? We hope to clarify this question for anyone who is working their way through a bankruptcy.
Who Is the Bankruptcy Trustee?
The Bankruptcy Trustee is an individual appointed by the Court to supervise a bankruptcy case. Their duties depend on the type of bankruptcy case filed, and whether the case is filed under Chapter 7 or Chapter 13. The Trustee conducts the Meeting of Creditors that the debtor must attend and will review all of the financial information needed to evaluate the case and deal with applicable creditors. The Trustee, as an officer of the Court, is responsible for ensuring that all bankruptcy laws and rules have been followed and that proper steps are taken to bring any violations to the attention of the Court.
The Bankruptcy Estate
The Bankruptcy Trustee is in charge of managing what is known as the “bankruptcy estate.” Under the Bankruptcy Code, when someone files for bankruptcy, a bankruptcy estate is established.
This estate is comprised of the debtor’s property and technically is a separate legal entity from the bankruptcy debtor. It is the task of the Bankruptcy Trustee to oversee the estate and to ensure that assets and debts are handled according to the type of bankruptcy being pursued.
Chapter 7 Bankruptcy Trustees
In Chapter 7 bankruptcy filings, certain debts are completely discharged, or wiped out. In a Chapter 7 bankruptcy, the Trustee determines the assets that will be retained by the debtor and what, if any, assets will be sold.
The Trustee sells that property, and uses the sale proceeds to pay off creditors. The Bankruptcy Trustee can challenge creditor claims that he or she deems are not appropriate. The Bankruptcy Trustee in a Chapter 7 bankruptcy proceeding also may object to a person’s bankruptcy discharge if warranted.
Chapter 13 Bankruptcy Trustees
A Chapter 13 bankruptcy proceeding differs from Chapter 7 in that debts are not automatically discharged. Rather, the debtor works with the Bankruptcy Trustee to formulate a plan to pay back a portion of certain debts.
Chapter 13 is also known as a “reorganization bankruptcy.” The debtor keeps possession of their property during the bankruptcy proceedings while making payments to creditors according to a set the payment plan.
The Bankruptcy Trustee reviews the repayment plan to make sure that creditors are paid the correct amount and in the correct priority. The Bankruptcy Trustee also must determine whether the filer has sufficient income to allow them to pay all of the regular household expenses and to make the scheduled plan payment.
The Bankruptcy Trustee receives monthly payments from the debtor under the established plan and then distributes the payments accordingly to creditors who have made timely claims.
How Does a Bankruptcy Trustee Get Paid?
How a Bankruptcy Trustee is paid can vary depending on the type of bankruptcy being filed. Under Chapter 7 bankruptcy, the filer’s debts are paid by selling nonexempt property, if any. Initially, a Bankruptcy Trustee receives a flat administrative fee to oversee and review the case.
The flat fee normally runs around $60, and it is paid out of the initial filing fee with the Court. Some individuals can qualify for a waiver of this fee which in turn waives the Trustee's administrative fee. However, he or she may earn a commission from any nonexempt property he or she sells to pay off creditors.
If the filer has no nonexempt property the Trustee can sell to pay the debts, the Trustee can only be compensated via the administrative fee. If the Trustee is entitled to earn a commission from the sale of nonexempt property, a fee schedule is set and the commission cannot exceed the limits set.
Before getting any payment, the Bankruptcy Trustee is required to file an application with the Court, giving notice to the filer and all creditors of the fees being requested. Chapter 13 is a reorganization bankruptcy and does not involve the Trustee selling the filer's property to pay off their debts.
Because of this difference, a Chapter 13 Bankruptcy Trustee does not receive a commission from selling the filer's property. Instead, the Trustee earns to a percentage of the filer's monthly payments made under the plan as compensation for working your their.
How much that percentage will be depends on the Trustee’s operating budget, the number of Chapter 13 filings in a given district, as well as a handful of other factors.
CONTACT AN ARLINGTON BANKRUPTCY ATTORNEY FOR A FREE CONSULTATION TODAY
An experienced Texas bankruptcy lawyer can help you to evaluate your financial affairs and to help answer any concerns you have about the bankruptcy process.
Call the Law Office of Marilyn D. Garner NOW at 817-409-6919 for a free consultation to discuss how bankruptcy may help you manage your debt and obtain a “fresh start” to your financial life.