What Does a Bankruptcy Trustee Do?
In a traditional court case, there are two sides, and a judge (and sometimes, a jury). There is no such thing as a trustee. Yet in bankruptcy, we speak often about who a trustee is or what a trustee does. Understanding the role of the trustee will help you understand what to expect in your bankruptcy.
Creditors Need Help
In reality, although bankruptcy is not an adversarial process—it is not you “against” anyone—bankruptcy does put you and your creditors on two sides. After all, you are seeking to discharge the debt owed to creditors. In fact, bankruptcy even puts your creditors against each other, as they are left to fight amongst themselves over who gets any property that you may have that can be taken.
Creditors cannot each investigate the debtor, look into the debtor’s financial information, or appraise and sell any property the debtor has that may not be protected, and do all that while arguing over who should get what from the debtor’s estate or property.
Creditors are also not in any position to sell property for value. They are in the business of collecting, not of selling cars or jewelry or other items of value in the open marketplace for value.
What the Trustee Does
The trustee does all of this on behalf of the creditors. The trustee is an agent of all the creditors, and the creditors trust the trustee to ensure that the debtor has no property that can be taken, and if the debtor does, the creditors trust that the trustee will sell that property for maximum value, and distribute the proceeds among them fairly.
This is why, in most cases, the consumer usually won’t deal with any creditor directly, but rather, will deal with the trustee. It is the trustee that will ask the debtor questions, and review the debtor’s submitted documents. The trustee will identify if there is some irregularity, such as if a debtor has transferred property out of their name before filing for bankruptcy.
The trustee can also act on behalf of the debtor. For example, if the debtor is in the middle of a lawsuit where the debtor stands to win money, the trustee can “take” the lawsuit and stand in the shoes of the debtor. If people owe money to the debtor, the creditor can make whoever owes money to the debtor pay the trustee.
In Chapter 13
If the debtor files a Chapter 13 bankruptcy, the trustee will evaluate the debtor’s income, and see if the debtor qualifies for a repayment plan. The trustee will see what the payment plan should be, and distribute the regular payments to the creditors according to the court-approved plan.