What does the Bankruptcy Trustee Do?

When an individual files a chapter 7 or chapter 13 bankruptcy case in North Carolina, or anywhere, one of the first things to happen is that a trustee is appointed. This is an important role, and the trustee is broadly tasked with administering the bankruptcy case. What this means in practice depends greatly on bankruptcy chapter.

Role of Chapter 7 Trustee

The core task of a chapter 7 trustee is to determine whether or not it is possible to collect funds to pay unsecured creditors. The two main ways a trustee does this is selling (liquidating) property that the debtor has not protected with an exemption and reversing (avoiding) a transaction or transfer. These tasks are sometimes adversarial to the debtor, but usually can be anticipated based on the facts of the case at the time of filing.

If after diligent inquiry, the trustee determines that no distribution is possible, that case is termed a no-asset chapter 7, and would close after the debtor gets his or her bankruptcy discharge. The vast majority of chapter 7 cases in North Carolina are no-asset cases.

Chapter 7 trustees are private individuals who have volunteered to be appointed by the court. In the divisions I practice in, all such panel trustees are practicing bankruptcy attorneys, and most have decades of experience. Chapter 7 trustees earn a nominal flat fee plus a commission on distributions.

Role of Chapter 13 Trustee

The core task of the chapter 13 standing trustee is to collect plan payments from the debtor and disburse them according to the chapter 13 plan. Along with that, the trustee ensures that the plans are in compliance with the requirements of the bankruptcy code.

If a debtor is making his or her payments properly and has proposed a plan that is reasonably routine and permitted by the bankruptcy code, the chapter 13 trustee is typically a cooperative ally in moving the case forward towards a mutual goal of effective rehabilitation of the debtor's finances. When all is not working smoothly, there can be disagreements with the trustee on how best to handle the plan--disagreements that would ultimately be resolved by the bankruptcy judge if necessary.

Each district has one or more standing chapter 13 trustees appointed to administer a large number of cases. Such trustees have professional operations employing numerous staff members in administrative, analytical, and financial roles. Trustee's offices are funded out of distributions in chapter 13 cases, but the individual trustee himself or herself is a salaried employee who isn't personally impacted by the outcome of any individual case.

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