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What is the role of a trustee in a personal bankruptcy?

On Behalf of | Mar 29, 2022 | bankruptcy |

The courts oversee bankruptcy filings to ensure that things go smoothly and to prevent abuses of this important legal system. There are thousands of bankruptcies every year, and each one involves a careful review of someone’s finances, their property and debts.

One of the ways the courts ensure proper oversight of each filing is through naming a bankruptcy trustee. Individual trustees are responsible to oversee individual bankruptcy filings. When you understand exactly what their job entails, you will likely have an easier time communicating with your trustee and advocating for yourself.

What the trustee does depends on the kind of bankruptcy you file

Most individuals filing for bankruptcy will file either Chapter 7 or Chapter 13 bankruptcy. The tasks the trustee must fulfill are slightly different depending on the bankruptcy.

A Chapter 7 bankruptcy is a liquidation bankruptcy. The person filing must qualify by passing a means test. They need to provide an in-depth inventory of their personal property to the courts. The courts can then verify that inventory and sometimes liquidate certain property to repay creditors. It is the trustee who manages the sale of assets and the distribution of those funds to creditors. They also organize and attend the creditor meeting. Most Chapter 7s do not result in liquidation of assets because your attorney can protect the assets with exemptions, but the trustee must supervise the process.

In a Chapter 13 or wage earner’s bankruptcy, the person filing has to arrange a repayment plan and make monthly payments for between three and five years. The trustee will be the one who organizes and manages the creditor meeting and finalizes the repayment plan. The trustee will also receive the filer’s monthly check and distribute funds to creditors. 

Understanding what happens during a personal bankruptcy filing can help you choose the right form of bankruptcy and make other important financial decisions. Contact an attorney to learn more about your options.