What Does The Chapter 7 And 13 Bankruptcy Trustee Do?
Learn more about Chapter 13 bankruptcy trustees, including what they do, how they are compensated, and how they manage your repayment plan.
When you file for Chapter 13 bankruptcy, the court will appoint a trustee to manage your case. You’ll learn about the Chapter 13 trustee’s responsibilities, how the trustee is compensated, and the role the trustee will play in your case in this article.
The Chapter 13 Bankruptcy Trustee’s Responsibilities
The trustee’s job in a Chapter 13 bankruptcy is to:
- Make sure your proposed Chapter 13 repayment plan complies with all legal requirements.
- Before you file, make sure you’ve filed your tax returns for the previous four years.
- take advantage of the plan’s payments
- Distribute plan payments to your creditors according to the law.
- keep track of the required monthly income and expense reports in a Chapter 13 case, and
- If you owe back child support, you must provide certain information to the payee and your state’s child support enforcement agency.
How are Chapter 13 Trustees compensated?
Trustees in Chapter 13 keep about 7%–10% of the payments they make to creditors. When deciding whether Chapter 13 is right for you, keep this fee in mind.
The Function of the Chapter 13 Trustee in Your Case
Many Chapter 13 trustees are involved in the cases they oversee. This is particularly true in small suburban or rural judicial districts, as well as in districts with a high number of Chapter 13 bankruptcy cases. A trustee might, for example:
- provide you with financial advice, such as assisting you in the creation of a realistic budget (the trustee cannot, however, give you legal advice)
- assist you in making any necessary changes to your plan
- if you miss a payment or two, give you a temporary reprieve or take other steps to help you get back on track, or
- Participate in any hearing about the value of a piece of property, and consider hiring an appraiser if necessary.
- Your financial relationship with the trustee has its limits, despite the trustee’s interest in your finances.
- You will have control over any money or property you obtain after filing, as long as you follow your repayment plan’s instructions and make all regular payments on your secured debts.
However, if your income or property rises during the course of your plan (for example, if you get a big promotion or win the lottery), the trustee can seek to amend your plan to pay your creditors a higher percentage of what you owe them rather than the lower percentage originally specified. If your income drops and you have to convert from Chapter 13 to Chapter 7, the trustee may become involved.
When you file for Chapter 7 bankruptcy, the court appoints a bankruptcy trustee to oversee the administration of your case. You’ll learn about the specific responsibilities of the Chapter 7 bankruptcy trustee in this article, so you’ll know what to expect before, during, and after the 341 meeting of creditors—the mandatory hearing for almost all filers.
What Does a Chapter 7 Trustee Do?
The Chapter 7 trustee examines the debtor’s bankruptcy paperwork and verifies his or her identification. However, these are minor responsibilities. The Chapter 7 trustee’s primary responsibility is to sell any property that the debtor is not entitled to keep and to distribute the proceeds to the debtor’s creditors. Thus, in any Chapter 7 bankruptcy case, the trustee’s primary interest will be in your personal property and any property you claim as exempt (that you have the right to keep).
Certain individuals believe that the trustee’s role is to assist the debtor throughout the process. The trustee’s role is to protect creditors, not debtors—although the trustee will be courteous and assist the case in moving forward. The best way to grasp this dynamic is to understand how the trustee is compensated. Continue reading.
Payment to the Chapter 7 Trustee
A Chapter 7 trustee is compensated a pittance of $65 per case for performing a cursory review of a debtor’s bankruptcy petition (as of August 2020). A Chapter 7 trustee, on the other hand, stands to earn significantly more. The trustee is compensated by the court a percentage of the funds distributed to the debtor’s creditors.
The funds could come from a variety of nonexempt sources (property that the filer cannot protect with a bankruptcy exemption), including money in the debtor’s bank account, nonexempt property that the trustee liquidates (sells), or funds that the debtor agrees to pay in exchange for the right to keep nonexempt property (more below). The trustee receives 25% of the first $5,000, 10% of the next $50,000, and 5% of any additional funds up to $1,000,000.
The Chapter 7 Trustee conducts an examination of the Bankruptcy Petition.
If all of your property is exempt (you get to keep exempt property), your case is considered a “no-asset” case—creditors will receive nothing. The bankruptcy notice sent to creditors will inform them that they are not required to file proof of claim forms because there will be no money available to pay them. However, they will be informed that this may change.
Under the supervision of the United States Trustee, the trustee is required to review your bankruptcy papers for accuracy and indications of possible fraud or abuse of the bankruptcy system. The trustee will review the documentation and look for indications that you are concealing or mischaracterizing assets. The petition and schedules, as well as the 521 documents you submitted prior to the hearing, will be reviewed (bank statements, paycheck stubs, profit and loss statements, tax returns, and the like).
After discovering nothing, the trustee will lose interest in the case. When the trustee has no property to seize and sell in order to pay your unsecured creditors, there is no commission to motivate the trustee.
The 341 Creditors Meeting Is Conducted by the Chapter 7 Trustee
You’ll meet the Chapter 7 bankruptcy trustee at your creditors’ meeting, which you must attend in order to avoid having your bankruptcy dismissed. The trustee will verify your identification, ask the mandatory 341 questions (along with any other issues raised by your paperwork), and allow any creditors who appear to ask questions (they rarely show up).
Generally, if all of your assets are exempt, the trustee will call the meeting to a close and you will not hear from the trustee again. You’ll complete your debtor education course and await the discharge of your debt.
If, however, you are unable to fully respond to the trustee’s questions, the trustee will postpone the creditors’ meeting and request that you submit appropriate documentation in the interim. Occasionally, the trustee may retain an attorney to pursue nonexempt assets you appear to own, or may refer your case to the United States Trustee’s office for further action if it appears as though you engaged in fraudulent activity.
Nonexempt Assets Are Seized by the Chapter 7 Trustee
If the trustee needs to seize and sell nonexempt assets, you must cooperate in delivering them to the trustee for disposition. Additionally, you can “repurchase” nonexempt assets from the trustee at a negotiated price or substitute exempt assets for nonexempt assets. Numerous trustees discount the property’s value by 20% and occasionally grant the debtor a few months to pay.
Search by the Trustee for Non-Exempt Assets
Many people are unsure whether a trustee has the authority to search their homes to ascertain whether they are concealing property. While such searches are unusual, as part of your obligation to cooperate with the trustee, you may be required to give the trustee a guided tour of your home or storage space. And if you refuse to cooperate, the trustee can obtain a court order compelling you to comply.
Abandonment of Non-Exempt Assets by the Trustee
If you own nonexempt property that is not worth much or would be difficult for the trustee to sell, the trustee can — and frequently will — abandon it, allowing you to keep it. For instance, regardless of how much your used furniture is theoretically worth, many trustees will avoid selling it. Arranging for the sale of used furniture is time consuming and rarely results in a significant profit for the creditors.
The Chapter 7 Trustee Issues Notices of Support Arrears
If you owe back child support, the trustee must notify the support claimant and the state child support agency in order to assist them in locating you following your bankruptcy discharge. Specifically, the trustee will inform the payee of his or her bankruptcy-related rights. The trustee will notify the state child support enforcement agency of the back support, the discharge, the debtor’s address and employer information, and the identity of any creditor holding a nondischargeable, reaffirmed, or a claim.
Both the payee and the child support enforcement agency have the right to request your last known address from these creditors. These creditors are permitted by law to release such information without incurring any penalties.