Role & Responsibilities of a Bankruptcy Court Trustee

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Role & Responsibilities of a Bankruptcy Court Trustee

When a debtor files for chapter 7 bankruptcy petition, the US court appoints a court bankruptcy trustee to administer the case and sell the debtor’s non-exempt assets such as a second home, car, paintings collections, etc. For a complete list of non-exempt bankruptcy assets, go here. If all the debtor’s assets are exempt or already subject to liens, then the trustee will file a ‘no asset’ report with the US bankruptcy court and there will be NO distribution of assets to unsecured creditors. In fact, most chapter 7 bankruptcies for individual debtors turn out to be no asset bankruptcies. What happens if the debtor does have assets that are non-exempt? In this scenario, unsecured creditors must file their claims with the US bankruptcy court within 90 days after the first date set for the creditors meeting. Government authorities such as the IRS have up to 180 days to make their claims to the bankruptcy court.

Once a bankruptcy case is filed, an ‘estate’ is created. The estate technically becomes the temporary legal owner of all of the debtor’s exempt & non-exempt properties as of the bankruptcy case starting date. The estate also includes any property that the debtor owns a share in, even if it is not 100% and only a partial interest. Generally, the court trustee will pay the unsecured creditors through the debtor’s non-exempt property. Thus, the main function of a bankruptcy court trustee is to liquidate (turn in to cash) the debtor’s non-exempt assets for payment to unsecured creditors with the view of maximizing the value of the assets to the unsecured creditors. Of course before each asset is sold off, a lien check is done to make sure that a secured creditor has not already put a lien on the property being liquidated.

Primary Duties of a US Bankruptcy Court Trustee under the Bankruptcy Code

i) Liquidation Proceedings

In terms of Chapter 7 bankruptcy, liquidation proceedings are non-exempt assets that are collected from a debtor and sold off to raise cash for the benefit of creditors. The proceeds from the sale are distributed to creditors by a private trustee appointed to watch the debtor’s estate under the Bankruptcy Act 11 U.S.C. §§701-704.

ii) Business Reorganizations

Chapter 11 bankruptcies usually involve a business that tries to ‘reorganize’ its debts while still maintaining operations. The debtor business usually has a meeting with a bankruptcy court trustee and all of its creditors and they try to work out a proposal to repay all or part of its debts.

iii) Family, farm & fisherman reorganization

This category of bankruptcy generally falls under Chapter 12 bankruptcy protection. Chapter 12 bankruptcy allows a qualified farmer or fisherman to file for bankruptcy and reorganize his businesses’ debts under a reorganization proposal. The bankruptcy trustee that represents the farmer or fisherman under a Chapter 12 filing is known as a ‘standing trustee’ and is appointed by the Bankruptcy Court under 28 U.S.C. §586(b) of the Act. The standing trustee serves as the temporary legal owner of the debtor’s estate while undergoing the reorganization.

iv) Wage Earner Bankruptcy

Chapter 13 bankruptcy is usually known as a ‘wage earner’ bankruptcy where the individual consumer tries to reorganize his financial affairs under a repayment plan that must be accomplished within three or five years. To be qualified for a chapter 13 bankruptcy, the debtor must have employment income and should not have debt more than a stated threshold, as set annually by the Bankruptcy Code. As of April 1st, 2007, the maximum debt that can be discharged under Chapter 13 is $336,900 for unsecured debts and $1,010,650 for secured debts.

According to Justice.gov, the main responsibility of the US bankruptcy court system and its trustees is ‘to promote integrity and efficiency in the nation’s bankruptcy system by enforcing bankruptcy laws, providing oversight of private trustees, and maintaining operational excellence.’ The Bankruptcy Code of the US is administered and run by the Government’s Department of Justice whose main role is to promote the efficiency and protect the integrity of the Federal bankruptcy system.

Ibraheem is a writer at Chapter 7 bankruptcy. This site provides information on filing for chapter 7 bankruptcy, adversary proceedings & bankruptcy discharge, means test, who is eligible to file & lots more.
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