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Understanding the role of the bankruptcy trustee

One of the most misunderstood roles in bankruptcy proceedings is that of the bankruptcy trustee. This post will provide an overview of the functions of the bankruptcy trustee in personal bankruptcies under both Chapter 7 and Chapter 13 proceedings.

When a bankruptcy petition is filed under either Chapter 7 or Chapter 13, the property of the debtor must be gathered together and managed for the benefit of creditors. This job is handled by the bankruptcy trustee. The exact functions of the bankruptcy trustee vary greatly, depending upon whether the proceeding is under Chapter 7 or Chapter 13 and upon the circumstances of each case.

In a Chapter 7 liquidation bankruptcy, the trustee is responsible for taking possession of the debtor's non-exempt property, managing the property during the pendency of the bankruptcy, negotiating with creditors or opposing their claims, selling the assets of the bankrupt estate, and distributing the proceeds of the sales to creditors. In some cases, the trustee is obligated to object to an order of discharge if the debtor has failed to prove the facts necessary to justify a discharge of indebtedness. If litigation is necessary to resolve a claim or to regain possession of the some of the debtor's assets, the trustee retains a lawyer to represent the estate and otherwise manages the litigation.

In a Chapter 13 bankruptcy, the debtor may keep possession of the property in the bankrupt estate during the bankruptcy. The trustee must first review the debtor's repayment plan and file any necessary objections to the plan with the court. Once the plan is approved, the trustee takes charge of receiving the debtor's monthly payments and making the required payments to creditors.

As this summary shows, the trustee plays an independent role in both Chapter 7 and Chapter 13 bankruptcies. The trustee is not an advocate for either the debtor or the creditors. Anyone considering filing a petition in bankruptcy should consult a lawyer who handles bankruptcy cases for advice on the nature of the proceeding, whether to seek relief under either Chapter 7 or 13, and the potential effect of a bankruptcy on the debtor's financial condition.

Source: FindLaw, "What is a Trustee in Bankruptcy?," accessed on March 31, 2017

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