Understanding the Chapter 7 Bankruptcy Trustee

Chapter 7 bankruptcy trustee

 

If you file for Chapter 7 bankruptcy, you will probably never sit in a courtroom, or appear before a judge.  Oh, you’ll have a judge, you just won’t ever meet them.  The only person, aside from your attorney, you will ever meet is likely to be your bankruptcy trustee.

At the outset, you should know that most chapter 7 trustees are not government employees.  You can think of them more like contractors.  They get appointed to cases randomly, and their job is two-fold: they ensure that you are eligible for relief and not attempting any fraud on your creditors of the Court, and they examine your assets to see if there is anything to distribute to your creditors.

One of the best ways to explain their motivation is to examine how they get paid.  Trustees receive a small flat fee (in our district, $60) for each case they administer.  They also receive a “cut” of any assets they liquidate, based on a complex compensation scheme.  Most trustees I know tell me that they don’t make any money on “no-asset” cases, which are cases in which they simply get the standard fee.  Their real compensation comes off high-value, complex cases in which they administer assets.

After your case is filed, the trustee is randomly assigned.  The first contact with them will generally come from your attorney, who is required to turn over certain documents in advance of the Meeting of Creditors.  That meeting will be the first time you meet the trustee. I have previously written about this meeting, click the link to read more about it.

When I explain chapter 7 bankruptcy to potential clients, I often use the analogy of a “snapshot.”  That is because we examine a snapshot of your financial situation, both assets and debts, on the date your case is filed.  You can think of the trustee as your photographer (see, now the image makes sense).  They are the ones actually looking at the situation and assessing the state of your finances on the date you filed your case.

It is also important to remember that the trustee is NOT an adversary.  In fact, as a debtor you and your attorney have a duty to cooperate with them.  That is not to say we don’t fight with trustees- we often do!- but most of the time the situation speaks for itself, and the debtors know exactly what to expect.

This is also one part of the bankruptcy process in which it helps to have an experienced attorney.  A good attorney who practices in the district will have a good working relationship with all of the trustees, and can help the case administration go much more smoothly.  The importance of trust and rapport between your attorney and the trustee cannot be overstated.  One long-serving trustee told me that the single most important thing on any bankruptcy petition she examines is the name of the attorney preparing the documents.

Bankruptcy trustees are not judges; often, they are not even attorneys.  They are appointed administrators, and their job is to examine your case, make sure no funny business is going on, and see if there are any non-exempt assets they can liquidate.  They are also real people, and most are reasonable and easy to work with.  They are not your enemy in the bankruptcy process, and you certainly should not be afraid to meet them.

~Andrew

Advertisements