What is a Bankruptcy Trustee?
A bankruptcy trustee is a person appointed by the United States Trustee, an officer of the Department of Justice, to represent the debtor's estate in a bankruptcy proceeding. Bankruptcy trustees evaluate and make recommendations about various debtor demands in accordance with the U.S. Bankruptcy Code. However, a bankruptcy judge has the ultimate authority on the distribution of assets. A bankruptcy trustee works with the bankruptcy court to take any action. The trustee cannot act without approval by the court.
Bankruptcy Trustee Responsibilities
Responsibilities of the trustee differ by the type of bankruptcy proceeding they are attending. In a Chapter 7 bankruptcy proceeding, the action is essentially is a liquidation. The trustee will manage the sale of the assets and then oversee the distribution of the proceeds to creditors.
With a Chapter 11 proceeding, the debtor hopes to emerge from bankruptcy and continue operation. Another type of bankruptcy is Chapter 13. Under this bankruptcy, the individuals wish to keep some of their assets in return for repaying certain debts.
What is Chapter 7?
Chapter 7 of Title 11 of the U.S. bankruptcy code, controls the process of asset liquidation. An appointed trustee will liquidate nonexempt assets to pay creditors. After the exhaustion of proceeds from the liquidation, the trustee and court discharge the remaining debt. There are eligibility requirements to file a Chapter 7 bankruptcy, such as the debtor must have had no Chapter 7 bankruptcy discharged in the preceding eight years and the applicant must pass a means test. The Chapter 7 process is also known as a straight or liquidation bankruptcy.
Defining Chapter 11
Chapter 11 is a form of bankruptcy which involves a reorganization of a debtor's business affairs, debts, and assets. Named after the U.S. bankruptcy code 11, corporations generally are the entities who file for Chapter 11 since this procceeding allows a greater length of time. Corporations require time for debt restructuring, and it gives the debtor a fresh start, subject to the debtor's fulfillment of his obligations under the plan of reorganization. As the most complex of all bankruptcy cases and generally the most expensive, a company would consider Chapter 11 reorganization only after careful analysis and exploration of all other alternatives.
Chapter 13 and Restructuring Debts
Chapter 13 bankruptcy enables individuals with a regular income to restructure their obligations to repay their debt over time. In such a plan, the debtor does not seek to earn general forgiveness of their outstanding debts. Rather, the debtor offers up a repayment plan that employs fixed installment payments. Chapter 13 bankruptcy formerly was called a wage earner's plan because relief under it was only available to individuals who earned a regular wage. Subsequent statute changes expanded it to include any individual, including the self-employed and those operating an unincorporated business.
Real World Example of a Chapter 13 Bankruptcy Trustee
During the 2019 bankruptcy procceedings of Billy McFarland's Fyre Festival, the bankruptcy trustee asked the preciding judge to issue subpoenas to several talant agencies. The 2017 Fyre Festival was to have been a stellar, star-studded, event at the Grand Exuma in the Bahamas. However, when ticket-holders arrived, they found a site still under construction. The festival went into involuntary Chapter 7 bankruptcy for the more than US$26 million dollar bomb. The trustee wished to examine nearly US$1.4 million in wire transfers to secure the advertised talent.
A bankruptcy trustee in a Chapter 13 case may be responsible for managing payments made by the debtor for a specific period. The trustee will forward payments to the creditor for a specified period, usually three to five years.