WHAT IS 'Bankruptcy Trustee'

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.

BREAKING DOWN 'Bankruptcy Trustee'

Bankruptcy trustees are charged with evaluating and making recommendations about various debtor demands in accordance with the U.S. Bankruptcy Code, though a bankruptcy judge has the ultimate authority on the distribution of assets.

The responsibilities of the trustee are different in a Chapter 7 bankruptcy proceeding, which essentially is a liquidation, than in a Chapter 11 proceeding, where the debtor hopes to emerge from bankruptcy as a going concern. In a Chapter 7 proceeding, the trustee will manage the asset sales and then distribute the proceeds to creditors. A Chapter 13 proceeding applies to individuals who hope to keep some of their assets in return for repaying certain debts.

Chapter 7

Chapter 7 of Title 11 of the U.S. bankruptcy code, controls the process of asset liquidation. A trustee is appointed to liquidate nonexempt assets to pay creditors; after the proceeds are exhausted, the remaining debt is discharged. There are eligibility requirements to file Chapter 7, 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. This process is also known as a straight or liquidation bankruptcy.

Chapter 11

Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business affairs, debts and assets. Named after the U.S. bankruptcy code 11, Chapter 11 is generally filed by corporations that 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

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. Such payments are made to a trustee who then forwards them to the creditor for a specified period, usually three to five years. 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.

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