Duties of the Bankruptcy Trustee

In both chapter 7 and chapter 13 bankruptcy cases, the bankruptcy trustee is responsible for accounting for property received, investigating the financial affairs of the debtor, examining and objecting to proofs of claim, opposing the debtor's discharge if appropriate, sending required notices related to domestic support obligations, if applicable, furnishing information to parties in interest and reporting on the administration of the case.

Trustee Responsibilities

In the course of administering or overseeing the debtor's estate (the debtor's property or assets), the trustee first investigates the assets of the estate, which typically includes holding the meeting of creditors and questioning the debtor at that meeting.

If there are assets of the estate that are neither exempt nor abandoned, the trustee must:

• Collect that property from the debtor or any other entity holding the property
• Convert it into cash, usually by sale of the property
• Be accountable for that property

The trustee must normally give 20 days notice to parties in the case of the intent to sell the property. Any party, including the debtor, may object within specified time limits under the Bankruptcy Code to the proposed sale, which may be a private sale or a sale by public auction. If an asset is partially exempt, the debtor's exemption should be paid in cash from the sales proceeds before distribution of any proceeds to creditors. If appropriate, the trustee may object to the debtor's claim that particular property is exempt. However, trustees are discouraged from liquidating or selling small amounts of nonexempt property that won't bring in enough money when sold to produce a significant payment to unsecured creditors, which are those creditors whose debts are not secured by the debtor's assets.

The gathering of estate property isn't limited to items of tangible property, but may include acting upon rights of the debtor, which may in turn result in assets being added to the estate, such as filing lawsuits, including proceedings to exercise the trustee's power to avoid preferences, fraudulent transfers, and other avoidable transfers of property of the debtor.

Once the estate's property has been liquidated i.e., converted to cash, the trustee must preserve the assets and then distribute them to creditors. To do so, the trustee is required to review the proofs of claim that are filed by creditors and object to those that are improper. The trustee must then make distributions to creditors whose claims are proper, in the order specified in the Bankruptcy Code.

Chapter 7 Bankruptcies

The chapter 7 trustee has the duty to administer the chapter 7 case and to represent the interests of unsecured creditors in the case. In the course of doing so, the trustee first investigates the assets of the estate, an investigation that typically includes holding the meeting of creditors and questioning the debtor at that meeting. In addition, section 704(a)(10), added by the 2005 amendments to the Bankruptcy Code, requires the trustee to provide certain notices in cases in which there is a claim with respect to the debtor for a domestic support obligation.

In the vast majority of consumer chapter 7 cases, there are no nonexempt assets or other assets to liquidate. In those cases, the trustee:

• Conducts the meeting of creditors
• Investigates the debtor's assets, right to a discharge, and exemptions
• Sends required notices related to domestic support obligations, if applicable, and, ensures that the statement of intention provisions are followed

The trustee then files a report stating that no assets have been found and, once the deadline for objections to discharge has passed and the debtor receives a discharge, the case is closed.

Chapter 13 Bankruptcies

The chapter 13 trustee has many of the same duties as the chapter 7 trustee. However, the chapter 13 trustee also has a number of other duties, stemming from the trustee's responsibility to administer the chapter 13 plan of the debtor, which is called the reorganization plan. These include:

• Appearing and being heard at the confirmation hearing on the reorganization plan
• Appearing and being heard at any hearing regarding valuation of property subject to a lien or plan modification
• Advising the debtor on matters other than legal matters
• Assisting the debtor in performance under the plan
• Ensuring the debtor makes payments under the plan

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