What is the Trustee's Role During a Bankruptcy?
One person that you should familiarize yourself with if you are filing for bankruptcy on Long Island is the trustee. Their official roles are to review your income, debts, assets and distribute any property that you might own to the creditor. They are a neutral third party that is not there for you or the creditor; instead, they want to act as a mediator in your case.
Understanding the Role of The Bankruptcy Trustee
The official in this role has control over your property that is held in trust. They have a fiduciary responsibility to act impartially towards both person and business. They act as the overseer for the court, so this individual must be well versed in legal issues with bankruptcy, accounting, and management. Think of them as the “watchdog” over your case.
Once you file a petition with the court, a court representative will be assigned to your case. The type of bankruptcy you file will dictate which official will be appointed. Their goal is to make sure that everything is done within compliance with applicable laws set forth by the court.
The court’s representative is paid to facilitate your case, and they may also get any reasonable expenses that they may incur with the process. For instance, in Chapter 7 or Chapter 11, this official will earn a commission based on the amount of money disbursed to those creditors who hold secure claims.
Why Are There Various Types of Bankruptcy Trustees?
As you can imagine, when it comes to repayments, debt reorganization, and complete liquidations, it’s completely different arenas. This court professional’s duties are to make sure that the case is handled effectively, and it would be confusing to facilitate all the different chapters with the various rules.
Chapter 7 – Liquidation
Chapter 7 is usually reserved for persons with no assets who have little to no income. This program helps debtors get a clean slate and have a fresh start as a complete liquidation. If a business files this Chapter, any property that the company has will be sold to repay the creditors. The court allows some assets to be exempt where an individual can keep some personal property through reaffirmation, which is usually a home or car.
Chapter 13 – Repayment Plan
In a Chapter 13, things are different. The individuals who use this Chapter have a regular income and the desire to keep some of their assets. They must repay a portion of their debts to the creditors using a repayment plan. It takes an average of three to five years to receive a discharge under this Chapter, and the court representative will disburse the payments to the creditors as the money comes in.
During the 341 Meeting of Creditors, the trustee will ask any questions about the repayment plan they have to ensure its fair. They can approve or deny the proposal based on the best interest of the court. If they feel that it’s not a complete and accurate plan, then they can ask for revisions.
In this Chapter, these court officials are known as “standing trustees.” The term simply means that the case is ongoing, and they must stand on the case from open to close. Unlike a Chapter 7, it isn’t discharged in a few months as it takes years to complete. It’s not uncommon for the trustee to require the debtor to go through some credit counseling before opening more loans to avoid getting themselves back in the same predicament. A reorganization petition requires a lot more work, so the court representative will make more on these cases.
Chapter 11 – Reorganization
A Chapter 11 is reserved for a business who needs to repay their debts. Rather than filing for a complete liquidation, this company wants to reorganize and pay its creditors. There is no need for a court official to preside over these cases, as the debtor continues the business’s operation and pays the creditors by doing negotiations.
If the court needs to appoint someone over the case, they will control the business assets and property while the reorganization is being completed. The court official can appoint a committee to devise a plan for the debtor to turn the case into a complete liquidation, especially if things aren’t working out. Many businesses try this approach before considering shutting their doors and filing a Chapter 7.
There is a Subchapter V of the Chapter 11 petition. This is more for smaller businesses that don’t have many assets. There are times when the court will appoint someone over these cases to help with the reorganization plan. It’s usually a smaller, more streamlined process that doesn’t have the stringent duties of the other cases.
What Does a Court Representative Do?
A debtor files a petition in the court to get rid of their loans and other debts. They disclose to the court all their income and assets as well as their financial obligations. Anything that they’re currently liable for must be reported. The court then appoints a representative to review all the information received and to facilitate the case. The trustee will do the following:
•Collect any assets the business owns
•Review and investigate the financial affairs of the company or individual
•Analyze any proof of claims submitted by the creditors
•Sell any assets to use towards repayment of the debts
•Pays the creditors with regards to a specific order dictated by the court
•Discharges debts, so the debtor doesn’t have to repay them
•Opposes the discharge of certain obligations, such as student loans, taxes, or bills that occur through fraudulent activity
•Reports periodically to any government agencies involved, including tax reportage
It’s not a personal matter as this professional works on behalf of the court. If they have any questions about your case, then they can direct them to the attorney who represents you. Generally, things run smoothly, and the lawyer knows what is needed to avoid any issues.
• The Handling of Oppositional Proceedings – AP Lawsuits
In some instances, a creditor will object to their property being included in a liquidation, or they don’t agree with the repayment plan. The court representative can file adversary proceedings regarding the case. The proceedings are like a traditional suit in any other branch of the court.
During the AP lawsuit, they can try to recover money or property that was listed as exempt or there is interest in. The debt might not be dischargeable, so the representative will use the case to either approve or deny the creditor’s claim.
• Keeping an Eye Out for Fraud – Bankruptcy Rule 2004
One of the most important roles of the trustee is to make sure there is no fraud within the bankruptcy case. If they suspect that the business or individual is not being honest with regards to assets and liabilities, then they can do a Bankruptcy Rule 2004 examination. During this exam, the representative will ask for documentation to verify the items in question. If the debtor doesn’t cooperate, or if the documents presented show blatant fraud, then the court official can refer the case for criminal prosecution.
Final Thoughts on The Bankruptcy Trustee
Remember that the court representative doesn’t favor either the creditor or the debtor; instead, they work on behalf of the court. If you choose to represent yourself without an attorney, you need to have some legal knowledge to be successful. It can be quite confusing to navigate all the bankruptcy court’s ins and outs, and you must answer to the trustee. One wrong move can have your case thrown out, and you must start from scratch.
The court representative is only there as a guide to make the case progress smoothly. It’s helpful to work with them by giving them all the pertinent information and responding promptly to any requests they have for further documentation.
If you are a Long Island resident looking for additional information on the bankruptcy process, call our office today. We are happy to help!