A bankruptcy trustee does not represent the debtor in a bankruptcy. The bankruptcy trustee is a representative of the bankruptcy estate.
Purpose and Powers of the Trustee
The trustee’s powers help unsecured creditors obtain any possible repayment of debt before the resolution of the bankruptcy proceedings.
An individual bankruptcy trustee is under the supervision of the bankruptcy court, but also directly supervised and appointed by the United States Trustee.
In Chapter 7 cases, the United States Trustee litigates issues that affect the integrity of the bankruptcy system. For example, the United States Trustee might:
• Argue that granting the debtor a bankruptcy discharge would constitute a “substantial abuse” of the bankruptcy process.
• Object to excessive fees requested by the debtor’s attorney.
• Take action against unlawful practices by bankruptcy petition preparers–generally, non-lawyers who receive a fee to prepare a consumer debtor’s bankruptcy papers.
The United States Trustee also appoints and supervises the Chapter 7 trustees who administer consumer debtors’ bankruptcy estates.
The Reach of the Trustee
In most Chapter 7 cases, no assets are available for distribution to creditors. This is because the assets are considered “exempt.”
Exempt assets include a certain amount of value or equity in a home, vehicle, home furnishings and appliances, and sometimes jewelry and other assets.
However, if a Chapter 7 debtor has property that is not exempt from creditors’ reach under state or federal law, the trustee may sell that property and distribute the money to creditors. This is also referred to as the liquidation process. The trustee liquidates the nonexempt assets and uses the profits to pay creditors.
Chapter 7 Discharge
After distribution of profits from the liquidation to the creditors, an individual’s remaining debt may be discharged. A discharge of debts means that the debt is eliminated.
Not all debts are dischargeable. Debts such as child support obligations, tax debt, and government student loans are not dischargeable. Debts acquired fraudulently are also not dischargeable. Credit card debt, generally is dischargeable. Sometimes it will be clear which debts are dischargeable and which are not, if any. However, sometimes this will be a disputed issue in the bankruptcy proceedings.
Duration of the Trustee’s Appointment
The United States Trustee appoints each Chapter 7 trustee to a panel for up to one year, renewable at the United States Trustee’s discretion; these “panel trustees” are then assigned to Chapter 7 cases on a blind rotation basis. The United States Trustee supervises the panel trustees’ administration of individual debtor estates; monitors the trustees’ financial record-keeping; and imposes other requirements to ensure that the trustees carry out their fiduciary duties.