Understanding the role of the bankruptcy trustee is critical to ensuring that your bankruptcy case progresses as planned. However, many people feel threatened or even intimidated by the trustee, despite the fact that they are a completely impartial third. If you’re like most people, this is because you were used to making your financial decisions. Now, suddenly, this new force has interceded itself. You have met him (or her), and he will be intricately intertwined in your life for months or years. But what exactly does he do?
In brief, the Trustee is like the executor of a will. Except that he will handle a good portion of your financial affairs while you are alive – at least for as long as the bankruptcy is active. The extent of his involvement depends in part on what kind of bankruptcy you have declared.
If it is bankruptcy Chapter 7 where your non-exempt assets are liquidated or frozen, awaiting restructuring – it is the Trustee who takes inventory, granting what you may hold onto, disposing of, or “cashing out” what is going into the pot. He’ll also look over the recent history of your finances, making sure there was no sleight-of-hand that may favor one of your creditors over another. He then dispenses the funds to your creditors according to the terms of the order and bankruptcy law. He is the insulation between you and them. If they have any complaints, it is with him. And since the law is strict and well-established when the creditors line up for payment, it is the Trustee who stands them in order and doles out the funds. They have no claim on you, only on the Court.
If your settlement is under bankruptcy Chapter 13, that means your creditors get repaid completely, but on a schedule determined by your income, the Court, and the Trustee. He examines your finances, determines what you can rationally pay back each month, collects it from you, and disburses it among your creditors again in an order determined by law. This could take only a few months or a number of years. But until your creditors are paid off, and your bankruptcy discharged, he will be a part of your life – often barely visible, but there nevertheless.
Determining the order of who gets paid when is arcane. Some of your creditors are classified as “secured” – a mortgage, for instance, or an outstanding car loan. Many are “unsecured” – credit cards, the electric company. They have less status because they took a bigger risk. But it is the Trustee who determines where in line they stand when they get paid, and how much.
Only when he has passed along all the funds required by the bankruptcy order and to the correct creditors can he declare his obligation fulfilled and his job done (And, by the way, he takes his cut as he goes – as a percentage of the amount he disburses each month). At that point, he files with the court a document stating that the order has been carried out in full and requests that the Court declare the bankruptcy discharged. When that is granted he is finally out of your life, and you’re free to start again with a clean slate. Click here to start by speaking to an experienced bankruptcy lawyer.