Bankruptcy Trustees

When bankruptcy is filed, the United States Trustee appoints a bankruptcy trustee to oversee the proceedings. The bankruptcy trustee serves as the mediator between the debtor and creditors, ensuring that both sides are represented fairly during the proceedings and working to protect the interests of all concerned parties.

Bankruptcy Trustee Duties


In Chapter 7 personal bankruptcy, bankruptcy trustee duties include oversight of the bankruptcy process, liquidation of the debtor’s assets and division of the monies received in an equitable manner among the creditors. The trustee must also be vigilant in guarding against fraud or deception on the part of the debtor and prevent creditors from engaging in abusive behavior toward debtors as well. Bankruptcy trustees are responsible for protecting debtors from unreasonable fees for liquidation and disbursement. They essentially act as good-faith guarantors for the objectivity of the bankruptcy process. Since bankruptcy trustee powers include the ability to refer cases to the prosecutor’s office, they can enforce an honest and fair settlement on both sides.

For Chapter 13 bankruptcies, bankruptcy trustee duties are somewhat different. The debtor typically makes one agreed-upon payment to be divided among all their outstanding debts; this payment is sent directly to the trustee. The bankruptcy trustee payment is then split into the appropriate amounts and sent by the trustee to the individual creditors. This process can be complex; as a result, bankruptcy trustee fees are usually higher for Chapter 13 bankruptcies than for Chapter 7 proceedings.
 

Debtor In Possession


Corporate bankruptcy cases are generally filed under Chapter 11 provisions and often substitute a debtor in possession for an official bankruptcy trustee. The debtor in possession is charged with bringing creditors together to assist in the reorganization process and constructing an equitable settlement for creditors. The United States Trustee selects a creditors committee that then must approve the final settlement; this usually negates the need for an official trustee, since the debtor in possession exercises the bankruptcy trustee powers on behalf of the corporate entity. If there is reason to believe that the debtor in possession is not dealing honestly with creditors, the United States Trustee may choose to appoint a trustee to continue the proceedings in an equitable manner.

Bankruptcy Trustee Compensation


Title 11, Section 326(a) of the U.S. Bankruptcy code allows for bankruptcy trustee compensation of up to twenty-five percent of the first $5,000 distributed and ten percent of distributions for amounts from $5,000 to $50,000; for larger amounts, bankruptcy trustee fees are restricted to five percent or less. If multiple trustees are involved in the same case, the restrictions apply to them in aggregate; the total amount paid to trustees cannot exceed the limits set forth in Section 326(a).

In cases where either the debtor or the creditors believe there has been bias or inappropriate behavior on the part of the bankruptcy trustee, it is possible to appeal the decisions made and in rare cases have those decisions reversed. Generally, the debtor or creditor must be able to show a violation of statute or a clear-cut case of trustee malfeasance in order to have any decisions overturned or reevaluated. Since trustees are appointed by the United States Trustee, the likelihood of a conflict of interest is lessened considerably, and bias is generally not a factor in bankruptcy proceedings.
Tim Ord
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