Understanding Role of Trustee in Bankruptcy

If you are considering filing for Chapter 7 bankruptcy, you should know and understand all parties involved and their parts in the process.

What is the role of Trustee in bankruptcy?

It’s important to understand a trustee’s role and what he or she may be looking for in order to best present information in your bankruptcy schedules and prevent delay, additional investigation, or even a lawsuit in your case.  Of course, an experienced bankruptcy attorney will guide you, but it’s good to have a general understanding of the process in order to best know what you are facing.

When you file a Chapter 7 bankruptcy, your case will be automatically assigned a trustee.

A Chapter 7 Trustee should not be confused with an attorney from the United States Trustee (a branch of the Department of Justice) who plays a different role in your case.  The United States Trustee appoints several Chapter 7 trustees for each bankruptcy court division, who are then put on a panel and randomly assigned Chapter 7 cases.

Note: The Chapter 7 trustee does not represent you, but rather he or she represents your bankruptcy estate.  For each case they process, they are paid a small amount, as well as a percentage of any assets they administer to creditors.

Ok, so what exactly does a Chapter 7 Trustee do?

The Chapter 7 Trustee reviews all bankruptcy petitions and schedules in cases assigned to him or her, and also questions the debtor at the 341(a) meeting of creditors.

The trustee in bankruptcy cases will be looking at a number of things, including but not limited to:

(1) whether your bankruptcy schedules are complete, accurate and consistent,

(2) whether any of your assets are non-exempt,

(3) whether you made any payments to creditors that are recoverable,

(4) whether you transferred any money or property that is recoverable, and

(5) whether your case should be converted to Chapter 13 because your income is sufficient to repay a reasonable portion of your debts.

The power of a Chapter 7 trustee in bankruptcy cases is extensive.

For example, the trustee may object to your claims of exemption, sell your non-exempt assets, take over any lawsuits you have pending, remove certain liens against your property, recover certain payments you made to creditors, recover certain transfers you made prior to filing, object to your discharge, or request that your case be dismissed or converted to a Chapter 13 case.  Any assets recovered by the trustee in bankruptcy cases are liquidated and distributed to your creditors according to a priority scheme designated by statute.

So, how can you avoid problems with the Trustee in your bankruptcy?

You and your bankruptcy attorney should work with the Trustee.  A skilled bankruptcy attorney will, no doubt, know many trustees and will have worked with them in the past.  Ms. Royzman has represented many trustees in bankruptcy proceedings.  She understands how they think, what they are looking to find, and how to work with them.

“It’s been my experience that most trustees want to accomplish their duties in the quickest and easiest way possible, and they do not like wasting their time and resources on uncooperative debtors or dead-end leads.  When debtors are forthcoming and cooperative, trustees are more willing to work and compromise with them.  Trustees have a specific job to do, and it’s easier for them if we (Royzman and the client) can present information in an orderly and timely fashion,” says Royzman. “Trustees want to do their job properly and efficiently, and if I can help in that process, it’s typically a positive for my client’s case.”

Working with the trustee comes down to understanding the intricacies of law behind the issues the trustee is looking at and the rules of evidence required to prove your case.

For example, a particular transfer, like a transfer of a car or a substantial sum of money to a relative, may appear to be a fraudulent transfer because it is not clear that value was received.  However, value may have been received by an exchange of property or services rather than money, or the transfer may have actually been repayment for a loan.  It is important to demonstrate these kinds of facts to the trustee right away with the proper evidence.  Otherwise, a costly lawsuit may be on its way.

“I always try to anticipate what the trustee will be thinking and looking for, and provide all the information I can up front, either in the bankruptcy petition itself or by filing or sending the pertinent information and documents to the trustee,” Royzman explains.  “If there is a particular transfer I know will be on the trustee’s radar as a possible fraudulent transfer, I make sure to understand the circumstances of the transfer prior to filing the case.”

A good attorney will identify a potentially problematic transfer, evaluate the strength of the facts and evidence, and discuss their legal assessment with the client before the case is filed.  If there is solid evidence showing that one of the necessary components of a fraudulent transfer is missing, or evidence that supports a legal defense, your attorney should make sure the trustee has that evidence right away.

If you’re considering filing for bankruptcy, your next step should be to speak with a skilled bankruptcy lawyer.  Ask her to explain more of the bankruptcy process and how to work with a trustee in bankruptcy. Call Royzman Law Firm at 310.954.8503 or contact us online to schedule a consultation.

Please note that the materials appearing on this blog are provided for informational use only, and are in no way intended to constitute legal advice or the opinions of this law firm or any of its attorneys. The law is constantly changing, and the materials appearing on this blog are not guaranteed to be correct, complete, or up-to-date. You should not act or rely upon any information appearing on this blog without consulting a qualified attorney for individual advice regarding your own unique situation. Transmission of information through this blog or this website does not create any attorney-client relationship between you and Royzman Law Firm, Inc. or Natella Royzman, Esq. 


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