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Do Trustees Have Different Duties In Different Bankruptcy Cases?

June 21, 2019

In general, Trustees have different duties in Chapter 7 vs. Chapter 13 bankruptcy cases. Before we get to those differences, though, let’s cover some basics about Trustees. Bankruptcy trustees are almost always appointed in consumer bankruptcy cases. The trustee will have a variety of obligations and powers depending on the case as well as the circumstances of a particular debtor and their creditors. In addition, the trustee may be an attorney but does not have to be. In fact, many trustees are accountants, which is a plus because their skill set is well suited to handling their duties. While the bankruptcy court appoints the trustee, it is actually the office of the United States trustee —a branch of the Department of Justice — that oversees their performance.

Trustees in both Chapter 7 and 13 cases have similar duties in many ways. In addition, the differences in their duties are in large part a result of the distinctions between each type of bankruptcy.

Chapter 7 Bankruptcy Cases

Here are some of the primary duties and powers of a trustee in a Chapter 7:

In a Chapter 7 liquidation bankruptcy case the Trustees duties are quite varied. It is the Trustee’s responsibility, in approximate chronological order, to:

  • Round up the debtor’s property;

  • Sell the bankruptcy estate’s property;

  • Distribute proceeds of property sales to creditors;

  • Challenge creditors’ claims if appropriate;

  • Object to any bankruptcy discharges if there are grounds to object

Chapter 13 Bankruptcy Cases

The key difference between Chapter 7 bankruptcy and Chapter 13 is that Chapter 7 involves liquidation of assets while Chapter 13 is designed to reorganize debt. That means that all of the duties involving the gathering and sale of property in Chapter 7 are not required, simply because a person in Chapter 13 retains possession of their property. Consequently, a Trustee’s primary duties in Chapter 13 are centered around handling payments. Because the particulars of each bankruptcy case vary, a trustee’s duties may involve some of duties listed below but not necessarily all of them. These include:

  • Reviewing the proposed repayment plan created for the debtor;

  • If necessary, making objections to the repayment plan;

  • Following the established repayment plan to receive and/or collect payments from the debtor;

  • Distributing payments to creditors.

Keep Relations Civil!

Because the Trustee plays a crucial role in both Chapters 7 and 13 bankruptcy, it’s truly advisable to try and establish and maintain good relations with a trustee. Yes, you can challenge a Trustee’s decision if you think they’re wrong about a certain issue and yes — a judge can rule in your favor. But remember, Bankruptcy is very much like any business relationship — try to sort things out by reaching out to the Trustee personally instead of heading for court for everything.

That’s also precisely where we help out our clients most effectively. We have experience with many of the trustees working in Los Angeles County. We know how they like to work and the processes they like to follow. If you’re considering either Chapter 7 or 13 bankruptcy, give us a call. We can give you more information about the role of the Trustee, along with all of your options going forward.