Bankruptcy Trustee

The judge in a bankruptcy case may make the legal decisions, but it is the bankruptcy trustee that actually runs the show. The trustee manages and oversees the bankruptcy of each individual or business, and is the debtor's main contact.

The trustee is appointed by the regional office of the United States Trustee, and is often a bankruptcy attorney, but can be another person who is experienced in business, such as accountants, bankers, insurance agents, appraisers, real estate brokers, or investment brokers.

The trustee is paid part of the filing fee as partial compensation for handling a case, and for a no-asset, Chapter 7 case, in which the debtor has no nonexempt property to sell, the fee is the only compensation for the trustee.

The trustee's main function is to:

When a debtor files for bankruptcy, the debtor's assets becomes the bankruptcy estate, and is under the legal control of the trustee while the case is open. The debtor may not sell, transfer, or dispose of any property without the permission of the trustee. However, unless the property is valuable and is not exempt under bankruptcy law, the trustee will generally have no interest in it, and the debtor can do what he pleases with it.

After bankruptcy papers are filed, the debtor gets a notice — Notice of Appointment of Trustee — from the court, which lists the name, business address, and phone number of the trustee. The trustee is randomly chosen by the regional United States Trustee, so that the debtor or a bankruptcy attorney cannot pick specific trustees, and so that trustees will have a chance of getting a case with considerable assets, since a good part of the trustee's pay is based on a commission of the debtor's assets that can be sold in a Chapter 7 case, or a percentage of the payments made in a Chapter 13 case.

The appointed trustee will examine the petitioner's submitted forms to ensure that they are correctly filled out, and to see if anything is askew that may suggest that the debtor is concealing assets, understating income, or understating the value of any property. The trustee may request additional documents, such as bank statements, property appraisals, and canceled checks for more information and verification. The trustee may also request an explanation of how borrowed money was spent, or ask for a list of items bought with credit cards and their disposition.

Creditors' Meeting

An important duty of a trustee is to hold a creditors' meeting, often called a 341 meeting, after the section of the bankruptcy code that requires it. The creditors' meeting is generally held in a large room, with debtors and their lawyers, and usually a few creditors. The trustee, as the hearing officer, has each debtor, and his lawyer, if he has one, and any creditors of the debtor who are present, come to a table to be interviewed. The trustee first asks some questions, usually about the debtor's bankruptcy forms; then any creditors of the debtor can ask the debtor specific questions. However, creditors generally cannot stop the bankruptcy process, so few creditors are actually present, especially in a Chapter 7 case. As a result, the individual interviews with debtors rarely lasts more than 15 minutes. Creditors are more likely to show up for a Chapter 13 case, to challenge the repayment plan.

Chapter 7 Trustee, or Panel Trustee

A Chapter 7 trustee, also called a panel trustee or case trustee, oversees individual Chapter 7 cases, and may also administer some Chapter 11 and some Chapter 12 bankruptcy cases.

In a Chapter 7 bankruptcy, the debtor has the right to keep exempt property, up to a certain value determined primarily by state law, but the debtor may be able claim federal exemptions if allowed by state law. Anything else that has value, and is not exempt, is sold by the Chapter 7 trustee to pay unsecured creditors, or if the value of the property exceeds the allowed exemption, then the property is sold, the trustee pays the debtor the amount of his exemption, deducts her commission, then pays the rest to unsecured creditors. This is why a Chapter 7 case is also known as a liquidation.

No Asset Case
A Chapter 7 bankruptcy case in which the debtor has no assets that are not exempt for the trustee to sell.
Bankruptcy Estate
During the time that a debtor is in bankruptcy, everything that was owned by the debtor, or any financial interest that the debtor had at the time of filing, is in the control of the trustee. If the total value of the bankruptcy estate exceeds the allowed exemptions, then the trustee will sell some of the assets to pay unsecured creditors. The debtor cannot sell or transfer any assets that the debtor had when filing for bankruptcy without the trustee's consent. These assets are listed in the bankruptcy forms that the debtor submitted. However, any income or assets received after filing for bankruptcy are not included in the bankruptcy estate.

Panel trustees are paid only $60 of the bankruptcy filing fee, and, in those cases where the court waves the filing fee, the trustee will be paid nothing for a no-asset case.

To align the interests of the trustee with unsecured creditors that the trustee is supposed to represent, the trustee also receives commissions from selling the debtor's property. Thus, the primary concern of the Chapter 7 trustee is to determine what the debtor owns and what he claims as exempt, looking for possible fraud or abuse by the debtor. A Chapter 7 trustee will not only look for unreported assets, but also assets transferred within the year before the bankruptcy filing, or up to 10 years if the asset was transferred to a relative. The trustee will also look at any payments made to creditors in the 90 days before filing to see if there was any preferential treatment, in which case, the trustee can get the payments back to add to the bankruptcy estate.

The trustee will also look at liens on any significant property, especially real estate. Any liens that have not been recorded properly according to state law can be revoked, adding to the debtor's equity in the asset, which may increase the equity enough for the trustee to sell, receive her commission, pay unsecured creditors, and pay the debtor his exemption, if any.

The trustee's commission percentage of what is sold is 25% of the first $5,000, + 10% of any amount over $5,000, but less than $50,000, + 5% of any amount over $50,000 and under $1,000,000, and 3% of any amount above $1,000,000. Of course, most Chapter 7 filers don't have nonexempt property, so there is nothing for the trustee to sell, so she must settle for a small part of the filing fee. For instance, 96% of all Chapter 7 cases filed in 2000 were no-asset cases.

Amount Sold

Commission Rate

0 - $5,000



$5,001 - $50,000



$50,001 - $1,000,000



Over $1,000,000


Example: Computing the Panel Trustee's Commission

If the trustee sells $100,000 worth of the debtor's assets, the trustee will receive:

25% of $5,000 = $1,250
+ 10% of $45,000 = $4,500
+ 5% of $50,000 = $2,500

Total = $8,250

Chapter 13 Trustee, or Standing Trustee

The main difference between Chapter 13 and Chapter 7 is that the debtor under Chapter 13 must make payments over a 3- or 5-year period to repay at least some of his debt, while a Chapter 7 bankruptcy can discharge unsecured, nonpriority debts without any repayment of those debts. The debtor must file a repayment plan with the trustee, and the creditors have a right to challenge it at the creditors' meeting. However, the repayment plan must be approved by the court. If it is approved, then the debtor pays the trustee periodically, who then pays the creditors of the debtor after deducting her fee, usually 10%, the maximum allowed by law.

A Chapter 13 trustee, also called a standing trustee, has additional duties. The trustee receives copies or transcripts of tax returns for the debtor for the 4 years previous to filing, and receives all newly filed copies of tax returns while the case is open. The trustee also receives annual financial statements from the debtor, indicating the debtor's income and expenses, in case, the debtor's finances change, which may change the repayment plan.

The trustee may give the debtor financial advice, or help amend the repayment plan, if necessary, and may participate in appraising property, even hiring her own appraiser, especially for valuable property.

Standing trustees also handle Chapter 12 bankruptcies. Chapter 12 allows an eligible family farmer or a fisherman to file for bankruptcy, reorganize the business' affairs of the farm or fishing business, repay all or part of the business' debts, and continue operating. The standing trustee is appointed by the United States Trustee under 28 U.S.C. §586(b), and typically serves as the trustee of the debtor's estate pending fulfillment of the debtor's repayment obligations under a plan confirmed by the U.S. Bankruptcy Court where the case was filed.

United States Trustee

The United States Trustee is a division of the Department of Justice, and is responsible for overseeing the administration of most bankruptcy cases. The division consists of the Executive Office for U.S. Trustees, which provides general policy and legal guidance, oversees operations, and handles administrative functions, and has 21 regional offices and 95 field offices. The Assistant United States Trustees in the regional offices supervise the administration of federal bankruptcy cases in their region, and reviews individual petitions for any possible problems or to provide specific instructions to the appointed trustee for the case. The Trustee Program also oversees private panel trustees and standing trustees. The United States Trustee also handles Chapter 11 cases, receiving quarterly fees from the debtor while the reorganization is taking place. Most Chapter 11 petitioners are businesses, but some may be individuals with very large debts.

Bankruptcy cases in Alabama and North Carolina are not under the jurisdiction of the Trustee Program and are administered instead by bankruptcy administrators in the judicial districts in those states.

The United States Trustee Program was established by the Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et seq.) as a pilot effort encompassing 18 districts. It was expanded to 21 Regions nationwide, covering all Federal judicial districts except Alabama and North Carolina, by enactment of the Bankruptcy Judges, U.S. Trustees, & Family Farmer Bankruptcy Act of 1986 (Pub. L. 99-554, 100 Stat. 3088, reprinted in part at 28 U.S.C. § 581, note). The Program is funded by the United States Trustee System Fund, which consists primarily of fees paid by parties and businesses invoking Federal bankruptcy protection.

The Attorney General is charged with the appointment of United States Trustees and Assistant United States Trustees. The Executive Office for U.S. Trustees in Washington, D.C., provides general policy and legal guidance, oversees the Program's substantive operations, and handles administrative functions. The Director of the Executive Office, whose authority derives from the Attorney General, oversees a staff comprised of the Offices of the Director, General Counsel, Administration, Review & Oversight, and Research & Planning. The Executive Office also provides administrative and management support to individual U.S. Trustee Offices in their implementation of Federal bankruptcy laws. See 28 U.S.C. §§ 581-589a.

Specific responsibilities of the United States Trustees include:

Its stated mission priority is to detect and combat fraud. To carry out this goal, Congress requires the U.S. Trustee to audit at least 1 out of 250 cases filed. In addition, the Trustee audits any case where income or expenses deviate significantly from the norm.

Because a debtor must receive credit counseling before filing for bankruptcy, and must receive budget counseling before getting a discharge, the U.S. Trustee approves and lists the credit counseling and budget counseling agencies that are available to debtors throughout the United States. A U.S. Trustee will rarely get involved in individual personal cases, unless there is evidence of fraud.

The Trustee office also periodically reports to Congress about the impact and effectiveness of the bankruptcy laws.

It also maintains a website at that provides articles and statistics as well as links to information needed to file for bankruptcy. The website also allows people to report fraud.

Bankruptcy Administrators Serve as U.S. Trustees for Alabama and North Carolina

As a result of legislation passed by Congress in 1986, the administration of bankruptcy cases in Alabama and North Carolina is overseen by bankruptcy administrators rather than the Trustee Program. In the 6 judicial districts in these states, a bankruptcy administrator, under the Administrative Office of the U.S. Courts, is responsible for supervising the administration of bankruptcy cases, including maintaining panels of private bankruptcy trustees who liquidate debtors' assets and monitor repayment plans. These administrators are also responsible for implementing the Bankruptcy Act's credit counseling and debtor education provisions.