Trustee in Bankruptcy

What Is a Bankruptcy Trustee and What Does He Do?

The United States Trustee, an official of the Department of Justice, appoints a bankruptcy trustee to represent a debtor’s estate in a bankruptcy case. In line with the United States Bankruptcy Code, bankruptcy trustees analyse and offer recommendations on different debtor requests.

A bankruptcy judge, on the other hand, has absolute power over asset allocation. To take any action, a bankruptcy trustee collaborates with the bankruptcy court. The trustee cannot act without the court’s permission.

Understanding the Duties of a Bankruptcy Trustee

The duties of a trustee vary depending on the kind of bankruptcy case they are involved in. The action in a Chapter 7 bankruptcy case is a liquidation. The trustee will supervise the asset sale and, subsequently, the distribution of the profits to creditors.

Typically, the debtor, a company owner, seeks to emerge from bankruptcy and continue operations via a Chapter 11 process.

Chapter 13 bankruptcy is another option. Individuals who file for bankruptcy want to retain some of their assets to pay off part of their obligations.

What Is Chapter 7 All About?

The asset liquidation process is governed by Chapter 7 of Title 11 of the United States bankruptcy law.

2 Nonexempt assets will be liquidated to pay creditors by an appointed trustee. The trustee and the court will dismiss the outstanding debt after the profits from the liquidation have been exhausted. 3

To file a Chapter 7 bankruptcy, you must meet certain criteria. For example, a debtor must not have had a Chapter 7 bankruptcy dismissed in the previous eight years and must satisfy a means test. 4 A Chapter 7 bankruptcy is often referred to as a straight bankruptcy or liquidation bankruptcy.

Determining the scope of Chapter 11

Chapter 11 bankruptcy is a kind of bankruptcy in reorganizing a debtor’s business activities, obligations, and assets. Corporations are the most common entities that file for Chapter 11 bankruptcy, named after the United States bankruptcy law and provides for longer (corporations require time for debt restructuring). A debtor is given a new start under Chapter 11 if they meet their commitments under the restructuring plan.

Because Chapter 11 is the most complicated and costly of all bankruptcy proceedings, a business would choose reorganization only after thoroughly analyzing and exploring all other options.

Chapter 13 and Debt Restructuring

Individuals with a steady income may use Chapter 13 bankruptcy to reorganize their debts and pay them off over time. The debtor does not seek universal forgiveness of their existing obligations under such a scheme. Instead, the debtor proposes a repayment plan based on fixed monthly instalment payments.

Chapter 13 bankruptcy was formerly known as a wage earner’s plan since it exclusively provided relief to those who worked full-time. It was then extended to encompass anybody, including the self-employed and those running an unincorporated company, due to subsequent legislative amendments.



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