Bankruptcy Trustees

Who are they, and why are they so interested in my financial affairs?

A bankruptcy trustee is a person appointed by the system, in one way or another, to oversee and/or administer assets (your property) subject to the bankruptcy process and to investigate the activities of the Debtor, both in the past and ongoing. The appointment and role of the trustee depends on the chapter under the bankruptcy code that is filed.

Chapter 7

Chapter 7 trustees are private individuals (i.e. not government employees) who are approved to serve on a "panel" of Chapter 7 trustees from which the Executive Office of the United States Trustee (EOUST) chooses to administer Chapter 7 cases. There are currently about half a dozen such persons serving for the District of New Hampshire and they are selected on a generally random basis meaning that one cannot predict for sure which trustee might be appointed to a particular case. All of them have the same duty in each case which, among other things, is to review the filing, determine the accuracy of the documents and schedules filed by the Debtor and whether any fraud might have been committed, and to determine if there are any assets which the trustee might take into possession to liquidate (i.e. turn into money) in order to defray administrative expenses and pay the creditors something or, in rare instances, everything they are owed. They conduct the "First Meeting of Creditors" after which they make a determination as to what further activity is warranted. It may be as little as filing a report with the court to the effect that nothing more needs to be done by the trustee, in which case the trustee files a "Report of No Distribution" which means the trustee has no further interest in the case. On the other hand, if a trustee finds something which needs further investigation, he or she may take further action which could mean anything from collecting property taken from the Debtor into a "bankruptcy estate" from which to pay creditors and expenses, all the way to initiating action against the Debtor, a creditor, or other person, for the purpose of exposing fraud or collecting payments to creditors which should not have been made and, perhaps, other reasons. The occasions for this are rare but they can happen. The honest debtor has no reason to fear any of these possibilities.

The Chapter 13 trustee is not chosen from a panel in the manner of the Chapter 7 process. There is only one, referred to as the "standing" Chapter 13 trustee, for the District of New Hampshire. Currently Lawrence P. Sumski, Esquire, a Manchester lawyer, is the New Hampshire standing Chapter 13 trustee.

The Chapter 13 trustee has many of the same duties as a Chapter 7 trustee...plus. In addition to the duties of the Chapter 7 trustee, he forms an opinion as to the fairness and feasibility of the Chapter 13 plan.

"Fairness" largely addresses whether the Debtor is contributing all "disposable income" into the plan payments made to the trustee as required by the bankruptcy code.

"Feasibility" addresses whether the plan makes sense. For instance, if the Debtor only makes $2,000 per month, has obvious necessary living expenses of $2,200 per month, and is proposing a plan which makes a $250 per month payment, the plan may be objectionable on its face as not being feasible. The issue clearly is "why waste everyone's time" in an effort that will not work.

The Chapter 13 trustee receives payments from the Debtor, usually one per month, and he pays the creditors in whatever manner the plan calls for. Usually, the Debtors pay no unsecured creditors anything directly anymore; the trustee pays the creditors, at least the ones who file a Proof of Claim, which is their formal assertion of their right to be paid.