Generally, a trustee is an individual with a legal obligation to oversee or administer certain property for specific purposes. In Chapter 7 proceedings, a trustee is someone that manages the assets of the debtor, meaning the person filing for bankruptcy, while the debts they owe to creditors are satisfied.
How Is a Trustee Selected?
After an individual files for Chapter 7, a temporary, or interim, trustee will be appointed by the United States trustee's office. The interim trustee will set up a 341 meeting, where a new trustee may be elected or, if a new trustee is not elected, the interim trustee remain the trustee for the duration of the case.
What Is the Process for Electing a New Trustee at a 341 Meeting?
Creditors may elect a new trustee at the 341 meeting. However, only eligible creditors may call for an election. Eligible creditors hold at least twenty percent of the claimed amount owed by the debtor. Additionally, eligible creditors must hold undisputed, fixed, liquidated, unsecured claims, meaning they do not have an interest materially adverse to unsecured creditors. Basically, in order to vote, the claim must be a recognized debt, in a specific amount, without any guarantee of payment, owed by the debtor to the creditor.
If there is no request by eligible creditors, then the interim trustee will serve as trustee.
What Is the Role and Responsibility of the Trustee?
The principal purpose of the trustee is to convert all nonexempt assets of the debtor into cash or some form of payment in order to pay off creditors. The trustee has certain statutory and administrative duties, but also possess certain powers to be accomplish the trustee's purpose. Below are some of the powers of a trustee:
- Taking possession of estate assets
- Hiring professionals
- Helping to operate the debtor's business
- Selling assets
- Investigating the financial affairs of the debtor
What Happens If I Am Unsatisfied with a Trustee?
Trustees may be sued. In addition, a trustee that is not a United States trustee, may be removed by the court for good cause after notice and a hearing. If the a trustee resigns or the seat is vacated, a United States trustee will be appointed.
Do I Need a Bankruptcy Attorney?
If you are going considering bankruptcy, retaining a bankruptcy attorney is strongly recommended. A lawyer can assist you in getting through the nuances and details of a Chapter 7 proceeding, and also help you manage your affairs with your trustee.