When you file for bankruptcy, you will quickly begin hearing several titles: bankruptcy judge, trustee, U.S. Trustee, creditor, debtor, and bankruptcy attorney. If you have never been through the bankruptcy process before, it can be difficult to understand who everyone is and what role they play in your case.
One of the most important people you may encounter is the bankruptcy trustee. But what exactly does a bankruptcy trustee do? Does the trustee work for you? Do they work for your creditors? Are they the same person as the bankruptcy judge?
The short answer is no.
A bankruptcy trustee has a specific role in administering a bankruptcy case. Exactly what that role looks like depends on whether you filed Chapter 7, Chapter 13, Chapter 11, or Subchapter V bankruptcy.
What Is a Bankruptcy Trustee?
A bankruptcy trustee is a person appointed to perform certain administrative duties in a bankruptcy case. The trustee is not your attorney, and the trustee does not represent you. The trustee is also not the bankruptcy judge.
Instead, a trustee has responsibilities imposed by the Bankruptcy Code and is part of the system designed to make sure a bankruptcy case is properly administered.
In a Chapter 7 case, for example, the trustee reviews the debtor’s financial information, investigates assets, conducts the Meeting of Creditors, and determines whether there is property available to distribute to creditors.
The United States Trustee Program, which is part of the U.S. Department of Justice, supervises the administration of bankruptcy cases and private bankruptcy trustees. In the Northern District of Florida, the U.S. Trustee Program’s Tallahassee office serves the district.
The Bankruptcy Trustee Is Not the Same as the U.S. Trustee
These titles sound similar, but they describe different roles.
The United States Trustee Program is part of the Department of Justice. Among other responsibilities, the U.S. Trustee oversees the administration of bankruptcy cases and supervises private trustees.
A Chapter 7 trustee, on the other hand, is generally a private individual appointed to a panel of trustees who administer individual Chapter 7 bankruptcy cases.
The Bankruptcy Court for the Northern District of Florida specifically notes that the Assistant U.S. Trustee and staff, as well as panel trustees and their staffs, are not employees of the federal judiciary or the Bankruptcy Court.
The Bankruptcy Court is where your case is filed and where the bankruptcy judge decides legal disputes.
The U.S. Trustee Program oversees the administration and integrity of the bankruptcy system.
The Chapter 7 trustee is assigned to administer your individual Chapter 7 case.
What Does a Chapter 7 Bankruptcy Trustee Do?
For most individual debtors filing Chapter 7 bankruptcy, the Chapter 7 trustee is the trustee they will interact with the most. After your bankruptcy case is filed, a Chapter 7 trustee is assigned to your case. The trustee will review your bankruptcy petition, schedules, Statement of Financial Affairs, income information, tax returns, bank statements, and other financial documents.
One of the trustee’s primary responsibilities is determining whether you own any nonexempt property that may be available for creditors. Remember, filing Chapter 7 creates what is known as the bankruptcy estate. The bankruptcy estate generally includes your legal or equitable interests in property as of the filing of your case, subject to important exceptions and exemptions.
Florida law and federal bankruptcy law provide exemptions that may protect certain property from administration by the trustee.
For many Chapter 7 debtors, properly claimed exemptions protect their assets and there is nothing for the trustee to sell. These cases are commonly referred to as no-asset cases.
However, if nonexempt assets exist, the trustee may have authority to collect or sell those assets and distribute available proceeds according to the priorities established by bankruptcy law. You would then enter into a promissory note with your appointed Trustee (typically a 12-month promissory note) to pay back the assets to the estate.
The Trustee Conducts Your 341 Meeting
One of the most visible responsibilities of a Chapter 7 trustee is conducting your Section 341 Meeting of Creditors. Despite its name, the 341 Meeting is not a court hearing, and the bankruptcy judge does not attend. Instead, the assigned trustee conducts the meeting.
For Chapter 7, Chapter 12, and Chapter 13 cases in the Northern District of Florida, the U.S. Trustee Program provides procedures for Section 341 meetings. The program has implemented virtual 341 meetings using Zoom for applicable cases. Chapter 11, 341 meetings currently continue to be conducted telephonically unless otherwise directed.
At a typical Chapter 7 341 Meeting, the trustee will verify your identity and place you under oath.
The trustee may ask questions such as:
- Did you review your bankruptcy petition before signing it?
- Is the information contained in your petition true and correct?
- Have there been any changes since the petition was filed?
- Is the address listed in your petition your current address?
- Did you list all of your assets?
- Did you list everyone you owe money to?
- Are you entitled to receive money from anyone?
- Have you sold, transferred, or given away property before filing bankruptcy?
The exact questions depend on your circumstances.
The goal is not to memorize answers. It is to listen carefully and answer the trustee’s questions honestly and correctly to the best of your ability.
What Documents Does the Trustee Review?
The trustee does not begin learning about your finances at the 341 Meeting. Before the meeting, your bankruptcy attorney will generally provide required documents to the trustee. These can include tax returns, bank statements, proof of income, and other financial records depending on the case.
Northern District of Florida Local Rule 4002-1 specifically requires debtors in Chapters 7, 12, and 13 to provide copies of income tax returns to the trustee, except where otherwise provided.
The trustee may also request additional documentation if something in your bankruptcy schedules requires clarification.
This is one reason it is so important to provide your bankruptcy attorney with complete and accurate information before your case is filed. A forgotten bank account, vehicle, business interest, lawsuit, inheritance, tax refund, or transfer of property can create issues that might have been addressed much more easily before filing.
Does a Bankruptcy Trustee Decide Whether You Receive a Discharge?
Generally, the Chapter 7 trustee does not simply decide whether you receive a bankruptcy discharge.
A discharge is ultimately entered by the Bankruptcy Court if the requirements for discharge have been satisfied and there is no successful objection.
However, a trustee can identify problems and, when appropriate, take action concerning the administration of the case. In serious circumstances, issues involving undisclosed assets, false statements, fraudulent transfers, or other misconduct can lead to litigation or objections involving a debtor’s discharge.
This is why honesty and disclosure are so important in bankruptcy.
Bankruptcy is designed to provide eligible debtors with a fresh start, but the system depends on complete financial disclosure.
Is the Trustee for Chapter 7 the same for Chapter 13?
Chapter 13 works differently.
Rather than having a panel trustee primarily investigate and liquidate nonexempt property, Chapter 13 uses a standing trustee who administers Chapter 13 cases within a geographic area.
Chapter 13 trustees receive payments made under confirmed repayment plans and distribute those funds to creditors according to the plan and bankruptcy law.
The U.S. Trustee Program explains that Chapter 12 and Chapter 13 trustees are called “standing trustees” because they receive standing appointments to administer cases within specified geographic areas.
What About Chapter 11 and Subchapter V?
Traditional Chapter 11 is different too.
In most Chapter 11 cases, the debtor remains in possession of its property and continues operating its business as a debtor in possession rather than having a Chapter 7-style trustee take control of the business.
The U.S. Trustee still plays an important oversight role.
In a Subchapter V Chapter 11 case, however, a Subchapter V trustee is appointed in every case. The trustee’s role is generally different from a Chapter 7 trustee’s role. Rather than automatically taking control of the company’s operations, a Subchapter V trustee frequently assists the debtor and creditors in working toward a consensual plan of reorganization and performs other duties required by the Bankruptcy Code.
Bankruptcy Trustees in the Northern District of Florida
The United States Bankruptcy Court for the Northern District of Florida has divisions serving Tallahassee, Pensacola, Gainesville, and Panama City, with counties assigned among those divisions.
The U.S. Trustee Program’s Tallahassee office serves the Northern District of Florida, and the Department of Justice maintains the current list of Chapter 7 panel trustees who cover the district.
Which trustee is assigned to your individual case is not something a debtor generally chooses.
Once a trustee is assigned, your bankruptcy attorney can help you understand that trustee’s procedures, document requirements, and what to expect at your 341 Meeting.
The Most Important Thing to Remember About Your Trustee
Your bankruptcy trustee is not your enemy, but the trustee is also not your lawyer.
Your attorney’s job is to represent you.
The trustee’s job is to administer the bankruptcy case and perform the duties required by bankruptcy law.
The best way to make the process as smooth as possible is straightforward:
Be prepared. Be organized. And above all, be honest.
Provide your attorney with complete information before filing. Review your bankruptcy petition carefully. Provide requested documents on time. And when the trustee asks you a question, answer it truthfully and to the best of your knowledge.
Bankruptcy contains plenty of unfamiliar terminology, but understanding who the people are and what they do can make the process much less intimidating.
At Michael H. Moody Law, P.A., we represent individuals and businesses throughout North Florida in bankruptcy matters, including Chapter 7, Chapter 11, and Subchapter V cases. From our Tallahassee office, we assist clients throughout the Northern District of Florida, including Tallahassee, Gainesville, Pensacola, Panama City, and the surrounding communities.
If you are considering bankruptcy or have questions about what to expect during the process, contact Michael H. Moody Law, P.A. to discuss your circumstances and the options that may be available to you.
This article is provided for general informational purposes only and is not intended as legal advice. Bankruptcy law is highly fact-specific, and you should consult with a qualified bankruptcy attorney regarding your individual circumstances.