What Is a Bankruptcy Trustee?

A bankruptcy trustee is appointed by the United States Trustee to represent a debtor's estate in a bankruptcy proceeding. The United States Trustee is an officer of the federal Department of Justice,

Bankruptcy trustees evaluate and make recommendations about various debtor and creditor demands in accordance with the U.S. Bankruptcy Code but a bankruptcy judge has the ultimate authority on the distribution of assets to settle debts. A bankruptcy trustee works with the bankruptcy court to take any action that's required. The trustee can't act without the approval of the court.

Understanding the Role of a Bankruptcy Trustee

A trustee's role differs according to the type of bankruptcy proceeding they're overseeing. The primary action is a liquidation of assets in a 澳洲幸运5官方开奖结果体彩网:Chapter 7 proceeding. The trustee is in charge of setting up a 澳洲幸运5官方开奖结果体彩网:creditor's committee to help in the dispersion of assets and funds. They'll manage the sale of the assets and then oversee the distribution of the proceeds to creditors.

The trustee may work with the debtor in a 澳洲幸运5官方开奖结果体彩网:Chapter 11 proceeding. The debtor in this chapter is usually a business that hopes to emerge from bankruptcy and continue operating.

The trustee works with individuals who want to keep some of their assets in return for repaying certain debts in a 澳洲幸运5官方开奖结果体彩网:Chapter 13 bankruptcy.

Chapter 7

Chapter 7 of Title 11 of the U.S. Bankruptcy Code controls the process of asset liquidation. The appointed trustee will collect and take control of a debtor's non-exempt assets to liquidate them and distribute the proceeds to creditors.

Exempt assets are generally those that are necessary for day-to-day living and earning income such as an inexpensive car to drive to work, furniture, and clothing. Social Security benefits, unemployment benefits, and retirement accounts are also generally exempt but it can vary by state.

Debtors may not remove assets that belong to the bankruptcy estate without notice from the trustee or permission from the court. The trustee and court typically discharge the remaining debt after the exhaustion of proceeds from the liquidation. Creditors can no longer pursue the bankrupt individual or business for payment.

There are eligibility requirements for filing a Chapter 7 bankruptcy. A debtor must not have had a Chapter 7 bankruptcy discharged in the preceding 180 days and must pass a means test to establish that they don't have sufficient income and resources to repay their debts.

The Chapter 7 process is also known as a straight or liquidation bankruptcy.

Chapter 11

Chapter 11 of the U.S. bankruptcy code is a proceeding that involves the reorganization of a debtor's business affairs, debts, and assets. Businesses are generally the entities that file for this type of bankruptcy. Chapter 11 gives a debtor a fresh start subject to the fulfillment of their obligations under the reorganization plan.

Chapter 11 typically doesn't involve a bankruptcy trustee but a trustee will take and maintain control over the debtor's affairs and bankruptcy estate during the reorganization if one is appointed by the court. The trustee may also create a creditor’s committee to work with the debtor to form the reorganization plan.

Chapter 11 is the most complex of all bankruptcy cases and generally the most expe🗹nsive. A company would consider a reorganization only after careful analysis ✃and exploration of all other alternatives.

Chapter 13

Chapter 13 bankruptcy enables individuals with regular income to restructure their debt obligations and repay their creditors over time. The debtor doesn't ask the court to erase and eliminate their outstanding debts. They offer a repayment plan based on fixed installment payments.

The bankruptcy trustee's role in this chapter is to collect the payments, distribute the funds to creditors, and request that payment amounts be increased if necessary. The trustee may arrange and run an initial meeting between the debtor and the creditors.

Chapter 13 bankruptcy has been referred to as a wage earner's plan because this type of relief was only available to individuals who earned a regular wage. Statute changes have expanded it to include any individual, including the self-employed and those operating unincorporated businesses.

Example of a Chapter 11 Bankruptcy Trustee

Beauty industry pioneer Revlon got its start selling nail polish in 1932 and operated for close to 100 years before it filed for Chapter 11 bankruptcy in June 2022.

The company had amassed over $3.5 billion in debt. Sales and revenue had been dropping for several years due to a growing lack of relevancy for c🍃onsumers, competition from direct-to-consumer outfits, and inflation. Revlon also suffered from supply chain complications associated with the pandemic and a Citigroup error that mistakenly wired close to $1 billion in company funds to creditors. Its cash flow challenges consequently made it impossible to continue operating.

Revlon received court approval for its Chapter 11 reorganization plan on April 3, 2023 over objections made by the United States Trustee citing that the plan didn't provide creditors with an informed choice regarding the release of non-debtor third party claims.

The company announced that i♌t had restructured its debt and increased its liquidity by more than $285 million. It emerged ♔from Chapter 11 to resume operations by the end of the month as a private company, not the previous publicly traded company.

The Bottom Line

A bankruptcy trustee is an individual appointed by the U.S. Trustee to administer a bankruptcy case. Their specific responsibilities depend on the type of bankruptcy case to which they're assigned. According to the U.S. Trustee Program, a bankruptcy trustee is generally the watchdog that oversees the integrity of the entire bankruptcy process.