Who is the Chapter 7 Bankruptcy Trustee?

August 28, 2009

Quite a bit of mystery surrounds the bankruptcy trustee.  Generally, the person identified as the bankruptcy trustee in a Chapter 7 case is a “panel trustee,” also called an “interim trustee.”  The Panel Trustee is appointed by the United States Trustee as a local agent to review the debtor’s bankruptcy petition and schedules, and to determine if the debtor has any non-exempt assets available for distribution to creditors.  The Panel Trustee is not a government employee, although he or she is supervised by the Office of the U.S. Trustee (a division of the U.S. Department of Justice).  While the Panel Trustee is required to be independent and disinterested in the debtor’s case, the Panel Trustee works primarily for the benefit of the debtor’s unsecured creditors.

 

The Panel Trustee is almost always the individual that presides over the debtor’s Section 341 Meeting of Creditors.  The Panel Trustee must investigate the debtor’s affairs, examine the debtor under oath, and submit reports to the bankruptcy court and Office of the U.S. Trustee.  At the 341 Meeting the Panel Trustee is required to ask the debtor specific questions outlined in the U.S. Bankruptcy Code.  These questions include:

 

Did you read the schedules before signing?

Did you list all of your assets?

Did you list all of your debts?

Are the schedules accurate?

Do you want to make any corrections to the schedules?

Do you have a domestic support obligation?

 

Panel Trustees are paid a flat fee of $60 per case.  In addition, Panel Trustees receive an incentive commission on each dollar they collect from the debtor.  The commission rate is: 25% on the first $5,000 distributed; 10% on the next $45,000 distributed, 5% on the next $955,000, and 3% for every dollar distributed in excess of $1,000,000.  The National Association of Bankruptcy Trustees reports that approximately 90% of Chapter 7 cases are considered “no asset cases” in which there are no assets available for liquidation, either because assets are exempt (protected) by debtors or liened by secured creditors. 

 

Panel Trustees are usually attorneys or accountants with extensive bankruptcy law and auditing experience.  The bankruptcy trustee is forbidden from offering legal advice to debtors in bankruptcy.  Unfortunately, unrepresented debtors often do not receive the full protection of the bankruptcy laws because they lack the counsel of an experienced bankruptcy attorney.  These unrepresented individuals sometimes find themselves involved in “asset cases” and under the trustee’s microscope.  However, with the proper preparation, and with the experienced counsel of a skilled bankruptcy attorney, your Chapter 7 Bankruptcy can proceed very smoothly – even under the scrutiny of the bankruptcy trustee.

 

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