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What does a bankruptcy trustee do?

On Behalf of | Dec 2, 2022 | Bankruptcy |

One of the most important roles in the Maryland bankruptcy process is that of bankruptcy trustee. The trustee is the person named by the court to oversee the administration of the bankruptcy estate. The trustee’s responsibilities and actions will vary on a case-by-case basis and he or she will do different things in Chapter 7 cases than in Chapter 13 cases. They are not government employees but they are appointed by the Department of Justice.

Why are trustees necessary in bankruptcy?

When debtor files for bankruptcy, their assets and liabilities move into what is referred to as the bankruptcy estate. The bankruptcy estate is a legal entity independent of the debtor. Because the estate is not a person, a trustee is appointed to deal with property and debts according to bankruptcy laws.

The trustee’s role in a Chapter 7 bankruptcy

In a Chapter 7 bankruptcy, also referred to as liquidation bankruptcy, the debtor’s non-exempt assets are liquidated in order to pay debts to the extent possible. The trustee in a Chapter 7 case will inventory and categorize the debtor’s assets, sell the non-exempt assets, review creditor claims and distribute funds from asset sales to creditors. The trustee will also object to discharge if he or she believes a discharge is improper based on the facts of the case.

Role of trustee in Chapter 13 bankruptcy

Chapter 13 bankruptcy is designed for people who have regular income but who cannot keep up with their debt service. It is also called wage-earner’s bankruptcy. The trustee in a Chapter 13 case will review the payment plan proposed by the debtor, object to the plan if necessary, collect payments from the debtor and distribute payments to creditors. Regardless of the type of bankruptcy, the trustee plays an critical role.