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What does the bankruptcy trustee do?

Trustees are the administrators assigned to oversee bankruptcy cases

The trustee assigned to administer a bankruptcy case plays different roles depending on what type of petition is filed with the U.S. Bankruptcy Court.

In Chapter 7 cases, the most common form of personal bankruptcy, a trustee's role is more limited than in cases filed under Chapter 13, which requires debtors to pay their creditors over several years through a court-ordered repayment plan.

In both types of cases, the trustee will attend the 341 hearing, in which creditors have an opportunity to ask questions and the debtors explain their circumstances. Often the 341 meeting for a Chapter 13 filer will coincide with the confirmation hearing to approve the repayment plan.

Beyond the 341 meeting, the trustee in a Chapter 7 case will oversee the sale of property that is not covered by federal or state exemptions. First, the secured creditors are paid, and if money is left over the unsecured debts such as credit card balances or medical bills will be paid.

However, for Chapter 13 cases, the trustee's role expands to oversee the repayment plan set up for the debtor. "He's also responsible for reviewing your repayment plan and ensuring you have no difficulties following that plan," states FilingBankruptcyOnline.com. "You send each month's payment to him and he will distribute the funds among your creditors. Unlike with Chapter 7 bankruptcy, you can generally keep your assets in Chapter 13 since you'll be repaying, in full or in part, your debt."

It's important for debtors to understand that a big part of what the trustee does is to safeguard the best interest of the creditors by making sure they receive as much money as possible to pay off the debts that have been incurred.

For their work in Chapter 7 cases, trustees receive a small fee, plus a commission from assets that are sold. In Chapter 13 actions, the trustee earns a percentage of the money that is collected from the debtor and distributed to the creditors.

In addition to those assigned to bankruptcy cases - also referred to as "panel trustees" - the bankruptcy court has United States Trustees that oversee the panel trustees and are viewed as the watchdog of the bankruptcy process. Although they have no direct dealings with debtors, they recommend to U.S. Attorneys and the FBI whether legal action should be taken in cases when fraud is suspected on the part of a debtor.

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