4 Ways a Trustee in Bankruptcy can Help Protect Debtors

A trustee in a bankruptcy case is the court appointed official in charge of resolving the debts appropriately. A trustee has a slightly different role in a Chapter 7 filing, which is a liquidation, than in a Chapter 13 filing, which is a reorganization of debts. In both cases, however, the trustee works as the intermediary between the debtor and creditor in order to resolve the bankruptcy without unnecessary negative interactions. 

#1 Handling Emotional Decisions

When a borrower files bankruptcy, that person is likely in a very stressful position. No borrower wants to go through with bankruptcy; instead, it is simply a necessary consequence to the sequence of events leading to the debt. This can lead to a number of conflicts for the filer, including personal attachments to assets. Particularly in a Chapter 7 situation, a trustee can protect a borrower's emotional concerns by removing the necessity of those decisions from the borrower. Instead, the trustee will decide which assets to liquidate and which to preserve on behalf of the borrower. It can be hard to submit this control to another person, but most borrowers find it to be a relief in the end.

#2 Evaluating Payment Plans

When a borrower submits a possible payment plan for a Chapter 13 reorganization, the trustee has the job of deciding whether the plan is acceptable. To determine this, the trustee must meet with the creditors and discuss their concerns. A borrower should not be directly involved in these conversations to prevent personal conflict. A trustee is the better party to hear both sides equally and make an unbiased decision on which arguments should be considered in making the ultimate determination to settle debts. 

#3 Setting Limitations

The point of any bankruptcy is to limit the way a creditor can seek repayment from a borrower. The borrower may be suffering from the burden of repeated attempts to collect. These collections can take place at a workplace or school, causing public embarrassment. Instead of allowing this to continue, a bankruptcy court sets very distinct rules on how and when a creditor can attempt to collect. Namely, the creditor must speak with the trustee from this point forward. As a borrower in bankruptcy, an individual is protected from any potential continued threats by the creditor. The creditor cannot appear at the borrower's home or workplace. If the creditor does attempt to collect directly, the borrower can file a formal complaint with the trustee. 

#4 Following Legal Guidelines

There are definite legal rules on how debts are ordered and addressed in a bankruptcy case. For example, mortgage debts are senior debts, taking precedent over subordinate debts like home equity loans. Most senior debts are tax liens. A trustee is familiar with these laws and will assure they are followed throughout the court proceedings. An individual may be more inclined to pay back family members or small debts first. A trustee, though, will assure the payments are made to those with the highest claim to funds according to the law. This protects the borrower from potential lawsuits in the future.

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