What is a Trustee in Bankruptcy?

A trustee in a bankruptcy case is the court appointed official in charge of disseminating the debt and assets during the course of the proceedings. The trustee is usually a judge, but the trustee may also be a public accountant or bankruptcy expert. The trustee's role is different in a Chapter 7 or Chapter 13 situation.

Chapter 7 Trustee

In a Chapter 7 filing, the assets of an individual or business are sold in order to repay debts. In this case, the trustee will have an important role in deciding which assets should be liquidated and in what order. The trustee has an obligation to follow priorities listed in bankruptcy code, such as primary versus subordinate lenders. 

Chapter 13 Trustee

In a Chapter 13 filing, the assets of an individual are retained but the debt is restructured. For a business, Chapter 11 is used instead. In both cases, the trustee will be in charge of reviewing the payment plan submitted by the individual declaring bankruptcy. The trustee will then hear approvals or rejections from lenders to determine if the plan is acceptable. In this case, the trustee is technically acting as a fiduciary for lenders with claims over the business or estate.

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