June 24, 2019

Bankruptcy Trustee Basics

In addition to my private practice, I serve as a Chapter 7 Trustee for the United States Bankruptcy Court for the Western District of North Carolina.  Few people know what this means and how this service helps my private practice clients, so here’s a primer.

What’s a bankruptcy trustee?

Chapter 7 Trustees (also known as panel trustees) are not government employees. Here in the Western District of North Carolina, they are private citizens appointed and supervised by the local United States Bankruptcy Administrator to administer bankruptcy cases under Chapter 7 of the U.S. Bankruptcy Code. Each Panel Trustee must pass a FBI background check and is required to post a bond in each case that he/she is appointed.

I’ve served as a Trustee since 1979 and in the role, I liquidate assets for the benefit of creditors where possible.  Whether my private practice clients are debtors or creditors, my Trustee experience always serves them well.

The National Association of Bankruptcy Trustees describes the Trustee role as follows:

Trustees review the debtor’s petition and schedules after they have been filed with the Court.  At times they may request additional information from the debtor to review in conjunction with the debtor’s petition and schedules.  They are careful to review the debtor’s exemption schedules to determine whether the debtor has properly followed the state or federal exemption laws.

The Panel Trustee serves as the hearing officer for the 341 hearing.  Each debtor is sworn and examined by the Panel Trustee and the creditors are allowed the opportunity to ask questions which is moderated by the Panel Trustee.  After the Section 341 hearing, the Panel Trustee will object to exemptions that have been improperly claimed.

The Panel Trustee will seek turnover of assets held by the debtor or other parties and will arrange for their eventual sale.  The Panel Trustee may also seek to recover assets conveyed by the debtor prior to the filing of the bankruptcy.  The Panel Trustee will cause a notice to be given to all creditors to file their claims with the Bankruptcy Court.  The Panel Trustee will then pay creditors according to the priority level they have been given by the Trustee.  After all funds held by the Panel Trustee are distributed, the Trustee will seek approval of the Court to close the bankruptcy case.

Educating Bankruptcy Attorneys

Many of us on the Chapter 7 bankruptcy trustees panel for the Western District of North Carolina participated in a seminar of tips and practice pointers for our fellow bankruptcy practitioners. The topics include:

  • When it’s best not to file a bankruptcy case — some of the special situations in which, despite a mountain of debt, the last thing a debtor would want to do is invite a bankruptcy trustee to sort through his or her financial affairs
  • Complicated issues facing bankruptcy counsel when a potential Chapter 7 debtor owes income taxes

Remember, when selecting a bankruptcy attorney, you’re putting your financial past (and sometimes future) in their hands. One of the reasons clients choose our firm to represent them is the exposure I’ve had to a variety of cases as a Trustee.