Chapter 7, 11, and 13 bankruptcy cases are appointed a bankruptcy trustee. In this article, we’ll define the term “trustee” and explain its role in bankruptcy. 

Key Takeaways

• A trustee is an entity that holds and administers a party’s assets for the benefit of a third party 
• Trustees may be appointed for bankruptcy, charity, trust funds, and more
• A bankruptcy trustee oversees a debtor’s bankruptcy proceeding, representing the creditors’ interests
• Bankruptcy trustees must be qualified in education, background, and character
• Bankruptcy trustees’ exact duties vary depending on the type of bankruptcy, but they all review bankruptcy forms, verify financial information, make sure there is no fraud, and facilitate the meeting of creditors
• Bankruptcy trustees are paid from the debtors’ assets if they have any

What Is a Trustee?

A trustee is an entity that holds and administers one party’s property or assets for the benefit of a third party. There are a variety of purposes for which a trustee may be appointed, including:

• Bankruptcy
• Charity
• Trust funds
• Certain types of retirement plans

Trustees are trusted to make decisions in the best interests of the trust’s beneficiary. They are often given fiduciary responsibility, meaning they manage the beneficiary's assets. 

Trustees in Bankruptcy 

A bankruptcy trustee is appointed by the bankruptcy court to oversee a debtor’s estate in a bankruptcy proceeding. They represent the creditors in the case. 

Bankruptcy trustees are used to serve as an impartial party that can take charge of the debtor’s assets so that creditors and courts don’t have to be responsible for collecting and distributing a bankruptcy debtor’s property.

The bankruptcy trustee must act in accordance with the Bankruptcy Code. The bankruptcy court must approve any actions recommended by the bankruptcy trustee.

Who Can Be a Bankruptcy Trustee?

Bankruptcy trustees are assigned by the United States Trustee Program, which is part of the Department of Justice. They often have backgrounds as certified public accountants and lawyers. Although exact qualifications vary depending on the type of bankruptcy, to be a bankruptcy trustee, a person must usually meet the following qualifications:

• Residing in the judicial district in which the bankruptcy case is pending
• Being competently licensed as a bankruptcy trustee
• Being educationally well qualified, possessing a bachelor’s or postgraduate degree in a business-related field
• Having substantial case administration experience
• Passing a five-year background and fingerprint check
• Having a proper tax return filing history
• Not having a criminal history
• Being of good moral character and integrity

Duties of Bankruptcy Trustees

The exact duties of the trustee vary depending on the type of bankruptcy. 

• In Chapter 7 bankruptcy, the trustee manages the sale of nonexempt property and administers the distribution of proceeds to creditors
• In Chapter 11 bankruptcy, the trustee reorganizes the debtor’s business obligations, debts, and assets so they can continue operation
• In Chapter 13 bankruptcy, the trustee receives monthly payments from the debtor and distributes them to the creditors on a payment plan 

In any type of bankruptcy, the trustee’s duties include:

• Reviewing bankruptcy forms
• Investigating and verifying financial information
• Making sure the bankruptcy claim is not fraudulent
• Facilitating the 341 meeting of creditors

Payment of Bankruptcy Trustees

Trustees of Chapter 7 bankruptcy cases can earn a commission on the assets they sell. If there are no assets, the trustee will not earn in commission. In Chapter 13 cases, the trustee’s fee is typically built into the monthly payment plan.