If you’re filing Chapter 7 or Chapter 13 bankruptcy, a trustee will be appointed to oversee your case. This bankruptcy trustee is responsible for liquidating, or selling your non-exempt assets, which is any property you have included in the bankruptcy paperwork. After the trustee sells the items, they use the funds to pay your creditors.
They’re also responsible for making sure your bankruptcy petition is accurate and that you’re not defrauding creditors (or the bankruptcy court) by hiding assets. Let’s take a closer look at what a trustee is and does:
One of the first things a bankruptcy trustee does is examine your bankruptcy petition. They will look for inaccuracies, numbers that don’t match or make sense, and possible signs of fraud. If there are discrepancies with your reported income, assets, and list of creditors, the trustee will question you about it during your 341 meeting.
In most Chapter 7 bankruptcy cases, there are no nonexempt assets that can be sold. In other words, the typical debtor’s assets won’t be liquidated if they file bankruptcy because those assets will be covered by exemptions. However, in cases where a debtor has nonexempt assets, the bankruptcy trustee will sell those assets and use the proceeds to pay off creditors.
In the case of a Chapter 13 bankruptcy, the trustee will recommend confirmation (or denial) of the debtor’s proposed repayment plan and distribute payments to creditors.
Some debtors mistakenly believe that they can transfer assets and cash to family, friends, and their preferred creditors right before bankruptcy. When a debtor makes this mistake, the bankruptcy trustee will recover those assets and make sure they’re used to repay creditors.
It’s absolutely important for debtors to understand that the bankruptcy trustee is there primarily to protect the interests of creditors. It is the job of the trustee to make sure all the debtor’s assets are accounted for and that creditors get paid what they’re owed under the law. This is why it’s important to work with a bankruptcy attorney who can help protect your interests as a debtor.