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What role does the U.S. Trustee play in the bankruptcy process? -- II

Last time, our blog discussed how those who are filing for Chapter 7 or Chapter 13 bankruptcy will more than likely be entering uncharted territory, such that they have little to no familiarity with the hearings, the parties or even the terms.

In recognition of this reality and the need to help bankruptcy filers form a core foundation of knowledge, we began taking a closer look at the role played by the United States Trustee in the consumer bankruptcy process. Having established their historical background and general duties, today's post will focus on their duties as they relate to Chapter 7 and Chapter 13.

Duties of the U.S. Trustees: Chapter 7

In a Chapter 7 bankruptcy case, also known as a liquidation proceeding, any assets of the filer that are not exempt are gathered and sold with the proceeds being divided among creditors.

U.S. trustees appoint private trustees to a panel for up to one year, with renewal left to their discretion. These "panel trustees," in turn, are assigned on a blind rotational basis to oversee Chapter 7 cases.

Aside from appointing panel trustees, U.S. trustees are also tasked with supervising their financial recordkeeping, administration of individual filer's estates and adherence to fiduciary rules.

In addition, U.S. trustees are responsible for litigating issues concerning the integrity of the bankruptcy system. This could include arguing that a particular filer should not be granted a discharge under Chapter 7 as doing so would constitute a "substantial abuse" of the process.

Duties of the U.S. Trustees: Chapter 13

In Chapter 13 bankruptcy, also known as wage-earner bankruptcy, a filer will propose a three- to five-year debt repayment plan using disposable income.

These Chapter 13 cases are managed by "standing trustees," who are appointed by U.S. trustees to handle all Chapter 13 cases in particular regions. Instead of handling liquidation, standing trustees evaluate the filer's finances and make recommendations to the court concerning their proposed repayment plan. 

The duties of U.S. trustees as they relate to oversight of these standing trustees are largely the same, including oversight of financial recordkeeping, estate administration and fiduciary rule adherence.

It's worth noting that for consumer bankruptcy, U.S. trustees are also tasked with the following concerning private trustees -- standing and panel alike:

  • Ensuring they are independently audited
  • Verifying that they are bonded
  • Providing them with the necessary training
  • Reviewing their performance periodically (case reports, budget reports, court performance, etc.)

Consider speaking with a skilled legal professional if you would like learn more about consumer bankruptcy, including whether it's a viable option for you. 

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