Role of the Trustee Explained: Chapter 13 Trustees

The Executive Office of the United States Trustee is the executive branch agency charged with overseeing the bankruptcy system. The US Trustee’s Office is authorized to appoint agents to carry out some aspects of the bankruptcy process. In the case of chapter 13, the US Trustee’s Office appoints a Standing Trustee to administer and oversee chapter 13 bankruptcy cases. Standing trustees are paid through the U.S. Trustee, with funds that come from the bankruptcy estate. They charge a percentage of the payments made by Chapter 13 debtors, and those funds are used to pay the salaries and expenses of the trustee and their staff.

Chapter 13 trustees have a more involved role than their Chapter 7 counterparts, which is why they are full-time. Chapter 13 cases involve three to five years of payments which have to be collected and distributed by the trustee, as opposed to the one-time collection and distribution (if any) in a Chapter 7 case..

The role of the Chapter 13 trustee starts with reviewing the petition and schedules filed, and the plan that is proposed. The trustee reviews the calculations and the treatment and classification of creditors within the plan. The trustee is responsible to object to the proposed plan if the plan does not conform with bankruptcy law and rules. The standing trustee often makes arguments to the court to attempt to increase payments and the distribution to creditors. They also can object to any of the provisions in the Chapter 13 Plan filed with the case. A good bankruptcy attorney tries to resolve any issues with the trustee. At the confirmation hearing, the trustee either recommends the plan to the court as in compliance with bankruptcy provisions, or objects to the proposed plan if the trustee thinks the plan does not comply. Ultimately the Judge rules on whether or not the plan can be confirmed. Judges often confirm plans over the objections of trustees, but trustee arguments are given serious consideration by the Court.

The trustee, however, does not eliminate the need for creditors to hire their own attorneys to protect their rights. Creditors also have the right to object to plans and argue that they should be receiving more money under the plan. In some cases, both the creditor and the trustee may oppose the plan. Their opposition can even be for different reasons.

The Chapter 13 trustee, though, does not only act to protect the interests of creditors. The trustee also has the responsibility of objecting to claims filed by creditors. All creditors get notice of the bankruptcy, and are required to file a proof of claim with the court within 90 days of the date of filing. The trustee’s role in dealing with creditors involves primarily reviewing the claims that come in to determine if they should be paid. The trustee can object to claims that they feel are invalid for some reason. It is also possible for debtors to object to claims filed by creditors.

Once the plan is confirmed by the bankruptcy judge, the chapter 13 trustee’s job is not done. The trustee is responsible for receiving and keeping account of the payments from the debtor. The trustee is also responsible as a fiduciary to distribute monies received to creditors pursuant to the plan approved by the Court. Plans typically last from 36 to 60 months. Typically most jurisdictions only have one or maybe two trustees to administer all the chapter 13’s filed in the jurisdiction.

At the end of the plan, the trustee does an accounting of all of the payments made, audits the accounting, and prepares a final report for the Court. The trustee then recommends to the court to issue the discharge and the court signs the discharge order.

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