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Bankruptcy and the Role of the Trustee in American Law

November 15, 2011  by: Madan G Singh  Points: 12   Category: Others  Earning $0.20   Views: 639

The role of a trustee in US law is of paramount importance. No bankruptcy cases can be finalized without a trustee.


n the United States the banking Act of 1978 as amended by Congress in 2005 during the regime of George Bush, is the centre piece of legislation that covers all types of bankruptcies. This act envisages a trustee who has a laid down role in bankruptcy proceedings. A trustee is a man or woman who is authorized by due process of law to manage money, property or assets of another person. Thus the role of a trustee is of paramount importance. It will not be wrong to say that he is a pivot around which the bankruptcy process revolves.

In America the law lays down that that any Bankruptcy proceedings under the Bankruptcy act will be null and void in the absence of a trustee. Thus the importance of a trustee cannot be understated. In legal parlance it is worthwhile to understand that in case there is no trustee, than a debtor cannot get a discharge from his debts in a bankruptcy court. This is the stark truth.

Congress has enacted the Banking Act which gives the United States courts the authority to appoint a trustee. A trustee thus draws his powers from this piece of legislature. His powers are also clearly laid down.

The two most important chapters of the Banking act are chapters 7 and 13.Both chapters have slightly different roles for a trustee. Chapter 7 is what is termed as 'straight bankruptcy'. In this chapter the trustee is supposed to administer all cases under this section. The role of a trustee under this section has the onus put on him to establish whether a debtor can pay off the debts with his available assets. In addition the bankruptcy trustee is also supposed to review the debtor's entitlement and claims of exemption if any for a discharge. The important point to understand is that the trustee basically represents the creditors. He has to bear the interests of the creditors always in mind. The trustee has also to read out all the schedules as well as ensure that the case falls within the purview of the Bankruptcy code.

The role of a trustee under chapter 13 as already pointed out is slightly different compared to his role under chapter 7. Under chapter 13 the trustee carries out the same review function as a Chapter 7 trustee (like reading the schedules and see the case complies with the Bankruptcy Code and oppose matters in case it falls out of the purview of the bankruptcy code). In addition he has another major role wherein he reviews the debtor's plans for repayment. Thus he also serves as the disbursing agent and distributes all payments due to the creditors under chapter 13. A chapter 13 trustee is usually a very busy man and always has his hands full, as there is generally a single Chapter 13 trustee who serves all cases under his purview in her/his district court. The trustee is paid a small percentage of the funds that flow through the Chapter 13 case. That percentage is fixed as per the operating expenses of the trustee by the United States Trustee.

United States Trustee is an officer of the United States department of justice. He appoints the bankruptcy court trustee. The United States trustee also carries out an annual or periodic review of his performance. He will also if required investigate any complaint that may arise against the trustee. It must be emphasized that a bankruptcy trustee is not a government employee/servant. He is generally an eminent person like a practicing lawyer or accountant who is appointed as a trustee.

As per the bankruptcy act there is supposed to be a meeting between the creditors and the debtor. This is a mandatory requirement. One of duties of the trustee is to chair this meeting. This is an important duty and the trustee has the power to file objections to any claims of exemption that may be put forward by the debtor as well oppose the debtor's discharge. It is important to note that he can file objections but cannot decide the issue which is the sole prerogative of the judge who is hearing the case.

Another duty of a trustee under chapter 13 is to evaluate if any fraud is perpetuated by the debtor. He has the power to deny a discharge in case there is any evidence of fraud or wrong doing. A Trustee gets his fee from the case filing fee. This fee is to be paid before commencement of the bankruptcy proceedings. They can also get some extra money depending on the value of the estate that the trustee is to administer. In case the estate has no funds then he is paid only $60 per case. Last but not the least; a bankruptcy trustee has to be impartial in his dealings with both the creditors and the debtor. He must uphold the law


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