Understanding Bankruptcy: The Power of the Bankruptcy Trustee

Bankruptcy Trustee


By:Mike Cibik

The Power of the Bankruptcy Trustee

When the word trustee comes to mind, you think of a trust. Just like administering a trust, a trustee can also administer a bankruptcy. The trustee in a bankruptcy case is appointed by the U.S. Department of Justice – the U.S. Trustee’s Office. This role was created in 1978 to ensure fairness in a bankruptcy case. This person is a lawyer or accountant who has an extensive bankruptcy background. They generally look for fraud. The trustee is not necessarily on your side or the federal government’s side: this person makes sure everything is done legally as well as represents the bankruptcy estate (all of your assets). The trustee is also called a panel trustee since the trustee is chosen at random and a debtor can’t choose his or her trustee. Just like a bankruptcy lawyer, the trustee gets a fee for his or her services. The trustee also gets a percentage of the assets sold.


The trustee has several responsibilities during the bankruptcy case:

  • Reviews paperwork, including “521 documents.” These documents illustrate your financial situation – two months of paycheck stubs, two months of bank statements and two years of filed tax returns. The trustee can also ask for other documents, such as pension statements, divorce decree, and vehicle billing statements. You should always cover up your social security number on these documents for security reasons.
  • Asks you questions about your case.
  • Conducts the 341 Meeting of the Creditors and will ask you questions during the hearing.
  • File a lawsuit (adversary proceeding) against you, the debtor, if trustee believes fraud has been committed. It’s important to note that a debtor or a creditor can also file a lawsuit.
  • Make sure a creditor creates a proper lien or security interest on your property.
  • Sell non-exempt assets in a Chapter 7 bankruptcy and distribute the proceeds to the creditors.
  • Evaluates the payment plan set up by the IRS. The trustee can file an objection if the payment plan fails to meet the requirements.
  • Conduct targeted and random audits.
  • Create a “no-assets” report if the debtor does not have any assets that can be sold to pay off creditors.
  • Receives the payments in a Chapter 13 bankruptcy.

The Trustee Can Clawback Assets

The trustee can also do a clawback. A clawback is when the trustee can undo a property or money transfer that was done 90 days prior to the bankruptcy filing date. The trustee can get it back and can put the asset back in the debtor’s name. Clawbacks are done for two reasons:

  1. Fraudulent transfers – Essentially hiding assets by transferring property or money to someone else and putting it in his or her name.
  2. Preferential Transfers – This is when a debtor shows preferential treatment to one creditor over another by paying off a debt in full. This causes other creditors to get less money. They are done one year before filing, and any payment of $600 or more usually goes to an “insider” (e.g. a family member). They are also done during the 90-days before filing for bankruptcy, and any payment of $600 or more goes to a regular creditor.

There are a few defenses against preferential transfers, such as the payment was a standard practice in the debtor’s industry, and the amount was less than $600, which is considered a small amount that is rarely pursued.  


We Know How Trustees Work

Our attorneys understand the trustee’s role in bankruptcy cases. We know that they have extensive knowledge of the bankruptcy process and will find any red flags. The trustee’s job is not to intimidate you; he or she is simply making sure all the calculations add up. It is always best to be upfront with all of your assets and any debts you have paid off prior to filing bankruptcy. You do not want to be in a position of explaining yourself to the trustee or a bankruptcy court. We have the experience to know the questions the trustee will ask you before and during the 341 Meeting of the Creditors. Our job is to make sure you understand the more than just the basics of bankruptcy and to make the entire process quick and painless.


Contact Us Today

At Cibik & Cataldo, we offer a free consultation so you’ll know what will be expected of you in your bankruptcy case and what you can expect from us. From pre-bankruptcy planning and gathering paperwork to meeting the creditors and the bankruptcy discharge, we are with you every step of the way. No one wants to go to a lawyer for any reason, but we want you to know that we have your best interests when you are faced with declaring bankruptcy. Let us put our expertise to work for you. Call us at (215) 735-1060 to set up your bankruptcy consultation.


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