Bankruptcy Basics: What is a Trustee?

10 Apr Bankruptcy Basics: What is a Trustee?

When a person files for bankruptcy, an estate is created–almost the same as if the person had died. Everything that the person owns becomes part of the bankruptcy estate. The estate now needs a manager, just like a probate estate has a manager (the executor/personal representative). A bankruptcy estate manager is appointed by the Bankruptcy Court (the Court doesn’t want to put the fox in charge of the hen house, so the debtor is NOT an option).

That manager is known as a Trustee. The bankruptcy trustee has responsibilities and duties to the estate and to the creditors of the estate (the people to whom money is owed). While people can protect most, if not all, of their assets through laws called “exemption” laws, the Trustee is responsible to make sure that the list of property is valued correctly and that the values are not above what the bankruptcy laws in that particular state allow a person to have.

When an estate has assets over and above what is allowed, the trustee is charged with the responsibility of converting those assets into money to pay creditors. Most of the time, what the creditors get paid — depends on whether the creditor is a priority, secured, or unsecured creditor. Priority creditors are paid first (as much as the money in the estate can pay them) and they are paid first. Secured creditors? This creditor is secured by a lien against a house, vehicle or something else. They get paid depending on what the item is and what the person filing bankruptcy wants to do with the property. Unsecured creditors are generally credit cards, hospital/medical bills, personal loans. Those creditors are last in line and generally get paid a percentage–if anything is left.

The Trustee must provide an accounting to the Bankruptcy Court of the money he/she has received and to whom the money has been paid. The Bankruptcy Court must approve those payments. Trustees are paid a commission based on how much money and what kind of bankruptcy was filed.

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I'm a consumer protection lawyer in Oregon, working with people in Klamath; Lake; Jackson; Josephine; Curry; and Deschutes County. I speak regularly on bankruptcy and consumer protection issues nationwide.

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