After someone files bankruptcy, their first (and probably last) event will be a meeting with the bankruptcy trustee assigned to their case. In Iowa these trustees are attorneys appointed to oversee and administer the case for the benefit of creditors. The trustee’s role differs somewhat depending on whether it’s a Chapter 7 or a Chapter 13 bankruptcy.
In a Chapter 7 bankruptcy the trustee reviews all the court documents (called “schedules”) filed by debtors, along with tax returns and bank statements. The trustee is looking to see if any property is not exempt and therefore available to be sold for the benefit of creditors. In Iowa most Chapter 7 bankruptcy debtors have no property that’s not exempt. That means most debtors never have to sell any property when they file bankruptcy. Debtors should disclose all their property on the schedules because trustees will often do their own search of public records to identify what property a debtor owns. Not disclosing property can result in serious problems for a debtor.
A Chapter 7 trustee can also recover property that was transferred for less than fair market value, recover money paid to family members or creditors shortly before filing bankruptcy and object to a debtor’s discharge if the debtor is believed to have hidden property or income.
A Chapter 13 trustee does many of the same things a Chapter 7 trustee does but is also responsible for disbursing to creditors the money debtors pay each month, monitoring the monthly payments made by debtors to see if payments are current, evaluating whether a debtor’s Chapter 13 plan is feasible and objecting to plans that don’t comply with the Bankruptcy Code. The Chapter 13 trustee, like the Chapter 7 trustees, is assigned to make sure creditors get the money they are entitled to receive under the Bankruptcy Code.
Although in most bankruptcy cases debtors never have any contact with a United States Trustee, the office of the U.S. Trustee oversees the work of the Chapter 7 and Chapter 13 trustees, monitors cases to make sure debtors have filed the correct type of bankruptcy and objects to a debtor’s discharge if the debtor has not done all they’re supposed to do under the Bankruptcy Code.
While debtors are sometimes afraid bankruptcy trustees will prevent them from getting a discharge of their debts, that happens only very rarely. If debtors honestly disclose their property and income on the bankruptcy schedules they will rarely have any difficulty with a bankruptcy trustee.