In New York, when a person files Chapter 7 or Chapter 13, the court appoints a bankruptcy trustee who administers the debtor’s bankruptcy estate. The trustee may be a government employee, part of the US Department of Justice, or a private self-employed individual. To become a trustee, qualified applicants normally have a college degree and at least 5 years of relevant work experience in fields of tax, accounting, or credit counseling.
The trustee oversees Chapter 7 and Chapter 13 bankruptcy cases in New York. The trustee needs to undergo a criminal background check and be fingerprinted. The court wants to make sure that the trustee does not steal from the debtor when handling the bankruptcy estate. The trustee needs to have a clean credit record and not filed bankruptcy in the past 7 years. The trustee needs to be bonded. Usually, during the first year as a trustee, the person pays for the bond, but after the first year, the bond payments may come from the bankruptcy estates the trustee works on. Being bonded means ensuring certain court rules are followed, and if they are not followed, the trustee forfeits the bond.
The trustee reviews cases for abuse, fraud, or discharge denial. The court listens to the recommendations of the trustee, and during confirmation hearings and status conferences, the trustee may be in control of proceedings and the debtor’s financial future. In a Chapter 7, the trustee liquidates the nonexempt property and distributes it according to the priorities in the Bankruptcy Code. The debtor does not lose everything when s/he files bankruptcy. The debtor gets to keep exempt property. In the bankruptcy petition, the debtor needs to list everything in the schedules that s/he owns, but there is a schedule for the debtor to list the exempt property. For example, retirement accounts are considered exempt.
The trustee leads 341 Hearings, the creditors meeting, and considers whether there are preferences or fraudulent transfers that can be recovered from the debtor to pay off creditors. In a Chapter 13 bankruptcy, the trustee goes over the debtor’s plan, and distributes payments made by the debtor to creditors on a monthly basis. Trustees get paid depending on the debtor assets liquidated. The trustee may have a team of professionals, such as accountants and lawyers. The team gets paid from the bankruptcy estate, but all work for the creditors.