In Chapter 13 the trustee is a gate-keeper, overseer, and payment distributor. Quite different than in Chapter 7.
To understand what a Chapter 13 trustee does, we need to get on the same page about what Chapter 13 itself is. It’s an “adjustment of debts” based on a three-to-five-year payment plan. That plan is presented by you and your attorney, can be objected to by the creditors, is sometimes changed in response to any such objections, and then is approved by the bankruptcy court. A Chapter 13 plan often greatly reduces what you need to pay to your “general unsecured” creditors, and often allows you to pay secured creditors and “priority” creditors on very favorable terms. Then by the time you’ve finished paying off your plan at the end of your Chapter 13 case, your debts have either been paid off or else they get written off at that time.
The Chapter 13 Trustee as Gate-Keeper
The Chapter 13 plan prepared by your attorney has to follow the law in numerous ways. The trustee’s first role as the gate-keeper is to review your plan and object to any aspects of it that he or she believes does not follow the law. In effect the trustee acts on behalf of all the creditors—many of whom have relatively little money at stake in any individual case and so can’t justify hiring an attorney to object for them. Usually any trustee objections are resolved by your attorney through persuasion or compromise, or by having the bankruptcy judge make a ruling on it.
The Trustee as Overseer
After the plan is approved, or “confirmed,” by the judge, the trustee and his or her staff continues to monitor your case throughout its three-to-five-year life. They track your payments, usually review your income tax returns each year to see if your income stays reasonably stable, and file motions to dismiss your case if you don’t comply with these and other requirements.
The Trustee as Payment Distributer
The trustee collects payments from you and distributes the money as specified by the terms of the court-approved plan. As part of that, the trustee’s staff reviews your creditors’ proofs of claim—documents filed by your creditors to show how much you owe—and may object to ones that do not seem appropriate. And when you have finished paying all you need to pay, the trustee informs you and the bankruptcy court, so that the court can discharge the rest of your remaining debt (except for long-term debts such as perhaps a home mortgage or student loan).
Practical Differences between Chapter 7 and 13 Trustees
- The Chapter 7 trustee liquidates assets, or, more often, determines if you have any assets which can be liquidated, fixating on your assets at the point in time when you filed your case. In contrast, the Chapter 13 trustee receives and pays out money over a period of years, based on a bunch of factors but mostly on your ongoing income and expenses.
- Both types of trustees are private individuals, carefully vetted and monitored. The Chapter 7 trustees are chosen out of a “panel” of several trustees within each bankruptcy court, so your attorney will not know (or be able to influence) which one of the trustees will be assigned to your case. In contrast, there is usually only one “standing” Chapter 13 trustee assigned cases from each court or each geographic area within the court’s jurisdiction. So your attorney will almost for sure know which Chapter 13 trustee will be assigned to your case.