When you file for Chapter 7 or Chapter 13 bankruptcy, a bankruptcy trustee is appointed to administer your bankruptcy case (often called the case trustee). But there is another trustee involved in bankruptcy -- the U. S. Trustee. The U.S. Trustee's role in your Chapter 7 or Chapter 13 case is often behind-the-scenes; but it can play a more visible role in some situations. The U.S. Trustee is much more active in Chapter 11 cases.
Read on to learn about the U.S. Trustee and what it does.
(For articles on the bankruptcy case trustee, see our Bankruptcy Trustee area.)
What Is the U. S. Trustee?
The United States Trustee Program, as it is formally called, is a division of the Department of Justice. It was created by Congress to oversee the bankruptcy process, including the administration of bankruptcy cases and private trustees. This is a big job with many functions. And although the U. S. Trustee can serve as a case trustee, it generally does not.
By law, the U. S. Trustee is authorized to appear before the court and take an active role in any bankruptcy case.
The U. S. Trustee’s Role in Your Bankruptcy Case
In most instances, when you file for bankruptcy under Chapter 7 or Chapter 13, you will have no direct contact with the U. S. Trustee. This does not mean that the U. S. Trustee is not taking an active role in your case. It is performing many functions behind the scenes. It may assume a more visible role if, in particular:
- you are trying to discharge consumer debts without making a genuine effort to repay them when you can afford to do so, or
- you fraudulently conceal assets (a bankruptcy crime).
The U. S. Trustee in Chapter 7 Bankruptcies
In Chapter 7 bankruptcies, the U. S. Trustee is required to review the debtor's financial situation and report to the court on whether the bankruptcy debtor who has primarily consumer debts has qualified for relief under the means test. (Learn more about the Chapter 7 means test.)
Determining if There Is Substantial Abuse
If the U. S. Trustee determines that your income, less certain allowable expenses, exceeds the median income for your state, the U. S. Trustee may determine that discharging your debts under Chapter 7 (rather than under Chapter 13) constitutes a substantial abuse of the bankruptcy laws. If this occurs, the U. S. Trustee will file a motion with the court seeking dismissal of your bankruptcy case. At this point, you will have three options. They are to:
- oppose the dismissal by defending the motion in a court hearing
- convert your Chapter 7 case to a Chapter 13 case, or
- agree to the dismissal of the case.
Other U.S. Trustee Duties
In Chapter 7 cases, the U. S. Trustee also:
- appoints and supervises the case trustees’ administration of Chapter 7 bankruptcies,
- sets standards for financial record-keeping and sets and monitors the trustees’ fiduciary bonds, and
- monitors attorney fee requests and objects when fees are determined to be excessive.
The U. S. Trustee in Chapter 13 Bankruptcies
In Chapter 13 bankruptcies, the U. S. Trustee’s role is primarily appointing and monitoring the performance of the standing case trustees. The U. S. Trustee:
- reviews and approves the case trustees’ budget which sets the trustee fee and cost reimbursements
- reviews the trustees’ reports and bank information
- monitors and reviews the trustees’ bonds, and
- monitors as necessary to ensure the trustees properly carry out their fiduciary duties.
The U. S. Trustee in Chapter 11 Bankruptcies
The U. S. Trustee is probably most visible in Chapter 11 bankruptcy cases. In most Chapter 11 cases, there is no case trustee appointed. Instead, the bankruptcy debtor, called the "debtor-in-possession," is charged with performing most duties of the case trustee. The U. S. Trustee:
- holds the creditors meeting
- determines whether an official creditor’s committee is necessary or appropriate in a case and solicits and appoints creditors as members of the committee to actively participate in the case
- monitors professionals (such as attorneys, accountants and expert witnesses) and their fee requests, objecting when the U. S. Trustee believes the fees are excessive or prematurely requested
- monitors the debtor-in-possession’s finances by collecting and reviewing monthly financial reports
- monitors plans of reorganization and the accompanying disclosure statements to ensure that creditors are being provided with adequate information and the proposed repayment meets the requirements of the bankruptcy law
- files motions to dismiss or convert Chapter 11 cases to Chapter 7 where it appears that the financial situation of the debtor cannot effectively be reorganized or to prevent unnecessary delay, and
- requests the appointment of a case trustee where it appears that the debtor-in-possession is not adequately performing its duties in according with the bankruptcy law.
The U. S. Trustee is actively involved in pursuing those engaging in bankruptcy crimes. The U. S. Trustee accepts criminal referrals from virtually any source (creditors, trustees, or any third parties) and performs a preliminary investigation to determine whether there is any support or merit to the referral. If there is, the U. S. Trustee prepares a formal referral to the appropriate governmental agency for further investigation and/or prosecution. Depending on the underlying facts and circumstances, the U. S. Trustee may participate with other agencies in the investigation of crimes involving bankruptcy and assist with the actual criminal prosecution.