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trusteeThe most common types of bankruptcies that are filed in the United States are Chapter 7 and Chapter 13 bankruptcies. There are many differences between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy, mainly in the way that the debts are handled. While these two types of bankruptcies differ greatly in many aspects, they do have one thing in common -- they both utilize a bankruptcy trustee.

If you have thought about getting a bankruptcy or you have done research about getting one, you have probably come across the term -- but do you know what a bankruptcy trustee is? It is important to understand the role of the trustee if you are getting a bankruptcy or considering one.

What Is a Bankruptcy Trustee?

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Posted on in Bankruptcy

Texas bankruptcy attorneyComing to the decision that your best option is to file for bankruptcy is not easy. You may have taken weeks, if not months to realize that your best option is bankruptcy. The bankruptcy process can be confusing because of all of the legalities and people involved with the process. When you file for bankruptcy, the United States Trustee Program will assign you a bankruptcy trustee who will be responsible for overseeing your case. The trustee is one of the most important people in your case, so it is crucial that you understand the role of the trustee and the impact the trustee can have on your case.

What Is a Bankruptcy Trustee?

The role of a trustee was created to prevent the creditors and courts from having to be the ones responsible for collecting and distributing the property of those who file for bankruptcy. Trustees are independent contractors who are not employees of the bankruptcy court, but they must answer to the court and cannot take any kind of action until the court approves it. The trustee will evaluate and make recommendations pertaining to the demands of different debtors involved in the specific bankruptcy case they are assigned to.

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Giving a gift, including selling for much less than an asset is worth, may be a fraudulent transfer—treated as hiding assets from creditors.

Most people filing bankruptcy have neither a need nor the desire to hide anything from their creditors. There’s no need because most people’s assets are already protected through state and federal laws. There’s no desire because most people are honest and want to follow the law.

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Sometimes in bankruptcy doing the honestly right thing can cause you major problems. Making preference payments is a good example of this.


The Understandable Inclination to Pay a Favored Creditor

If you’re having financial problems and considering bankruptcy, you might feel compelled to first take care of a special debt. You may owe a relative or friend who is in real need of the money. You may feel deep and legitimate pressure to pay part or all of it in spite of your own financial problems. You may figure, accurately or not, that you won’t be allowed to pay this person after filing bankruptcy. Or for various reasons you may not want to involve this person in your bankruptcy case. You may not want to have him or her know about it. So you figure the best way to do that is to pay off or settle the debt beforehand.

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If you are the beneficiary in a spendthrift trust, most likely a bankruptcy trustee can’t touch whatever property is in that trust.

Power of Attorney vs. Spendthrift Trust

Our last blog post focused on your rights under a power of attorney over someone else’s property. A conventional power of attorney commonly requires you to use that property only for another person’s benefit. If so, then your legal control over that property isn’t enough to make that property yours for bankruptcy purposes. So if you file a Chapter 7 case the bankruptcy trustee has no power of that property. It is not included in the property of your bankruptcy estate. (Section 541(b)(1) of the U.S. Bankruptcy Code.)

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