A trustee in bankruptcy is a person assigned to administer the bankruptcy estate. A trustee is automatically appointed in every Chapter 7 and Chapter 13 bankruptcy case. In certain circumstances, a trustee can also be appointed in Chapter 11 cases.
The bankruptcy estate is the property and related property rights of someone who files a bankruptcy petition. A trustee is appointed to handle certain assets of the debtor, collect these assets into the estate, and liquidate these assets for the benefit of creditors. Some assets will remain with the debtor if they are determined to be exempt from distribution to creditors. Also, a trustee can recover certain assets that were previously transferred and bring those assets into the bankruptcy estate.
In a chapter 7 bankruptcy case, the estate consists of all of the debtor’s property unless the court orders that certain property is no longer property of the estate, the trustee abandons property to the debtor, or the property is exempt. In chapter 13, all property remains the property of the debtor unless the court makes a ruling otherwise. A trustee is appointed to collect plan payments, supervise activity in the case and to report to the court on whether the debtor is meeting its obligations.
A trustee is not automatically appointed in a Chapter 11 bankruptcy case. Instead, the debtor acts as the “Debtor-in-Possession” and has many of the duties and rights that a trustee has. Under some circumstances a trustee may be appointed at a debtor’s request or on the motion by another and determination by the court that a trustee should be in charge of managing the debtor’s affairs. Once appointed in a chapter 11 bankruptcy case, a trustee will manage the affairs of the debtor and make all decisions about property of the estate.