Is There a Trustee in Chapter 11?
Unlike Chapter 7 bankruptcy, where a trustee takes control of the debtor’s assets and liquidates any available assets, Chapter 11 allows the debtor to act as a “debtor in possession.” That means the company or individual filing for bankruptcy remains in charge of its operations and assets, unless the court finds cause to appoint a trustee.
A Harrisburg Chapter 11 bankruptcy lawyer from Cunningham, Chernicoff & Warshawsky, P.C. can explain when a trustee might step in and what that could mean for the case.
When Is a Trustee Appointed in Chapter 11?
A trustee isn’t automatically assigned in Chapter 11 cases. Instead, the court appoints one only under specific circumstances. If creditors, the U.S. Trustee’s Office, or other interested parties argue that the debtor has engaged in fraud, mismanagement, or gross incompetence, the court may decide that the debtor should no longer control the company’s assets and operations. A trustee might also be necessary if evidence of conflicts of interest or self-dealing by a debtor principal could put creditors at risk.
A Harrisburg Chapter 11 bankruptcy attorney can assess whether the presence of a trustee could impact a case. While a trustee being appointed is rare, in some situations, a trustee’s appointment will occur when a company’s leadership has made decisions that severely harmed the business or creditors. In all other cases, a debtor will retain control and work toward a feasible reorganization plan.
What Happens When a Trustee Takes Over?
If a trustee gets appointed, the debtor loses control of the company’s financial affairs. The trustee has the authority to manage assets, oversee daily operations, and make decisions that affect the company’s future. Those actions might include selling assets, renegotiating contracts, or modifying existing agreements with creditors.
The trustee must also investigate financial transactions before the bankruptcy filing and determine whether any fraudulent or preferential payments were made.
A trustee takes the place of the debtor and can reject leases and contracts if they’re too burdensome, which may help the company recover. That authority regarding contracts comes with limits. The trustee still must answer to the court and act in the best interest of the creditors. Your Cunningham, Chernicoff & Warshawsky, P.C. Harrisburg Chapter 11 bankruptcy attorney can help you understand what to expect if a trustee is involved and whether it could benefit or complicate your case.
Can a Trustee Be Removed?
The appointment of a trustee isn’t always permanent. If the debtor believes the trustee is making decisions that don’t align with the business’s best interests, a motion can be filed to remove the trustee. Convincing the court, however, isn’t easy. There must be strong evidence that the trustee’s actions harm the bankruptcy process or violate legal duties.
A Harrisburg Chapter 11 bankruptcy attorney can analyze whether it’s possible to challenge a trustee’s appointment. While a trustee might bring financial stability in some cases, there are situations where their presence creates unnecessary complications. Working with Cunningham, Chernicoff & Warshawsky, P.C. can provide insight into whether a trustee will help or hurt a restructuring plan.
Keep in mind that in most Chapter 11 cases, the debtor continues to operate and manage its business. The appointment of a trustee does not often occur.
The Importance of Legal Representation in Chapter 11 Cases
Chapter 11 offers a path to restructuring, but the process comes with challenges. Whether a trustee is involved or not, having the right attorney can significantly affect the outcome. Contact Cunningham, Chernicoff & Warshawsky, P.C. online or call 717-238-6570 to consult a skilled Harrisburg Chapter 11 bankruptcy lawyer and learn more about your options.