What is the Role of a Bankruptcy Trustee in Commercial Bankruptcy Cases?
If a business decides to file for bankruptcy, a bankruptcy trustee will be assigned to oversee the case. Trustees play a critical role in bankruptcy cases, verifying the debtor’s (business’s) financial information to ensure claims are legitimate. Typically appointed by the court, a bankruptcy trustee will review a business’s assets and debts as well as meeting with creditors, overseeing the bankruptcy estate.
Having knowledgeable and skilled counsel every step of the way is crucial for smooth and effective debt relief. If you are considering liquidating or reorganizing your business’s debt, the Harrisburg, PA bankruptcy lawyers at Cunningham, Chernicoff & Warshawsky are available to offer their perspective.
Different Hats Worn By a Trustee in Commercial Bankruptcy Cases
You most likely have an idea of what you would like to accomplish in filing for bankruptcy. Understanding the characteristics of each will guide you in making an informed decision.
Chapter 7
Also known as liquidation bankruptcy, Chapter 7 bankruptcy sells off the business’s assets and uses the proceeds to pay off creditors. A 341 meeting, also known as a meeting of the creditors, will be held 20 to 40 days after filing your petition. It is not a court hearing, and a judge is not present. Rather, the trustee will run this meeting, at which time creditors are able to ask a debtor about business income, assets, debts, and any other issues relevant to the case.
Under Chapter 7, the trustee is tasked with managing repayment to creditors. This is accomplished through selling non-exempt assets and distributing the proceeds to creditors, known as liquidation. No property can be transferred out of the bankruptcy estate except by court order or notice from the trustee.
Chapter 11
Under the U.S. Bankruptcy Code, Chapter 11 allows businesses to reorganize their debt and develop a repayment plan. In a Chapter 11 filing, the debtor must file a Chapter 11 plan that details how they plan on paying off current debts while keeping the business in operation. Typically, a Chapter 11 trustee will only be appointed in select cases. In a Chapter 11 filing, the trustee handles the accounting of property, investigates claims, and files informational reports as required by the court. In cases where no trustee is appointed, the debtor will be granted the rights and power of the trustee.
Subchapter V
Subchapter V is a streamlined version of Chapter 11 bankruptcy, with eligibility depending on small businesses meeting certain criteria. For all cases filed on or after June 21, 2024, the current debt threshold is set at $3,024,725. Tailored to small businesses, Subchapter V allows for greater flexibility when it comes to repaying debt, while simultaneously enforcing shorter deadlines (reducing the debtor’s costs). The trustee will manage the entire process, negotiating with creditors but allowing the debtor to continue to run their business.
Chapter 13
Chapter 13 bankruptcy is primarily geared toward small businesses. Referred to as a wage earner’s plan, it gives sole proprietorships and partnerships the opportunity to develop a repayment plan to pay back business debts in three to five years. Under Chapter 13, creditors are also welcome to submit their own proposed repayment plans after the debtor files their initial plan. While secured and nondischargeable debts must be paid back in full, unsecured debts may be discharged or only partially paid back.
A Chapter 13 trustee will review the debtor’s claims and creditors’ claims to identify any discrepancies. The trustee will collect payments and distribute them to the creditors. Perhaps most importantly, the trustee will also oversee the repayment plan to make sure that your business can keep up with payments and remain on schedule.
Reach Out to Our Harrisburg, PA, Bankruptcy Attorneys
While a bankruptcy trustee can be a crucial resource in your bankruptcy case, they do work on behalf of the bankruptcy court. Having a bankruptcy trustee manage your case does not substitute for retaining your own representation. If you are considering bankruptcy or have already filed a petition, our Harrisburg, PA, bankruptcy lawyers are here to assist you in navigating the complex nature of the legal process.
For over 43 years, the legal team at Cunningham, Chernicoff & Warshawsky has been providing reliable services to our community. Let us help you through this stressful time. To arrange your consultation to discuss your matter, contact us online or by phone at (717) 260-3527 today.