United States Trustees appoint and supervise private trustees who administer bankruptcy estates under chapters 7, 11, 12, and 13 of the Bankruptcy Code. Private trustees are not government employees. They do, however, work in concert with the United States Trustee to ensure the efficiency and integrity of the bankruptcy system.
Chapter 7 trustees are often referred to as “panel trustees” because they are appointed by the United States Trustee to a panel in each judicial district. Once trustees are appointed to the panel, chapter 7 cases generally are assigned through a blind rotation process. The chapter 7 trustee collects assets of the debtor that are not exempt under the Bankruptcy Code, liquidates the assets, and distributes the proceeds to creditors.
There are two types of chapter 11 trustees―“subchapter V trustees” appointed under the Small Business Reorganization Act of 2019 (SBRA) and non-SBRA trustees (referred to simply as “chapter 11 trustees”). SBRA was amended by the CARES Act of 2020 to increase the debt limit for SBRA debtors from $2.72 million to $7.5 million for cases filed on or after March 27, 2020. In SBRA cases, subchapter V trustees are appointed on a case-by-case basis from pools created across the country when a debtor elects to proceed under subchapter V of chapter 11 of the Bankruptcy Code. These trustees are not appointed to operate the debtor’s businesses unless so ordered by the court, but instead, their primary goal is to facilitate the confirmation of a consensual plan of reorganization. In non-SBRA cases, chapter 11 trustees are appointed on a case-by-case basis upon motion of a party in interest or the United States Trustee and with approval of the court either for cause or in the best interest of creditors, equity security holders, or other interests of the estate. The chapter 11 trustee operates the debtor’s business, if necessary or appropriate, and carries out other trustee duties.
Chapter 12 and chapter 13 trustees are called “standing trustees” because, pursuant to statute, they have a standing appointment from the United States Trustee to administer chapter 12 and chapter 13 cases within a specific geographic area. Standing trustees evaluate the financial affairs of the debtor, make recommendations to the court regarding confirmation of the debtor’s repayment plan, and administer the court-approved plan by collecting payments from the debtor and disbursing the funds to creditors. In certain jurisdictions, chapter 12 trustees may serve on a case-by-case basis, rather than as standing trustees.