Anyone who files for bankruptcy in the U.S. is assigned a trustee who will administer the case. A trustee must be impartial in order to carry out the expected duties. If you personally know the trustee assigned to your bankruptcy, the relationship represents an ethical issue.
During the bankruptcy process, the trustee assigned to your bankruptcy is granted a great deal of authority. They are responsible for reviewing the debtor’s court filings, searching for assets belonging to the debtor, generating a plan for the debtor to repay their creditors, conducting the meeting of creditors, selling any available assets belonging to the debtor and distributing the proceeds of the sale to the creditors. Due to the extensive nature of the trustee’s responsibility for the handling of property, funds and debt during the bankruptcy process, the U.S. Justice Department rules require that a bankruptcy trustee decline the appointment unless they are a “disinterested” person without any conflict of interest regarding the case at hand. The definition of a “disinterested person” according to the U.S. Bankruptcy Code is one who does not have a significant interest that is adverse to the interests of the creditors or debtor. That would naturally exclude any creditors of the debtor, stockholders of any of the debtor’s creditors, or anyone who is or has been an employee of the debtor (during the previous two years). A clash between the trustee’s personal and professional interests generates a conflict of interest. The rules are in place to protect against ethical questions and help to provide debtors and creditors fair treatment during bankruptcy proceedings.
Any trustee that becomes aware of a conflict (or potential conflict) of interest or lack of “disinterestedness” as the law defines it, including a relationship to the debtor filing for bankruptcy, must immediately advise the supervising U.S. Trustee in writing and resign from the case.
If you are a debtor and you are aware that you know the trustee assigned to your bankruptcy case, you should immediately inform the trustee in order to ensure that they are aware of the ethical issue. This is important because the bankruptcy trustee may not know your full name or simply might not immediately recognize your name. In any case, it’s best to address the issue early on in your case whenever necessary.
If you are unsure if there is an ethical issue related to your bankruptcy case, contact your southern California bankruptcy expert at Westgate Law immediately so we can help you avoid any problems that could get your case thrown out before you get your debt discharged.