The trustee in a New York bankruptcy case is usually not the debtor’s ally. His or her purpose is mainly to administer the bankruptcy estate or ensure the debtor’s repayment plan goes according to plan. Trustees pursue preference payments, fraudulent conveyances, and other malfeasance committed by debtors. They frequently initiate adversary proceedings against debtors. In general, trustees ensure that creditors get paid what they are due.
Occasionally, debtors—but even creditors—might want to know if they can get a better trustee. It’s not really up to the parties who manages their bankruptcy cases; rather, trustees are appointed to them. However, there are a handful of situations in which the trustee in a bankruptcy case might be substituted for a new one, whether for better or ill. Here are a few examples.
Death: It’s pretty rare, but sometimes trustees die while in service.
Resignation: In more likely scenarios, trustees resign their positions. This can occur for any number of personal or professional reasons, but the most frequent one is a conflict of interest with one of the parties. Usually a trustee’s conflict becomes apparent before the 341 meeting, in which case the U.S. Trustee appoints an interim trustee who will take over the case permanently.
Retirement isn’t so often one of them as trustees tend to reduce their caseloads and close out their existing files before ending their careers.
Failure to qualify as a trustee: Section 322 of the Bankruptcy Code lists the legal requirements trustees must meet to qualify for the job. It mainly involves posting a bond to the United States.
Removal: It is possible for parties in a bankruptcy case to move the bankruptcy court to remove a trustee or an examiner. Removal motions are followed by notice and hearings, but importantly, such motions must be “for cause.” The statute doesn’t specify what that might involve, but it might include malfeasance or conflicts of interest on the trustee’s part. Parties may not file motions to remove the U.S. Trustee. Removal is discussed in section 324.
In all these situations, the trustee in a chapter 7 case will be replaced with a new one according to the rules set out in section 703. Usually this involves U.S. Trustee appointing an interim trustee to manage the case. If none of the eligible trustees are willing to serve, the U.S. Trustee may do so. Although it’s possible for creditors to elect a trustee at the 341 meeting, it almost never happens in chapter 7 cases.
Because creditors have some control over the trustee election process, it can be to their advantage to remove an inefficient trustee, if they can prove their cases.
As for debtors, removal is probably a long shot, and when it does work, it’s likely that the creditors are just as dissatisfied with the trustee. Debtors can, however, switch their cases to change their trustees. Voluntarily dismissing cases and refiling them creates a possibility that new trustees will be appointed to their cases; alternatively, converting their cases to chapter 13 might result in new trustees as well.
Most of the time, though, a debtor’s problem isn’t the trustee but the case he or she took to court. To avoid challenging trustees, it’s a good idea to hire an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.