Choosing a bankruptcy trustee

When choosing to work with a trustee in bankruptcy, there are 2 things you should be aware of: (1) his legal role with respect to your bankruptcy proceedings; and (2) […]

When choosing to work with a trustee in bankruptcy, there are 2 things you should be aware of: (1) his legal role with respect to your bankruptcy proceedings; and (2) his professional standing with respect to his competence and ethical conduct. These two aspects are discussed below.

The Role of the Trustee

When choosing which bankruptcy trustee to work with, a debtor will naturally assume that the trustee is working on his behalf. After all, the debtor is paying the trustee’s fees.

However, it is important that you understand the legal role of a trustee in bankruptcy. Although he has an obligation to ensure you are treated fairly in the bankruptcy process, he also has a fiduciary obligation to your creditors.

To explain, when you see a lawyer, all communications between yourself and your lawyer cannot be disclosed to any third party without your permission. This is the concept of solicitor-client privilege.

Unlike a lawyer however, if you communicate information to the trustee that may be relevant to your bankruptcy proceedings (e.g., disposition of assets, obtaining credit by fraud are common examples), the trustee is required to communicate this information to your creditors and take instructions from them regarding any necessary action.

For an honest debtor, this really is a non-issue. However, if a debtor has been involved in some dubious activities prior to filing personal bankruptcy, he has to understand that the trustee must act on behalf of his creditors and accordingly, must take whatever legal proceedings are necessary to rectify the situation. A misunderstanding of this role by the debtor will complicate matters greatly if he files bankruptcy thinking the trustee is acting as his legal representative.

Trustee background check

Like any other profession, the bankruptcy profession will always have a few bad apples. You want to make sure that you don’t get stuck with one.

The best way to do this is by reviewing Professional Conduct Decisions published on the website of the Office of the Superintendent of Bankruptcy. The link is here.

Many bankruptcy trustees are also licensed accountants. Therefore, you may also perform a background check by contacting the accounting institute of which the trustee is a member. For example, the Institute of Chartered Accountants of Ontario publishes Disciplinary Cases on its website. The link to these cases is here.

Finally, you can just simply perform a Google search on the trustee’s name and see if any relevant information shows up in the search results.

This post should not be interpreted as legal advice or a legal opinion. Please consult your Fong and Partners Inc. advisor to review your own particular circumstances.

© Copyright Fong and Partners Inc 2010.

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