A Different Kind of Trustee
The Subchapter V trustee is fundamentally different from trustees in other bankruptcy chapters:
- Chapter 7 trustee: Liquidates the debtor's non-exempt assets and distributes proceeds to creditors
- Chapter 13 trustee: Collects plan payments from the debtor and distributes them to creditors
- Subchapter V trustee: Facilitates development of a consensual plan between the debtor and creditors
The Subchapter V trustee does not take possession of assets, does not operate the business, and does not liquidate anything. The trustee's primary role is to help the debtor and creditors reach agreement.
Specific Responsibilities
- Facilitate plan negotiations -- Work with the debtor and creditors to develop a consensual plan
- Appear at the status conference -- The court holds an early status conference (within 60 days of filing), and the trustee participates
- Review the debtor's business operations -- Ensure the business is being operated properly during the case
- Monitor post-confirmation payments -- In cramdown cases, the trustee distributes payments and monitors compliance
- Report to the court -- File reports on the debtor's progress and any concerns
Section 1183(b)(1): The trustee shall "facilitate the development of a consensual plan of reorganization."
Debtor Remains in Possession
The debtor continues to operate the business as a debtor in possession. The trustee does not replace management. This means:
- The debtor makes business decisions
- The debtor pays employees, vendors, and operating expenses
- The debtor files operating reports with the court
- The debtor proposes the plan (no one else can)
Exception: The court can remove the debtor from possession "for cause" under Section 1185 -- such as fraud, dishonesty, incompetence, or gross mismanagement. If the debtor is removed, the trustee takes over business operations. This is rare.
Trustee Compensation
The Subchapter V trustee is compensated from the estate. In consensual cases, the trustee's service typically ends at confirmation, limiting costs. In cramdown cases, the trustee may serve for the full plan period (3-5 years), collecting a percentage of distributions.
The trustee's fees are subject to court approval and must be reasonable. This cost is one of the trade-offs of Subchapter V -- the debtor gains a facilitator but must pay for that service.
Related: Subchapter V vs. traditional Chapter 11 | Cramdown requirements
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