by David R. Hagen
Introduction:
Attorneys in every area of practice will need to consider the consequences of a bankruptcy filing effecting their cases. A big part of the Bankruptcy process is the bankruptcy Trustee. This article provides an overview of the role of the Trustee.
What Is The US Trustee Program?
The US Trustee Program was established by the Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et seq.) in several districts across the country as a pilot project. It was expanded nationwide in 1986. The primary role of the U.S. Trustee Program is to serve as the “watchdog over the bankruptcy process.” The Program is actually an arm of the Department of Justice so it ultimately reports to the US Attorney General. The program is administrated with funds by the United States Trustee System Fund, which consists primarily of fees paid by those invoking bankruptcy protection.
Each district is headed by an appointed Trustee. In the Central District of California, the Trustee is Peter C. Anderson. He has now served in this capacity for several years. The district is then broken down into smaller divisions including Los Angeles, San Fernando Valley, Santa Barbara North, Santa Ana and Riverside. Each division has an Assistant US Trustee and has it’s own staff. By far, the largest office is Los Angeles. By way of example, it has a caseload approximately 3 times that of the San Fernando Valley.
Each district has a panel of several appointed Chapter 7 Trustees and at least one Chapter 13 Trustee. In the San Fernando Valley, there are currently 5 Panel Trustees. They are David Gottlieb, David Seror, Amy Goldman, Diane Weil, and Nancy Zamora.
What Does A Panel Trustee Do?
For each case assigned to them, the Trustee reviews the bankruptcy Petition and Schedules, conducts a public examination, administers nonexempt assets to pay creditors, and takes other actions to move the case through the bankruptcy system.
Every Petition is reviewed by the Panel Trustee and their staff. (Petitions are also examined at the district office as well.) With the advent of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Trustees now also review pay stubs and tax returns for every individual Debtor. The Trustee reviews the entire set of documents for overall consistency, seeking to understand the circumstances that led to the bankruptcy filing, make sure that the Debtor is eligible to file bankruptcy under the new means test implemented by BAPCPA and looks for assets to administer for the benefit of creditors.
The most contact that debtors and creditors alike have with the trustee is at the First Meeting of Creditors proscribed by 11 USC Section 341(a). The Trustee verifies the identity of the Debtor and takes testimony, under penalty of perjury, about the debtor’s paperwork. Creditors are also given a limited opportunity to examine a debtor. These examinations are recorded digitally and are available for later review. In most cases, the examination is brief. If the debtor’s attorney has done their job effectively by submitting clear paperwork, the Trustee is able to understand the debtors circumstance and needs to spend a minimal amount of time on a single hearing, sometimes as little as a few minutes. In a more complicated case, or if issues arise, a single hearing can last for some time.
Many years ago, hearings were just scheduled at 9 and 1:30 and people would have to wait hours for their case to be called. More recently, cases are scheduled every hour to reduce the waiting time for debtors, their counsel and creditors.
In the vast majority of cases, there are not any nonexempt assets for a trustee to administer. Assets that are exempt from administration in California are contained in sections 703 and 704 of the California Code of Civil Procedure. Exempt assets typically include a limited homestead in real estate, furniture, clothing, a limited amount of equity in vehicles, and pension plans. If there are no assets to administer, the Trustee files a report with the Court and their involvement in the case is usually complete.
In less than 5% of the cases, there are assets for a trustee to administer. The definition of assets that are property of the estate is very broad. See 11 USC Section 541. Assets can include real estate or vehicles with substantial equity, stocks and bonds, businesses and the like. However, this can also include such things as intellectual property and income streams. Trustees also pursue preference payments and fraudulent conveyances. Collecting these assets can sometimes take several years and involve hiring an attorney to represent them such as in the case of fraudulent conveyance and preference litigation. When all assets have been collected or liquidated, the Trustee files a tax return for the estate as it is a taxable entity. They also review all the creditors claims to ensure that they look proper. If they do not appear proper, motions need to be filed to disallow these claims.
When these tasks are complete, the Trustee files a report with the Court. The report, called a Trustee’s Final Report, explains what has occurred in the case, what funds are on hand, and what claims will be paid. It seeks authority to pay the claims as well as the Trustee and their professionals, (most often an accountant and attorney).
When all funds are distributed, the Trustee files a report with the Court and is released from the case.
Panel Trustees also take other actions to protect the bankruptcy process. If a panel trustee believes that a debtor does not qualify for bankruptcy relief, a referral can be made to the district office. If a trustee sees examples for creditor abuse, these can also be referred to the district office Perhaps most importantly, panel trustees can make a criminal referral for bankruptcy fraud. Most commonly, this involves undisclosed assets on a bankruptcy petition. However, a referral can be for any violation of state or federal law.
How Many Cases Is A Trustee Assigned A Month?
Panel Trustees are randomly assigned cases month. The caseload depends on the filing rate as allo trustees in a district generally share equally the case load.
Obviously, this amount of paperwork requires some staffing and organization. Assigned cases are downloaded every night to panel trustees in PDF format. The software automatically organizes the cases by assigned calendar and attaches all filed documents in that case in PDF format. This is why many trustees now just bring their computers to the first meeting of creditors. Tax returns are usually sent in by mail. There are very specific guidelines for the handling of these confidential documents. Most trustees return them to debtors at the hearing rather that taking the time for keep records of shredding them as required. The software also synchronizes with the bank each night so the trustee knows exactly what is on hand in each case.
How Do Panel Trustees Get Paid?
Panel Trustees receive a small fee for each case in which they file a no asset report. This money comes from the filing fees each debtor pays. Panel Trustees also receive a fee for funds that are distributed to creditors. This fee is set forth in 11 USC Section 330. It provides for a graduated fees, but usually amounts to about 5-6% of funds distributed to creditors.
Is Being A Panel Trustee A Full Time Job?
Trustees take as much time as is necessary to accomplish the task. However, most trustees can get the job done on a part time basis if they have administrative assistance. They fill in the rest of their time representing other trustees as an attorney or, typically in other parts of the country, representing debtors.
Conclusion:
The US Trustee’s Office is a unique creature of statute. While it’s main duty is serve as a watchdog of the bankruptcy system and align with the judiciary on that task, it is actually a creature of the legislative branch of government. Individual panel trustees work for the government yet are not government employees. This unique statutory creation has seemed to work well over the years, recently being rated as one of the most efficiently operating entities in the federal government.
