CHAPTER 10 TRUSTEES, EXAMINERS AND CREDITORS COMMITTEES

CHAPTER 10 TRUSTEES, EXAMINERS AND CREDITORS COMMITTEES

THE US TRUSTEES PROGRAM A BRIEF HISTORY LESSON: was an experiment in some districts when the Bankruptcy Code first became effective in 1979. is a division of the Department of Justice. in 1986, Congress implemented the program nationally. Prior to the enactment of the Code, Bankruptcy Judges performed the administrative duties now delegated to the US Trustee. Judges played an active role in the administration of the estate and determining the rights of all other parties in the proceeding, creating conflict in the system. Trustee Giving the Trustee the administrative duties dissolved this conflict. The role of Bankruptcy Judges is now more traditional.

FIDUCIARIES IN BANKRUPTCY COURT: Pieces of the Bankruptcy Puzzle: Trustee appointed by US Trustee. Administers the bankruptcy estate. Chapters 7, 12 and 13 always have a trustee. Chapter 11, only if there s a Noticed Motion due to causes such as fraud, gross incompetence or because it s in the best interest of the creditors. United States Trustee Responsible for monitoring the administration of bankruptcy estates by appointing a Trustee. Debtor-in-possession entity created by a debtor filing Chapter 11. Debtor acts as their own trustee.

FIDUCIARIES IN BANKRUPTCY COURT: (continued) Official Creditors Committee Entity created in Chapter 11 to act on behalf of unsecured creditors. It can retain professionals, appear as a party of interest and propose a plan of reorganization. Examiners Appointed in Chapter 11 to conduct independent investigation of some or all of debtor s financial affairs. Ombudsmen Appointed in connection with the sale of Customer Lists or in Health Care Business bankruptcies to speak on behalf of patients.

THE UNITED STATES TRUSTEE: Monitors the progress of all cases, regardless of Chapter Must be served with all notices required under the Code Makes sure the debtor pays all fees and files all the required paperwork Monitors application for the retention of professionals and the applications for professional compensation Can refer cases to the US Attorney for investigation if a bankruptcy crime is suspected In Chapter 7 proceedings, the Trustee maintains and supervises a panel of trustees

NEW RESPONSIBILITIES FOR THE UNITED STATES TRUSTEE: Created in 2005 by BAPCPA legislation. 1) Reviews debtor s materials that are filed pursuant to Section 521 Must file a statement within 10 days of the meeting of creditors indicating whether or not the filing creates a presumed abuse of Chapter 7 under needs based bankruptcy If abuse is presumed, within 30 days of filing the statement, the United States Trustee must file a Motion to Dismiss or Convert or a statement stating the reasons why no motion is to be filed

NEW RESPONSIBILITIES FOR THE UNITED STATES TRUSTEE: (continued) 2) Section 603 of BAPCPA requires random audits of one out of 250 cases The United States Trustee retains auditors and files the audit reports with the Bankruptcy Court 3) Approves and oversees nonprofit budget and credit counseling agencies that provide the prepetition counseling and postpetition personal financial management courses In Chapter 11, 12 and 13 proceedings, the United States Trustee appoints and monitors the Creditors Committees, Reorganization Plans and Disclosure Statement and is allowed to comment on them

THE TRUSTEE S DUTIES: Each chapter has different duties but they remain essentially the same throughout the Code. Section 704(a) lists the 12 items that specify the duties of a Chapter 7 Trustee http://www.law.cornell.edu/uscode/text/11/704 4 Essential Duties (the 4 ATE s): Investigate determine if there are assets that can be liquidated to pay creditors Liquidate convert nonexempt assets into cash Litigate possibly pursuing claims against 3rd parties for things like debts owed to debtor, recovering assets of the debtor for the benefit of the creditors Administrate distribute assets obtained through litigation and/or liquidation

THE TRUSTEE S DUTIES: (continued) BAPCPA also requires holders of claims for Domestic Support Obligations to receive notice informing them that they can seek support assistance from a state agency and requiring the trustee to provide notice of the debtor s discharge and contact information to the claim holder and the state support agency when the discharge is granted.

THE TRUSTEE S DUTIES: (continued) Administration of the Estate the process of collecting, maintaining and distributing the cash to creditors. In Chapter 12 and 13, there isn t a liquidation. The trustee must ensure that the debtor makes timely payments under the debtor s plan.

PREPARING A CASE FOR THE TRUSTEE: Prepare the Statements and Schedules as thoroughly and clearly as possible so all relevant data can be analyzed. Counsel/Debtor needs to make sure that: All disclosures have been given and explained to the debtor, including a prepetition retainer agreement. The statement of current income complies with the needs based bankruptcy formula All evidence of payments received by the debtor within 60 days of the filing date is obtained

PREPARING A CASE FOR THE TRUSTEE: (continued) Counsel/Debtor needs to make sure that: The debtor s most recent tax return and those for the past 3 years is obtained There has been reasonable inquiry as to the disclosures made by debtors in their Statements and Schedules, or risk sanctions All documents used to support the information should be available in case the Trustee needs to see them

9 THINGS A DEBTOR/COUNSEL CAN DO TO PREPARE FOR THE TRUSTEE: 1) Debtor should obtain valuations, estimates, appraisals of any property owned by the debtor. 2) Assemble all documents of title pertaining to the debtor s assets. This includes payoff values for mortgages or auto loans. 3) The name, address and phone number of the debtor s mortgage company and/or landlords so the trustee can promptly arrange for having a property sold or vacated. 4) A detailed itemization of all personal belongings and household goods, including a valuation.

9 THINGS A DEBTOR/COUNSEL CAN DO TO PREPARE FOR THE TRUSTEE: (continued) 5) The most recent copies of records for all bank accounts. 6) Documents regarding prepetition lawsuits or claims. If counsel has been obtained, contact information should be provided. 7) Documentation relating to any leased equipment or vehicles. 8) Proof of insurance for home(s) and auto(s) to ensure adequate protection of assets 9) Last 3 state and federal tax returns

10 QUESTIONS: 1) What Department is the United States Trustee a part of? 2) Prior to the enactment of the current Code, who performed the duties that are now performed by the United States Trustee? 3) What Chapters always have a Trustee appointed? 4) What is a Debtor-in-Possession? 5) If a Bankruptcy crime is suspected, who is it reported to?

10 QUESTIONS: (continued) 6) In Chapter 7 Bankruptcy, within how many days after a statement of suspected abuse is filed must a Motion to Dismiss be filed? 7) One out of every (how many) cases is audited? 8) What are the 4 essential duties, or ATE s, of the Trustee? 9) What does the administration of the estate involve? 10) How many years of taxes does the Trustee need to see?