[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                    BANKRUPTCY TRUSTEE COMPENSATION

=======================================================================



                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 16, 2008

                               __________

                           Serial No. 110-207

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



                   U.S. GOVERNMENT PRINTING OFFICE
47-174 PDF                  WASHINGTON : 2009
----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, 
Washington, DC 20402-0001



                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
MAXINE WATERS, California            DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
ROBERT WEXLER, Florida               RIC KELLER, Florida
LINDA T. SANCHEZ, California         DARRELL ISSA, California
STEVE COHEN, Tennessee               MIKE PENCE, Indiana
HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio                   STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
BRAD SHERMAN, California             TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota

            Perry Apelbaum, Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel
                                 ------                                

           Subcommittee on Commercial and Administrative Law

                LINDA T. SANCHEZ, California, Chairwoman

JOHN CONYERS, Jr., Michigan          CHRIS CANNON, Utah
HANK JOHNSON, Georgia                JIM JORDAN, Ohio
ZOE LOFGREN, California              RIC KELLER, Florida
WILLIAM D. DELAHUNT, Massachusetts   TOM FEENEY, Florida
MELVIN L. WATT, North Carolina       TRENT FRANKS, Arizona
STEVE COHEN, Tennessee

                     Michone Johnson, Chief Counsel

                    Daniel Flores, Minority Counsel


                            C O N T E N T S

                              ----------                              

                           SEPTEMBER 16, 2008

                                                                   Page

                           OPENING STATEMENTS

The Honorable Linda T. Sanchez, a Representative in Congress from 
  the State of California, and Chairwoman, Subcommittee on 
  Commercial and Administrative Law..............................     1
The Honorable Chris Cannon, a Representative in Congress from the 
  State of Utah, and Ranking Member, Subcommittee on Commercial 
  and Administrative Law.........................................     2

                               WITNESSES

Robert Furr, Esq., Furr and Cohen, P.A., Boca Raton, FL
  Oral Testimony.................................................     5
  Prepared Statement.............................................     6
Eugene Crane, Esq., Crane, Heyman, Simon, Welch & Clar, Chicago, 
  IL
  Oral Testimony.................................................    10
  Prepared Statement.............................................    13
The Honorable Margaret Dee McGarity, United States Bankruptcy 
  Court, Eastern District of Wisconsin, Milwaukee, WI
  Oral Testimony.................................................    18
  Prepared Statement.............................................    20
Jack F. Williams, Esq., Professor, American Bankruptcy Institute, 
  Alexandria, VA
  Oral Testimony.................................................    23
  Prepared Statement.............................................    25

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, 
  Chairman, Committee on the Judiciary, and Member, Subcommittee 
  on Commercial and Administrative Law...........................     3

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Post-Hearing Questions from Robert Furr, Esq., Furr 
  and Cohen, P.A., Boca Raton, FL................................    40
Response to Post-Hearing Questions from Jack F. Williams, 
  Professor, American Bankruptcy Institute, Alexandria, VA.......    42


                    BANKRUPTCY TRUSTEE COMPENSATION

                              ----------                              


                      TUESDAY, SEPTEMBER 16, 2008

              House of Representatives,    
                     Subcommittee on Commercial    
                            and Administrative Law,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:07 p.m., in 
Room 2141, Rayburn House Office Building, the Honorable Linda 
T. Sanchez (Chairwoman of the Subcommittee) presiding.
    Present: Representatives Sanchez, Johnson, Delahunt, Cohen, 
and Cannon.
    Staff present: Matthew Wiener, Majority Counsel; Zachary 
Somers, Minority Counsel; Adam Russell, Majority Professional 
Staff Member.
    Ms. Sanchez. This hearing of the Committee on the 
Judiciary, Subcommittee on Commercial and Administrative Law, 
will now come to order.
    Without objection, the Chair will be authorized to declare 
a recess of the hearing.
    I will now recognize myself for a short statement.
    The thousand-plus private trustees who administer Chapter 7 
bankruptcy cases are indispensible to the effective functioning 
of our bankruptcy system. They do much of the heavy lifting 
required in Chapter 7 cases, including reviewing the debtor's 
filings with the court, investigating the debtor's financial 
affairs and filing reports with the court.
    These skillful women and men make what is often an emotion-
filled and daunting process run smoothly.
    Despite the importance of Chapter 7 trustees, they are paid 
only $60 for their services. That $60 per case fee provided for 
in the Bankruptcy Code has not been increased since 1994. While 
trustees are also entitled under the code to recover 
commissions on the assets they distribute to creditors, they 
receive commissions in less than 10 percent of the cases they 
administer. That is because in over 90 percent of Chapter 7 
bankruptcy cases, there are no assets to distribute. And when 
the bankruptcy filing fee is waived because the debtor cannot 
afford it, the trustee does not even receive the $60 fee.
    Today's hearing will address whether trustee compensation 
should be increased and what the consequences will be for the 
bankruptcy system if it is not. We will also hear testimony 
about specific proposals our witnesses may have to increase 
trustee compensation.
    I would like to point out in this regard that earlier this 
year the Senate Committee on the Judiciary favorably reported a 
bill that provides for a $60 increase in the per-case trustee 
fee. I wholeheartedly support this increase and am encouraged 
by the fact that the increase was approved without increasing 
the already significant bankruptcy filing fee of the debtor.
    To help us address the issues surrounding bankruptcy 
trustee compensation, we have invited four witnesses to testify 
today. We are pleased to welcome Robert Furr, the current 
president of the National Association of Bankruptcy Trustees 
and himself a bankruptcy trustee; Eugene Crane, a bankruptcy 
trustee and the former president of the National Association of 
Bankruptcy Trustees; Margaret Dee McGarity, a judge on the U.S. 
Bankruptcy Court for the Eastern District of Wisconsin; and 
Jack Williams, professor of law at Georgia State University 
College of Law and scholar in residence at the American 
Bankruptcy Institute.
    Accordingly, I will look forward to the testimony of our 
witnesses.
    I will now recognize my colleague, Mr. Cannon, the 
distinguished Ranking Member of the Subcommittee, for his 
opening remarks.
    Mr. Cannon. Madam Chairwoman, thank you for holding this 
hearing on the compensation of bankruptcy trustees.
    The fee paid to trustees in non-asset bankruptcies has not 
increased since 1994, yet the work required of the trustees has 
become more complicated and time consuming since that last 
increase. Hopefully this hearing can highlight the need for an 
increase in the fee and provide some answers as to how much of 
an increase is needed and how we should pay for the increase.
    In the last Congress, the House passed a $55 fee increase 
for trustees in Chapter 7 cases by voice vote as part of the 
Financial Netting Improvements Act. Unfortunately, that fee was 
taken out of the bill when it reached the Senate. The Senate 
dropped the increase provision because, although there seems to 
be a consensus that the trustee's fee should increased, that 
consensus breaks down over the source of the funding.
    The approach taken in the Financial Netting Improvements 
Act was to fund the increase in Chapter 7 trustee fees by 
increasing the filing fee for Chapter 7 bankruptcy. Some object 
to this approach, even though the act provided an exception for 
the cases in which the Chapter 7 debtor could not afford the 
fee.
    In the Senate, Senator Kyl has proposed increasing the 
trustee fee as part of the Senate's version of the Judicial 
Compensation Bill. The proposal would have the courts fund the 
increase through the fees the Judicial Conference of the United 
States already collects. The Judicial Conference objects to 
this approach because it may strain its budget.
    In short, everyone seems to recognize the Chapter 7 trustee 
fees must be increased, but the difficulty arises when it comes 
to how we provide the funding. Bankruptcy trustees play an 
important role in the bankruptcy system. Among their 
responsibilities are identifying fraud abuse and error in 
personal bankruptcy filings. For this important work, we need 
to ensure that they are adequately compensated.
    I look forward to the witness' testimony and I hope that 
they can help us address how much of an increase is needed and 
how we should fund such an increase.
    Thank you, Madam Chair, and I yield back the balance of my 
time.
    Ms. Sanchez. I thank the gentleman for his statement.
    Without objection, other Members' opening statements will 
be included in the record.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
  in Congress from the State of Michigan, Chairman, Committee on the 
 Judiciary, and Member, Subcommittee on Commercial and Administrative 
                                  Law
    Let me just make three brief introductory points before we hear 
from today's witnesses.
    First, as Chairwoman Sanchez has reminded us, private trustees 
perform a critical--and, I would add, often underappreciated--role in 
administering chapter 7 bankruptcy cases. They are fiduciaries who must 
ensure that all assets are properly administered and that the debtor 
warrants a discharge.
    Second, our bankruptcy system should ensure that it continues to 
attract and retain competent, experienced, and qualified private 
trustees in light of the critical role they play in the system. To that 
end, trustees should be properly compensated like other professionals 
in bankruptcy cases.
    Serious questions have been raised as to whether the bankruptcy 
system can continue to attract competent and experienced trustees when 
they currently receive only $60 per case in so-called ``no asset 
cases.'' In fact, in those cases where the filing fee has been waived, 
trustees receive no compensation at all.
    And, third, I do not believe debtors should be forced to shoulder 
this additional expense. As many of you know, the bankruptcy filing fee 
has substantially increased in the last few years.
    In addition, debtors must pay for mandatory pre-bankruptcy 
counseling and for post-bankruptcy financial management training.
    Bankruptcy debtors are among the poorest of the poor. So it just 
seems blatantly unfair that they should have to pay so much for 
bankruptcy relief.
    Accordingly, I look very much forward to hearing our witnesses' 
views on the issue of trustee compensation and their suggestions as to 
how Congress should proceed.
    This is a very important challenge and I commend Chairwoman Sanchez 
for holding this hearing.

    Ms. Sanchez. I am now pleased to introduce the witnesses on 
our panel for today's hearing. Our first witness is Mr. Robert 
Furr. Mr. Furr has represented creditors, debtors and trustees 
in bankruptcy proceedings for over 30 years. He serves as a 
panel trustee for the United States Department of Justice in 
the Southern District of Florida and is appointed as trustee in 
approximately 2,000 cases per year.
    Mr. Furr is regularly appointed as a Chapter 11 trustee and 
has been designated as a Chapter 12 trustee in the Southern 
District. Mr. Furr has represented numerous businesses in 
Chapter 7 liquidation and in Chapter 11 reorganization and 
individuals in complex Chapter 7 and Chapter 11 proceedings. He 
lectures frequently on issues of bankruptcy, creditors' rights 
and remedies before national organizations.
    He has been on the board of NABT since 2000 and is 
currently serving as president. Mr. Furr has also been 
president of the Bankruptcy Trustees Association for the 
Southern District of Florida for 15 years.
    I want to welcome you to our panel today, Mr. Furr.
    Our second witness is Mr. Eugene Crane. Mr. Crane is a 
former president of the National Association of Bankruptcy 
Trustees. He has spent his career trying to even the odds, if 
only a little, by helping the have-nots take on the haves of 
the world. Heeding a call from the National Lawyers Guild, Mr. 
Crane volunteered for the 1964 Mississippi Summer Project of 
the Committee for Legal Assistance and represented improperly 
arrested civil rights workers.
    He became a partner in Savage, Frazin, Crane & Spencer and 
developed a bankruptcy law practice in which he could help 
individuals in small business, debtors, improve their lives and 
livelihood. He is currently a partner at Crane, Heyman, Simon, 
Welch & Clar in Chicago.
    We want to welcome you, Mr. Crane.
    Our third witness is Judge Margaret Dee McGarity. Judge 
McGarity has been a United States bankruptcy judge for the 
Eastern District of Wisconsin since 1987, having been appointed 
for a second 14-year term in 2001. She was appointed chief 
judge in 2003. Judge McGarity was in private practice before 
her appointment, concentrating primarily in the areas of 
bankruptcy, family law and marital property. And she serves on 
the Panel of Chapter 7 Trustees.
    Judge McGarity is a frequent lecturer on various marital 
property and bankruptcy-related topics. She is a member of the 
National Association of Bankruptcy Judges, American Bankruptcy 
Institute, National Association of Women Judges and the 
American College of Bankruptcy.
    I want to welcome you, Ms. McGarity.
    Our final witness is Professor Jack Williams. Professor 
Williams is a professor at Georgia State University College of 
Law and in the Middle East Institute in Atlanta, Georgia, where 
he teaches and conducts research in the areas of bankruptcy and 
business reorganizations, mergers and acquisitions, corporate 
finance, taxation, Islamic commercial law and law and 
terrorism.
    Professor Williams has served as the inaugural Robert M. 
Zinman American Bankruptcy Institute ABI scholar in residence 
for 2001 and has returned to the post a second time for 2008.
    Since 2004, he has also been the Association of Insolvency 
and Restructuring Advisors' scholar in residence. Professor 
Williams is also managing director at BDO Consulting, a 
division of BDO Seidman in the New York and Atlanta offices. 
His areas of focus include restructuring and financial advisory 
services, financial fraud and fraudulent transfers, distressed 
business valuations, restructuring and insolvency taxation, 
forensic accounting, commercial damages modeling, 
investigation, litigation, consulting and the Foreign Corrupt 
Practices Act.
    Professor Williams has served as a tax advisor to the 
National Bankruptcy Review Commission and as chair of the Tax 
Advisory Committee to the NBRC. He has taught bankruptcy 
taxation to attorneys in the Office of Chief Counsel, Internal 
Revenue Service, as part of the New York University School of 
Law IRS Continuing Professional Educational Program; to 
attorneys in the United States Department of Justice; attorneys 
and other professionals in the Office of the United States 
Trustee; and to bankruptcy judges as part of the U.S. Federal 
Judicial Center Education Programming.
    I want to thank you for being here today.
    Without objection, all of your written statements will be 
placed into the record in their entirety, and we are going to 
ask that today you limit your oral remarks to 5 minutes. We 
have a light system which I am sure you may be familiar with, 
but I will just review that quickly. When your time starts, you 
will see a green light. When you have 1 minute of testimony 
remaining, you will get the yellow right warning you that you 
have a minute remaining. And of course, when your time expires 
you will see the red light come on.
    If you are caught in mid-sentence or mid-thought, we will 
of course allow you to complete that sentence or final thought 
before we move on to the next witness.
    After each witness has presented her or his testimony, 
Subcommittee Members will be permitted to ask questions subject 
to the 5-minute limit.
    So with that understanding, I am going to invite Mr. Furr 
to please begin his oral testimony.

  TESTIMONY OF ROBERT FURR, ESQ., FURR AND COHEN, P.A., BOCA 
                           RATON, FL

    Mr. Furr. Thank you, Madam Chair Sanchez, and thank you, 
Member Cannon, for your very kind remarks, and other 
distinguished Members of the Subcommittee. I appreciate you 
being here today and listening to our cause. Let me thank you 
for the opportunity to provide the views of the National 
Association of Bankruptcy Trustees, which we refer to as the 
NABT.
    By way of introduction, my name is Robert Furr and I am the 
current president of NABT. It is an organization of panel 
trustees who are independent fiduciaries appointed in every 
Chapter 7 bankruptcy case. Of the approximately 1,100 trustees 
nationwide, the vast majority are members of our association.
    Chapter 7 bankruptcy cases typically include consumer cases 
where debtors discharge all their debts, but also include 
complex individual and business bankruptcy cases. Members of 
our organization carry out the major work involved in the 
bankruptcy system, handling 500 to 1,000 cases per year on 
average. Panel trustees carry out important public policy 
priorities as directed by Congress, such as ensuring that child 
support orders are enforced, safeguarding patient health care 
needs and records and protecting pension obligations. We even 
help Federal, State and local governments by being one of the 
largest collectors of unpaid taxes in the United States.
    In the vast majority of Chapter 7 cases, debtors never 
appear before a judge but are examined by trustees, beginning 
with a review of the bankruptcy petitions filed, and then a 
hearing conducted by the trustee, to which others creditors may 
appear and participate.
    The Bankruptcy Abuse and Consumer Protection Act passed in 
2005, added many new and different duties for trustees. The GAO 
studied the effect of that act, and in the report they issued 
in June 2008 wrote, ``The Bankruptcy Reform Act has affected 
the responsibilities and caseloads of Chapter 7 private 
trustees. As a result of new provisions in the act, trustees 
must collect, track, store and safeguard additional documents, 
such as tax returns; notify appropriate parties of domestic 
support obligations; check calculations and review the accuracy 
of information in forms associated with the means test; and, 
once finalized, will be required to comply with new 
requirements for uniform final reports.''
    As trustees, we have an obligation to secure relief for 
honest but unfortunate debtors. And we also have an obligation 
to investigate bankruptcy filings for abuse, criminal activity, 
fraud, mortgage fraud and today fraudulent scams involving 
homeowners, which we are seeing more and more.
    In fiscal year 2007, the Office of the United States 
Trustee made 1,163 criminal referrals, most resulting from 
information provided by Chapter 7 panel trustees. Chapter 7 
trustees in 2007 distributed $2.86 billion to creditors, a lot 
of money.
    A major problem, however, has been our compensation. 
Trustees receive $60 for administering Chapter 7 cases in which 
no assets are liquidated. The last increase was in 1994. This 
is a flat fee per case. A case can take a long time or a short 
time, depending upon the case. We basically work on a 
contingency fee basis.
    It takes years for a new trustee to begin making a profit 
because the new trustee must build up a pipeline of cases. And 
most asset cases take more than a year to administer. Without 
an increase and a no asset fee as an income base, the new 
trustee will have to struggle to make his or her practice 
economically viable. We want new individuals to join the 
trustee program and stay with it. Otherwise, we won't have 
seasoned trustees.
    Chapter 7 cases with significant assets are rare and 
trustees in small and rural areas are very much hurt by the 
current situation. In addition, we have in forma pauperis 
filings, which means we don't get any no assets fees. In an in 
forma pauperis case, the debtor doesn't have to pay a filing 
fee and we don't get any fees in the case. We have to handle it 
for free.
    Congress has looked at our compensation but for one reason 
or another our raise has gotten entangled. We are asking the 
Committee, the Senate and the House to increase our no assets 
fee by $60. There is a bill pending in the Senate right now 
that does that. It is tied to the judge's bill, Senate Judicial 
Committee Bill S1638. We are hopeful the Senate can pass this 
bill, but time may be running out. I have attached a copy of 
that bill to the papers that we have submitted.
    We urge the House of Representatives to take up our per 
case compensation increase in a freestanding bill based on the 
$60 increase. We hope that you can act on it quickly.
    Thank you again for the opportunity to testify and I am 
pleased to answer any questions.
    [The prepared statement of Mr. Furr follows:]
                   Prepared Statement of Robert Furr
    Madam Chair Sanchez, Ranking Member Cannon, and other distinguished 
Members of the Subcommittee, let me thank you for the opportunity to 
provide the views of the National Association of Bankruptcy Trustees to 
your Subcommittee on the important subject of compensation for 
bankruptcy Trustees.
    By way of introduction, my name is Robert Furr and I am the current 
President of the National Association of Bankruptcy Trustees (NABT). 
NABT is an organization of panel trustees, independent fiduciaries, 
appointed in every Chapter 7 bankruptcy case. Of the approximate 1,100 
such Trustees nationwide, the vast majority are members of our 
organization.
    Chapter 7 bankruptcy cases include typical consumer bankruptcy 
cases where debtors discharge all of their debts plus complex 
individual and business cases. Most bankruptcies are Chapter 7. In FY 
2007, nearly 500,000 Chapter 7 cases were filed in the U.S. bankruptcy 
courts. Due to recent economic circumstances, this number is rising. 
Members of our organization carry out the major work involved in the 
bankruptcy system, handling 500 to 1,000 cases each year. In our work, 
as a trustee, we protect both debtors and creditors from abuse of the 
system.
    Importantly, we carry out important public policy priorities as 
directed by the Congress, such as insuring that child support orders 
are enforced, safeguarding patient health care needs and records, and 
protecting pension obligations. We even help federal, state and local 
governments by being one of the largest collectors of unpaid taxes in 
the U.S.
    The Honorable Joseph Patchan, a former Bankruptcy Judge and former 
Executive Director of the Office of the United States Trustee wrote in 
an article entitled ``The Office of Bankruptcy Trustee'' the following:
    Bankruptcy trustees in our nation today not only have the duty to 
address with fidelity the estates to which they are appointed, they 
also have a broad responsibility, as a vital and official part of our 
bankruptcy system, to sustain the quality and the public regard for 
that system, by the way they do their work, and by the way they 
professionally fulfill their role as trustees. That responsibility 
requires sensitivity to and support of the ongoing creditable working 
of an entire legal structure. That feeling of being part of and 
responsible to a national bankruptcy system, I submit, has to be part 
of the professional service provided by you as bankruptcy trustees, 
especially so in these times when our bankruptcy structure is so 
readily questioned, and our bankruptcy processes often so critically 
examined.
    Bankruptcy cases and bankruptcy processes are no longer (below the 
radar( either in Washington or in our hometowns. The number of cases, 
the amount of money involved, the number of debtors, creditors, 
parties, and others affected by the cases, the media attention often 
given to cases, all underscore a valid public concern in the bankruptcy 
process, how it looks, how it performs, what it cost, and what it 
produces. For bankruptcy law and its workings are now recognized as an 
important part of our economy and of the society in which we live.
    Most people probably do not know that in the vast majority of 
Chapter 7 cases, debtors never appear before a judge, but are examined 
by the Trustees beginning with a review of the petitions filed, and a 
hearing conducted by the Trustees to which creditors may appear and 
participate. Many functions and required performance duties are 
contained in the Bankruptcy Code and Bankruptcy Rules. The Office of 
the United States Trustee, which is part of the Department of Justice, 
oversees the carrying out of such duties.
    The particular activities that we carry out are mandated by the 
many provisions of the law, rules and regulations, and are necessary 
and crucial to the operation of bankruptcy. The Bankruptcy Abuse and 
Consumer Protection Act, passed in 2005, added many new and different 
duties for the Trustees.
    In June 2008, the GAO conducted a study of the bankruptcy system. 
In their report, they stated
    ``The Bankruptcy Reform Act has affected the responsibilities and 
caseloads of Chapter 7 and Chapter 13 private trustees. As a result of 
new provisions in the act, trustees must collect, track, store, and 
safeguard additional documents such as tax returns; notify appropriate 
parties of domestic support obligations; check calculations and review 
the accuracy of information in forms associated with the means test; 
and, once finalized, will be required to comply with new requirements 
for uniform final reports. Private trustees told us that these new 
responsibilities have significantly increased the time and resources 
required to administer a bankruptcy case.''
    As Trustees, we have an obligation to secure relief for honest but 
unfortunate debtors and to investigate filings for abuse, criminal 
activity, fraud, mortgage fraud, fraudulent scams involving homeowners, 
fraudulent foreclosure rescue operations, fraudulent schemes targeting 
homeowners, as well as protecting the interests of all parties. In 
fiscal year 2007, the Office of the United States Trustee made 1,163 
criminal referrals--most resulting from information provided by Ch. 7 
Panel Trustees. In fiscal year 2007, Ch. 7 Trustees distributed $2.86 
billion to creditors in Ch. 7 cases.
    A major problem, however, has been our compensation. Under the 
present law, Trustees receive $60 for administering Chapter 7 cases in 
which ``no assets'' are liquidated. The last increase in this Trustee 
compensation occurred in 1994, when the fee was raised from $45 to $60. 
Let me emphasize that this is a flat fee per case. A case could take a 
hour, a few hours, days, weeks, or in some unique circumstances, years, 
to bring to closure. Trustees essentially work on a ``contingent'' 
basis because if their efforts do not result in a dividend to 
creditors, they receive only the $60 no asset fee. Every trustee can 
tell about cases in which he or she devoted many, many hours and much 
money and did not recover any assets. In other cases, Trustees are 
obligated by their statutory duties to spend the time and money to 
fulfill their duty without additional compensation. That happens on a 
daily basis in my practice.
    We are proceeding on 14 years with the no increase in our 
compensation. As I mentioned, our duties have increased. It is taking 
us longer to process cases, yet we remain stuck at a level from the mid 
1990s.
    Many trustees are considering leaving the system. Fewer younger 
lawyers, accountants, and other individuals are interested in becoming 
a Trustee. It takes years for a new trustee to begin making a profit 
because the new trustee must build up a pipeline of cases and most 
asset cases take more than a year to administer. Without an increase in 
the ``no asset'' fee as an income base, the new Trustee will have to 
struggle to make his or her practice economically viable. We want new 
individuals to join the Trustee program and stay with it, otherwise, we 
will eventually have a lack of seasoned Trustees administering the 
bankruptcy system.
    Just to clarify, Trustees can earn more than $60 per case from 
Chapter 7 cases where there are assets, however, only five percent of 
Chapter 7 cases have assets. Most are small cases, and our compensation 
is minimal from those cases. Chapter 7 cases with significant assets 
are rare, and mostly in large metropolitan areas. This is why the lack 
of decent compensation in no asset cases is particularly difficult for 
Trustees is small or rural areas.
    I should also note that Congress has allowed debtors to waive the 
filing fee altogether if they can demonstrate a lack of funds--a so 
called ``informa pauperis'' filing. While we think a waiver policy is 
appropriate for those truly in need, in these cases, a Trustee receives 
no income. We expect that this type of filing may also be on the 
increase.
    The Congress has looked at increasing our compensation, but for one 
reason or another, our raise has gotten entangled in other legislative 
battles and nothing has happened. Increasing our compensation has 
always enjoyed bi-partisan support. It has passed the House a number of 
times, usually, as part of a larger legislative package. Most recently, 
in 2006, the House passed H.R. 5585, a bill to improve the netting of 
financial obligations in bankruptcy. The bill was co-sponsored on a bi-
partisan basis by Congresswoman Debbie Wasserman Schulz and Congressman 
Patrick McHenry. While it was primarily a financial services bill, 
Section 7 of that bill provided a $55 per case raise for Trustees. It 
passed the House by Voice Vote. Regrettably, our provision was stripped 
in the Senate, reportedly by some Senators that did not want an 
increase in the bankruptcy filing fee. The Deficit Reduction Act of 
2005 (P.L. 109-171) was also another missed opportunity for Trustees. 
The filing fee for Chapter 7 was raised significantly, but none of the 
increased funds were used to compensate Trustees.
    In early 2008, the Senate Judiciary Committee reported out S. 1638, 
a bill to increase compensation for federal judges. Senators Richard 
Durbin (D-IL) and John Kyl (R-AZ) added an amendment increasing our 
compensation by an additional $60 per case. We are hopeful that the 
Senate can pass this bill, but time may be running out again. For your 
reference, I have attached that particular section of the bill.
    We would urge the House of Representatives to take up our per case 
compensation increase in a free standing bill, based on Section 12 of 
S. 1638, and act on it quickly.
    Thank you again for this opportunity to testify, and I would be 
pleased to answer any questions.

                               ATTACHMENT


    Ms. Sanchez. Thank you, Mr. Furr. We appreciate your 
testimony. You came in under the 5-minute mark, so well done.
    At this time I would invite Mr. Crane to give his oral 
testimony.

TESTIMONY OF EUGENE CRANE, ESQ., CRANE, HEYMAN, SIMON, WELCH & 
                       CLAR, CHICAGO, IL

    Mr. Crane. Good afternoon, Madam Chair, senators, Ranking 
Member Cannon, distinguished counsel. Again, we thank you for 
the opportunity to address you on this issue, which we think is 
crucial not only to the finances in existence of the trustee 
but the integrity of the bankruptcy system.
    The 1978 Bankruptcy Code changed the law and where in the 
past referees in bankruptcy, who will now be our judges, 
conducted examinations into the affairs of the debtor in open 
court hearings. That was passed for the trustee to separate the 
administrator from the judicial function.
    As such, we have assumed that quasi-judicial function of 
examining the debtors. As Mr. Furr stated, approximately 95 or 
96 percent of all the bankruptcy cases, individual no asset 
cases, are heard by trustees. These people never see a court. 
We represent the court, and I take seriously the fact that we 
represent what I consider the bankruptcy code and judicial 
system. And that is a responsibility we bear.
    Under the case law, we were considered independent 
fiduciaries to represent the law, recover assets, represent the 
parties. As case law developed, we began to be responsible not 
only for dividends to creditors, but for the interest of the 
debtor. You may wonder where we have an adversarial position 
toward debtors, but for example if a debtor has a personal 
injury case and they are severely injured, loss of life, limb, 
whatever, and there is only $200,000 in a bankruptcy estate, if 
we recover $200,000, pay the creditors in full and costs of 
administration, that is not the end of our job. We may have 
some debtor who is permanently impaired, whose interests we 
have to be aware of at that point, and see that they are 
compensated beyond that.
    To that extent, we represent debtor's interest. If 
creditors have violated truth in lending laws, we bring actions 
on behalf of the estate and the debtor. If mortgages or 
security documents are improper, we bring actions to set those 
aside and recover the funds for the estate.
    And in a bankruptcy estate, if there are excess funds after 
the creditors are paid, that is surplus that the debtors 
recover and helps them go on with their life. I consider this 
an extremely important function, have spent most of my 50-some 
years in practice and 45 years as a trustee, building up 
whatever expertise and knowledge I have in the bankruptcy 
field. I would hate to leave it.
    Our duties include, as has been suggested, objecting to a 
debtor's discharge if a debtor has done something wrong, report 
of a violation that is a violation of Title 8 of the criminal 
code.
    Now in today's climate, the chaotic climate of the 
financial industry, we are seeing countless motions by lenders 
to modify these things or annul the injunction to allow them to 
proceed against the debtor and foreclose on their houses and 
other property. This has occasioned a great deal more time, 
more effort on our part. We have to evaluate the houses before 
we go to the hearing. We have to go to a hearing. We have to 
appear and testify. And all of that is covered by the $60 fee.
    Of course, we could at that point come up with a no asset 
estate anyway, which usually is the case. But that is a serious 
obligation that we take very seriously and feel very strongly 
about. We are committed under the code, under the new 
requirements to review the debtor's income tax returns and make 
sure there is no abuse of the system. Abuse is a term of art in 
the act that provides for a creditor having more than $271 in 
excess funds after paying all their obligations that are 
allowed under the code. I wonder if that is really such an 
abuse. But, anyway, that happens to be the law and we have to 
enforce the law and we try.
    I am required to report support obligations to the agencies 
that handle them for every debtor that has such a thing. In 
forma pauperis filings were mentioned before. We don't get paid 
on those because our fee comes from the filing fee, but there 
is a more important issue. People who file in forma pauperis 
petitions would qualify for legal aid and for help. They don't 
get that. By the time we see them or the court sees them, it is 
too late and they are mired. The creditors take advantage of 
them. Nobody is there to help them but the trustee.
    Inadvertently, we have become part of the debtors defense 
system or advisory system. You can't turn these people down. 
They call up, ``What do I do? My forms are no good. I can't 
afford a lawyer. It is too late to get a lawyer.'' We send them 
to various legal aide agencies and try to work it out for them. 
This is a function that the trustees assume because we feel it 
is in the nature of the justice of the system and the integrity 
of bankruptcy to provide complete relief.
    But we don't just represent creditors. We represent, we 
believe, the court. We represent the debtors. We represent the 
entire system. And I think the system sits pretty much on our 
shoulders at this point, and they are getting a little weak at 
the moment because of the lack of funds that are available to 
us. Obviously, I am sure you all know that $60 per case isn't 
going to carry us very far. If we have an asset case, there is 
a percentage thing, but they are getting more and more rare 
these days, except for mega-bankruptcy cases.
    The trustee system is one that allows for an independent 
party, which we think we are, to administer an estate, 
regardless of what the creditors want, regardless of what the 
debtor wants, and sometimes in spite of what our overseers in 
the U.S. Trustees Office want, because independence to us means 
independence and we have to do what we think is appropriate as 
fiduciaries handling the money and property and lives of the 
debtors in a bankruptcy proceeding. I would hate to give it up. 
I have been doing it for 45 years--doing other things, too. Our 
office does handle many different kinds of bankruptcy. We 
represent trustees, we represent debtors, we represent 
creditors, which provide income for us and allow us to 
continue.
    But the trustee work is kind of the spot, the work that 
goes closest to my heart, in performing something that is of 
value to the people who file it. All the other laws in the 
country provide pursuing and collecting money and putting 
people in jail. The bankruptcy law is the only law that works 
retroactively and says we are going to give you relief for what 
you did in the past, and I think that is probably one of the 
noblest relief valves we have in this country. And I want to 
continue to be a part of that. And I want to continue to be 
able to afford to be a part of that.
    Thank you very much for allowing me to address the 
Subcommittee.
    [The prepared statement of Mr. Crane follows:]
                   Prepared Statement of Eugene Crane











    Ms. Sanchez. Thank you, Mr. Crane. We appreciate your 
testimony.
    At this time I would invite Judge McGarity to give her 
testimony.

TESTIMONY OF THE HONORABLE MARGARET DEE McGARITY, UNITED STATES 
 BANKRUPTCY COURT, EASTERN DISTRICT OF WISCONSIN, MILWAUKEE, WI

    Judge McGarity. Thank you.
    I would like to thank the Members and the staff for 
allowing me to address the Subcommittee on the current issue of 
the terribly antiquated level of trustee compensation.
    I wholeheartedly support just compensation for the men and 
women who are a vital part of the bankruptcy system.
    My name is Margaret Dee McGarity. I am chief judge of the 
United States Bankruptcy Court for the Eastern District of 
Wisconsin.
    I have been a bankruptcy judge for slightly over 20 years. 
And before that I practiced law in Milwaukee, which included 
serving as a Chapter 7 trustee in bankruptcy, the first time in 
1978, which was under the former Bankruptcy Act.
    Thirty years ago, trustees received $10 per case. However, 
all that was necessary to be a trustee was a legal pad, a 
telephone and the Federal Building Law Library. There were no 
audits, no U.S. Trustee meetings, no means test analysis, no 
mandatory electronic filing, no PACER court records access, no 
notices to special creditors. Someone from the clerk's office 
even ran the tape recording at the meeting of creditors. There 
was no specialized overhead in being a bankruptcy trustee and 
no unproductive time of any significance.
    Other trustees in my district were experienced and generous 
with their knowledge and expertise. My best research tool was 
my telephone.
    My experience as a trustee bears no resemblance to what it 
means to be a trustee today. Offices require regular updates of 
hardware and software to manage their cases and to interface 
with the court system. This is the electronic age. We can't go 
back, and I am not suggesting that we do.
    There is additional oversight now, with reports and audits. 
Accountability is good, but it is not compensable. The 2005 act 
requires considerable additional duties for trustees, such as 
notifying domestic support obligation claimants about state 
agency services.
    These duties have nothing to do with the bankruptcy or the 
adjudicative process and they are not compensated. They should 
be. But not at the expense of the courts.
    The trustees I worked with long ago were at the top of our 
profession, and many are today. But as time has gone by, these 
experienced trustees have often told me, ``I can't afford to do 
this anymore.''
    With the changes in technology and the law since 1994, no 
one should be surprised at this. I have heard that non-trustee 
law practice or other business, or non-lawyer trustees, has had 
to support the trustee portion of the business. They can do 
this for a while, and they do these because there are many 
dedicated trustees who enjoy the work and believe it is 
valuable. Many experienced trustees are still working within 
the system and are sitting at the table here today. And the 
courts and creditors depend on them, but this situation cannot 
continue.
    What happens when service to the courts becomes so 
unproductive that a good attorney or accountant reluctantly 
gives it up for more lucrative pursuits? Sometimes, 
unfortunately, people who can't make more money at other 
pursuits move in to fill the void in trustee positions. Or if 
the trustees don't quit, more energy is spent on whatever makes 
money. And the trustee duties move to the back burner.
    Recently I received a letter from a wage claimant of a 
defunct corporation who told me that the trustee was not 
answering phone calls. She had waited 2 years for wages owed by 
the former employer. I don't know what this trustee must have 
to do to administer the case, but I understand that the trustee 
is more motivated to work on something that will pay the bills 
as opposed to trustee work that doesn't pay the bills. This 
causes more work for the courts and the legitimacy of the 
system in the eyes of the public suffers.
    Bankruptcy is the only exposure many ordinary people have 
to the Federal justice system. The trustees are in the 
frontlines of contact with creditors and debtors. Failure to 
provide just compensation for those who represent the system 
means that dedicated trustees may prop up the system for a 
while, but soon only the mediocre or worse will work for us. 
This is not what I want for the system of justice that I have 
served for my entire career.
    The current proposal is that filing fee will fund the 
increase in trustee compensation, but what about the 2005 
provision for waiver of the fee? The trustee still has all the 
duties prescribed by statute, but he or she is required to work 
for nothing. We don't do this to attorneys who represent the 
indigent accused. We don't do this to jurors. But we do it to 
bankruptcy trustees. This is deplorable treatment of people who 
render a very valuable service to the courts and the creditors, 
and who are the face of the Federal Government to many citizens 
who have no other exposure to courts.
    I urge you to recognize the importance of bankruptcy 
trustees to the court system and to modify their compensation 
so that talented, skilled and experienced individuals will 
continue to serve it and make it work.
    Thank you for your kind attention and consideration. I 
would be happy to answer any questions that you have.
    [The prepared statement of Judge McGarity follows:]
       Prepared Statement of the Honorable Margaret Dee McGarity






    Ms. Sanchez. Thank you, Judge McGarity.
    At this time I will invite our last business to give his 
oral remarks.
    Mr. Williams?

        TESTIMONY OF JACK F. WILLIAMS, ESQ., PROFESSOR, 
         AMERICAN BANKRUPTCY INSTITUTE, ALEXANDRIA, VA

    Mr. Williams. Thank you very much, madam Chairwoman, and 
Members of the Subcommittee.
    Good afternoon, and thank you very much for inviting me to 
visit with you over proposed legislation that would increase 
compensation for Chapter 7 bankruptcy trustees in no asset 
cases.
    In this country, we ask much of our bankruptcy system, yet 
no system is any better than the people who operate within it. 
Therefore, it is incumbent that we retain and attract 
competent, honest and committed trustees. As designed, our 
present system simply will not work effectively without them.
    The legislation proposed today seeks to increase the no 
asset Chapter 7 trustee fee from $60 to $120. At the $60 level, 
we are talking about at a low end of billable hour somewhere 
between 10 and 14 minutes per file before the trustee starts to 
eat into his own human capital. This is an increase that is 
immodest in nature, yet funds what is absolutely one of the 
most effective components of our bankruptcy system.
    In other systems in other countries, this function that is 
shouldered by the Chapter 7 bankruptcy trustee, is usually done 
by a government official. But here what we see is a 
privatization, if you will, of oversight, monitoring and 
investigation, which has been very, very effective, not 
withstanding the fact that a fee increase has not taken place 
for some 14 years, yet the scope of responsibility has 
increased substantially.
    Bankruptcy trustees handle--about nine out of every ten or 
more of their cases are no asset cases. But no asset does not 
mean no work. There is still plenty of work to be done from an 
investigation of the schedules that are filed with the 
bankruptcy petition. Follow-on work, including investigatory 
work at the request of the U.S. trustee, and the implementation 
of the new means testing since the 2005 act, conducting the 
Section 341 meeting and examination, a determination of 
potential misconduct on the part of the debtor, the debtor's 
attorneys, the debt relief agencies and bankruptcy petition 
preparers, and of course, abuse itself.
    Those debtors that seek to gain are rooted out by the 
Chapter 7 bankruptcy trustee who has a fiduciary duty to the 
estate, notwithstanding sometimes the lack of funds or the 
insufficiency of funds, who nonetheless investigates debtors 
who have engaged in misconduct and bring actions that are 
checked to their discharge. All of which are absolutely 
essential for the bankruptcy system to work the way we have 
crafted it.
    Along with expanding the scope of duties while at the same 
time not increasing the compensation, we ask something else of 
the Chapter 7 bankruptcy trustee. We ask that they be the face 
of government and the face of the judiciary.
    This year at the American Bankruptcy Institute we predict 
about 1.2 million bankruptcy filings. We are still very far 
away from the records that we saw not too long ago, but 
nonetheless a tremendous amount, a significant number of 
bankruptcy filings. Most Americans, when they interface, when 
they deal with the Federal judiciary, will do so through this 
window. That is through their interface with the bankruptcy 
system, and they will make a determination about all of us and 
all aspects of government and governmental function based on 
that interaction.
    What we want to make sure from an institutional perspective 
is that we continue to attract competent, thoughtful and 
dedicated trustees to serve this important function, not only 
from an investigatory purpose, but also from a public service 
perspective as well. It is absolutely important, again, for our 
system to function effectively.
    Thank you very much for the opportunity to share my 
thoughts.
    [The prepared statement of Mr. Williams follows:]
                 Prepared Statement of Jack F. Williams








    Ms. Sanchez. Thank you, Professor Williams. We appreciate 
your testimony.
    We are now going to begin our rounds of questioning, and I 
will begin by recognizing myself for 5 minutes of questions. 
And I am going to sort of go in reverse order. Usually I go 
this way, but I am going to start with Professor Williams 
first.
    I am curious to know what amount you think would be fair to 
set for the trustee fee and why.
    Mr. Williams. The proposal is an increase from $60 to $120. 
I think that is a reasonable increase from an institutional 
perspective, absolutely necessary.
    I think many of the cases are handled quite effectively 
with the trustee and their assistants, and I think that that 
fee should permit the trustee to continue to discharge his or 
her duties, along with the assistants that they use. And 
therefore, the institution itself would operate effectively.
    So I think an increase to $120 is a reasonable amount. I 
would not object to an increase to $150.
    Ms. Sanchez. That is what I am trying to get at. Do you 
think that the $120 even sort of begins to put the real, you 
know, to compensate in a real way the amount of time that goes 
into it?
    Mr. Williams. It begins to.
    Again, what we are talking about is moving from about 14 
minutes of compensable time to about half an hour of 
compensable time, and trustees are--those who are efficient and 
experienced, seasoned, can work through very quickly many of 
their cases. Of course, there are cases that require additional 
investigatory work, and they will be outside the profile.
    Ms. Sanchez. Thank you.
    In your written statement that you submitted for the 
record, you noted that the 2005 act requires certain 
``additional duties of trustees unrelated to the bankruptcy or 
adjudicative process that should be compensated, but not at the 
expense of the court,'' and I think you said that in your oral 
testimony as well.
    Would you please explain what you mean when you say not at 
the expense of the court?
    Judge McGarity. Well, as I understand it, the filing fees 
that are paid by debtors go into the unappropriated judiciary 
budget. In the past--and of course it has varied a lot because 
of the new law--the fees that come in through the bankruptcy 
system are 80 to 90 percent, maybe, I have heard as high as 92 
percent, of the income that comes into the judicial system, 
through other filing fees and what have you. And of course the 
rest of the courts run on appropriated funds.
    If you deduct a portion of those unappropriated funds, then 
I don't know. I didn't multiply a million two, but it is by the 
$60 increase over what they have now, it would mean that the 
budget of the judiciary would take a hit of, I don't know, $60 
million, $70 million?
    Our court system is running pretty lean right now, 
particularly when it comes to funding in clerks offices and the 
people who run the administration of the system. To take that 
amount of money out of the funds that run the court system 
means that it would, if you want justice, have to be made up 
elsewhere, which would mean from appropriated funds.
    A lot of what trustees do, I think, too, is more in the 
investigation nature. Now, investigation in the executive 
branch is done by the FBI or the U.S. Attorneys, and the U.S. 
Trustee also does some. But when it falls upon the panel 
trustees, then it seems to me it is a quasi-prosecutorial 
process. They are the ones who look for money that is hidden. 
They make referrals for prosecutions. That is the sort of thing 
that should be funded by the executive branch, because it is in 
the nature of prosecution. It is in the nature of 
investigation.
    Now, the $60 filing fee that already comes out of the 
unappropriated funds that the judiciary runs on, much of what 
trustees do of course is part of the judicial process. And so I 
think it is appropriate that that be shared. How? I don't know.
    Ms. Sanchez. Okay. I was just getting at the point.
    Judge McGarity. That is the point.
    Ms. Sanchez. Would a hit to the courts, trying to run the 
way that they are running, if they were the ones that had to 
provide the $60 increase, would be----
    Judge McGarity. And the legislation that I read doesn't 
allow an increase in the filing fee to make up the difference. 
So what are the courts going to have to do? They are going to 
have to lay off people.
    Ms. Sanchez. Okay. Thank you.
    Mr. Crane, why do the trustee services go uncompensated 
when the bankruptcy--or, I am sorry. Let me rephrase that. I 
know why, because you said why the trustee services go 
uncompensated when the filing fee is waived. But how do you 
think Congress should address that problem?
    Mr. Crane. I am sorry?
    Ms. Sanchez. When the filing fee is waived, the trustees 
don't get compensated because they are----
    Mr. Crane. That is correct.
    Ms. Sanchez. So how do you think Congress could fix that 
problem of the trustee not getting compensated when the filing 
fee is waived?
    Mr. Crane. I have no objection to the in forma pauperis 
fees. People can't afford it, and they are entitled to relief. 
That is not our objection.
    The fact that we don't get paid from that $60, hopefully, 
has to be offset by the additional funds of any increase we get 
in the asset cases we may get. And that is okay. I think 
statistically the forma pauperis cases are--an NABT trustee did 
a survey which was published in our journal and shows that may 
occur anywhere from 2 to 11 percent of all cases that they 
handle in any given state. And that could turn out to be a 
sizeable amount of money.
    But that is something that we can't argue with. If there 
were a provision to pass or if there were additional funds 
collected in some way or appropriated to cover the in forma 
pauperis, that would be great. But, you know, we accept that 
and if we can make up our fees appropriately that percentage 
can probably be covered so that we are not filing our own 
bankruptcy----
    Ms. Sanchez. Okay.
    Mr. Crane [continuing]. Because we would have to hire other 
counsel and, you know.
    Ms. Sanchez. It gets expensive. Thank you, Mr. Crane.
    And last question for Mr. Furr. Have you observed trustees 
leaving the bankruptcy system because they find that the 
compensation just isn't keeping up with the amount of time and 
effort they are putting in?
    Mr. Furr. It has happened to a certain extent. It hasn't 
happened to a big extent so far. I know of at least one trustee 
in my area who retired rather than take on the duties under 
BACPA, the law that passed a couple of years ago, because he 
didn't want to have to do the additional duties. And I have 
heard of other instances around the country. People are 
leaving; I know people are considering it. And we are hoping to 
stop that.
    Ms. Sanchez. Thank you.
    My time is expired. At this time, I would like to recognize 
Mr. Cannon for 5 minutes of questions.
    Mr. Cannon. Thank you, Madam Chair.
    May I just follow up with Mr. Furr?
    How much more time are trustees spending under--give the 
new duties under BACPA? Do you have any sense of that?
    Mr. Furr. It would depend upon the case, but I would 
suggest it is about twice as much time as was spent before.
    Mr. Cannon. On average it is twice as much per case?
    Mr. Furr. Yes, sir.
    Mr. Cannon. Or just on those cases where----
    Mr. Furr. No. All cases are those cases. All cases are now 
covered by BACPA, bankruptcy reform act. So we have to spend 
that additional time on every case.
    Mr. Cannon. And so you think it has doubled your time?
    Mr. Furr. I do.
    Mr. Cannon. But we haven't raised the compensation?
    Mr. Furr. We have not. The only thing, Congressman, that 
has really enabled us to keep up with it is electronic 
equipment and computerization, which has helped us quite a lot, 
to try to keep up with it. But it still takes a great deal more 
of my time than it did before.
    Mr. Cannon. Are lawyers and their clients coming up with 
better documentation, electronic documentation, as part of that 
process?
    Mr. Furr. No really. It has not particularly improved that 
much. It is still upon us to go out and search out the 
information.
    The electronic age has helped us a great deal, because now 
we can access governmental records, deed records, lien records, 
tax records, much easier than we could before, and that has 
helped us quite a lot. But, really, the debtor's bars, standard 
of practice, has not really improved that much in my opinion.
    Mr. Cannon. Have magistrates established rules, either by 
district or otherwise, that would require the debtor's bar to 
be more aggressive in how they provide information?
    Mr. Furr. Well, the bankruptcy law that was passed does do 
that, and local rules do too. And it is really up to us to 
enforce that, because we are the ones that don't get the 
information, so we have to in essence stay on top of our 
debtor's attorneys to make sure they do provide the information 
that we need to do our job.
    And if we do that, they do. But it is still an adversarial 
process, don't forget. They are representing a client, and they 
are trying to not give you the money, and you are trying to, 
you know, recover the assets that may be there or may be 
hidden. And so it is an adversarial process.
    Mr. Cannon. Well, I had an interesting experience on an 
airplane, sitting next to a magistrate in bankruptcy who walked 
me through what he thought--how his court had operated and was 
going to operate under the new act, before we had actually 
passed it here. And he convinced me in 4 hours of flying that 
there is a lot you can do with rules, local rules, as well as 
the BACPA, that create a system that makes it easier on 
trustees.
    What I am hearing you say is that that is not--at least in 
your experience, that hasn't been the case.
    Mr. Furr. Not necessarily. Understand, again, we can't 
always trust the information we are given. We have to look 
behind it. We have to have a sense that this person is not 
being honest. When you look at someone and they are dressed in 
clothes that don't go with the income they say they are 
reporting, or they are wearing jewelry that doesn't go with 
that, just their demeanor doesn't go with the image they are 
trying to project, you may realize there is something going on 
here, and you look beyond that.
    So it is a lot of experience and instinct that goes with 
what we do, not just rules.
    Mr. Cannon. When a wise, old state judge told me when I was 
a young practicing lawyer, due process is in the paperwork, but 
once you get these people with their filings and the attached 
electronic files, that is the paperwork that ultimately nails 
them if they have committed a crime, even if you miss it.
    Has it been easier because of the requirements that have 
been made or not? It sounds to me like you are talking about 
your job is easier because you can go Google somebody and find 
out other information about them. But have we improved our 
rules so submissions are easier for you to deal with?
    Mr. Furr. Yes, there has been improvement.
    Mr. Cannon. So given the improvement that you have had 
there, is it still twice as much time per case, do you think?
    Mr. Furr. Yes, sir, because we have to read all these 
papers. The typical bankruptcy petition is about 35 pages long 
in a very simple case.
    Mr. Cannon. Right. I am not adversarial here.
    Mr. Furr. And they added about ten additional pages that 
weren't there before. All those pages need to be reviewed.
    Mr. Cannon. I don't mean to be adversarial, just to develop 
the record. The fact is, we are demanding a great deal more. 
There are some processes that help out, but it is taking a 
great deal more time, and unless we want to lower the quality 
of people doing the work, we are going to have to raise the pay 
to those folks. I think that is----
    Mr. Furr. That is correct, sir.
    Mr. Cannon. Thank you, Madam Chair. I yield back.
    Ms. Sanchez. The gentleman yields back his time.
    At this time I would like to recognize the gentleman from 
Georgia, Mr. Johnson, for 5 minutes of questions.
    Mr. Johnson. Thank you, Madam Chair.
    Mr. Furr, would you please briefly walk us through the 
typical Chapter 7 no asset case from the trustee's perspective, 
and tell us what the trustee's duties would be and how much 
time they consume.
    Mr. Furr. Yes, sir.
    On a typical Chapter 7 no asset case, I would normally 
receive a court download by email of the petition being filed 
and myself being appointed trustee. I would open that email up 
and take a look at the bankruptcy petition schedule and 
financial affairs and all the other documents filed with the 
bankruptcy petition, and I might print it off or I might just 
store it electronically.
    But normally we would print it off, and we would have on 
those papers all the information that the debtor submitted to 
the court as to what their assets, liabilities and affairs 
were. We would then take a look at that. I would look at that 
and my assistants would look at that. I have people in my 
office who would go through and look at all of the cars listed. 
We go through the latest black book that used car dealers use 
to value each car, and we would write down that value on the 
schedules.
    We would look at the mortgage, the liens on the cars, and 
we actually go to the State of Florida's Web site for the 
Department of Motor Vehicles and look up each VIN number on the 
cars to make sure the VIN numbers match, because occasionally 
the VIN numbers don't match. And we also occasionally find that 
there are cars listed with the State of Florida belonging to 
this particular debtor that aren't on the schedules, and we 
uncover assets that way.
    We take a look at the mortgages that are recorded against 
the debtor's property to make sure they are in fact recorded 
mortgages and make sure they have the proper legal 
descriptions.
    Now, this can be done looking through electronic records, 
and generally speaking it can be done fairly rapidly. It is 
either done by myself or someone else in my office.
    WE also then have to take a look at the debtor's means 
test, which is the test that Congress enacted a couple of years 
ago to see if any consumer debtor could in debt be eligible for 
Chapter 7 bankruptcy. In order to test that, we have to look at 
the debtor's tax returns for 2 years and we have to look at the 
debtor's payment advices, which are the last several months of 
their payments, to make sure that their pay is matching what 
they have placed on the means test.
    Now, for many people who have low incomes, that is a very 
quick process. In some cases, it can be a longer process in 
someone who has a higher income. But that does take time, to 
look at all those issues.
    We then get that information and put it together, and if 
there is anything else on the schedules that raises an issue, 
like is there child support issues, is there a divorce pending, 
we may have to take a look at that. We get calls from debtors, 
from creditors occasionally. We always get contacted from car 
finance companies or mortgage companies, asking for relief from 
stay, particularly today when people aren't able to keep their 
houses.
    So all of that is packaged together, put into a file. I 
review it. It is prepared by someone in my office. And we go to 
a first meeting of creditors. Those occurs three or four times 
a month for me, at which time the debtor comes in. I bring the 
debtor, usually perhaps their spouse, in. They are sworn in 
under oath. We examine them on the information in those 
schedules. That can take anywhere from 5 minutes to about 10 
minutes in my case. In a large case, it could take a lot 
longer. But typically in a no asset case, 5 to 7 minutes, 
pretty quickly, to go through it, look at their tax returns.
    I will also look at their credit card bills and ask them to 
bring those in so I can see if they have in fact bought 
appliances or other things that may have value that we could 
recover for the creditors. We take a look at the value of all 
their assets. We take a look at their jewelry, other things, to 
see if there is anything for the creditors.
    At the end of the examination, we ask them if they 
understand the effect of bankruptcy on their credit, the effect 
of a discharge in bankruptcy, to make sure they understand what 
is going on. We make sure their attorney has properly informed 
them.
    Creditors have an opportunity to appear at the hearings, 
and sometimes they do, and ask questions. And then we typically 
conclude the hearing.
    If that is determined to be a no asset case by me, then I 
have to go back to my office. I have to then log into the U.S. 
Trustee, the court clerk Web site, and electronically file a 
report of no asset. And that is my conclusion of the case.
    Now, that time period I just spoke of, in a no asset case, 
can be anywhere from an hour to a couple of hours, depending 
upon the number of items involved.
    Mr. Johnson. Yeah, that is quite a bit of time for you and 
your staff.
    How much would you say that you--how much would that time 
be actually worth as a trustee? What would you consider to be a 
fair trustee fee?
    Mr. Furr. I would say that a fair fee, if you were going to 
pay it by the hour, which it would never occur that way, a fair 
fee would probably be $250 to $300 per case. But there is no 
way that could be justified in the current bankruptcy system.
    I think increasing this fee to $120 would give us a chance 
to compensate us somewhat fairly. Don't forget, Congressman, 
there are also cases we get where we retain assets, and we make 
a larger fee on those. And some of what we do is really--we do 
the no asset cases hoping that we will get some asset cases 
that will counterbalance the base of the no asset fee.
    The no asset fee really is designed I think to give us some 
base of income that we can then do the rest of the practice.
    Mr. Johnson. Of the Chapter 7 cases, what percentage are no 
asset cases?
    Mr. Furr. About 95 percent
    Mr. Johnson. About 95 percent. And what percent of those 
are in forma pauperis cases?
    Mr. Furr. In my district, probably about 1 percent. In 
other parts of the country, I know for instance Vermont has a 
very high rate. I have heard from trustees in Vermont it can be 
as much as 7 to 10 percent there.
    Mr. Johnson. Thank you.
    Ms. Sanchez. The time of the gentleman has expired.
    At this time I would like to recognize the gentleman from 
Massachusetts, Mr. Delahunt, for 5 minutes.
    Mr. Delahunt. Thank you, Madam Chair.
    What does the data show in terms of annual compensation to 
a trustee?
    Mr. Crane. I don't think there are any statistics that are 
specific to trustee's compensation. There is a----
    Mr. Delahunt. No, I am just saying nationally, okay.
    Mr. Crane. Nationally?
    Mr. Furr. I don't know the answer to that question.
    Mr. Delahunt. I would like to see that.
    Mr. Crane. That is kind of--Congressman, that has to 
include a balance of people who do trustee work, let's say, on 
the coast, who handle mega-bankruptcy cases, and then mass of 
trustees in middle America and the southwest and the south who 
really don't get that type of asset cases, who would bring the 
average way, way down. So it is kind of difficult to compute an 
average.
    Mr. Delahunt. That is a very good point. And maybe I think 
for our consideration, if the trustees, the U.S. Trustee, could 
maybe break down the numbers with some kind of formula that 
would make adjustments.
    I mean, I am interested. I have never been to a bankruptcy 
hearing, although I was very much, as Mr. Cannon would 
remember, very much engaged in the Bankruptcy Reform Act. And I 
attended simply because I am friendly with a lawyer who was 
seeking a fee, and it is an asset case. And the bill is now 
around $40,000. I know you have got to make it up--$60, $120, 
you know, $200, I mean, this is silly. Even if it is a no asset 
case, you know, you pick the phone up and that is probably 
worth $50 in terms of time.
    But there has got to be a better system, and I think you 
need to present--because I tell you, I haven't--I was not 
impressed with this particular trustee, because, you know, 
obviously I am not going to identify him, but it was in Boston, 
and I am kind of monitoring the case as a case study for myself 
in terms of the realities on the ground. You walk into the, you 
know, courtroom. I am an attorney. I was the elected prosecutor 
in the Greater Boston area and served in that role for 22 
years, so I have tried a number of cases myself. It is a nice, 
little, quiet practice. Everybody knows everybody else.
    It is clear the trustee, at least this particular trustee, 
you know, was taking this on. It was an effort. And I am sure 
part of that is reflected in the frustration in these other 
cases that you are talking about that are a $60 filing fee.
    Judge McGarity. Well, Congressman, it is not really a quiet 
little practice. When I was a trustee, you know, some of my 
best information came from former spouses and employees who 
were familiar with some shenanigans, and so it can be quite 
lively sometimes.
    Mr. Delahunt. I am not--and again, this is anecdotal and 
this is unfair, but this is my interface.
    Judge McGarity. Right. Really, this is what--the asset 
cases are just plain different from the no asset cases.
    Mr. Delahunt. Right.
    Judge McGarity. And since most of them are no asset cases, 
someone who serves as a trustee in Oshkosh, Wisconsin may not 
get a lot of huge asset cases, but serves a very valuable 
service to that constituency. And we have to compensate people 
for both the no asset cases and the asset cases.
    Mr. Delahunt. I recognize that, and that is why I suggested 
that the U.S. Trustee, using a formula that is reflective of 
common sense, could provide the Committee, you know, with some 
guidance in terms of annual compensation. Maybe a break down 
between nonasset cases and asset cases. Are there, you know, 
favorite trustees that are earning very large amounts of money 
in asset cases?
    Judge McGarity. No, not really, because it is on a random 
draw. And I think that is pretty much everywhere. It certainly 
is where I am. It is quite random. And I am not sure that the 
U.S. Trustee keeps those statistics. I obviously cannot speak 
for the U.S. Trustee. I don't have anything to do with that. 
But I would question whether they even keep those statistics.
    Mr. Delahunt. I guess what I am suggesting is those 
statistics ought to be developed if they are not retained.
    Could I have an additional 2 minutes, Madam Chair?
    Ms. Sanchez. Without objection, the gentleman is given 2 
extra minutes.
    Mr. Delahunt. And I think it would be very informative and 
enlightening to come before the Committee, and I am sure you 
could provide that information to the Chair and the Ranking 
Member, to educate us.
    Judge McGarity. I think it might take years to put together 
those sorts of statistics, and the system is in real crisis 
right now that we need to keep the trustees that we have, we 
need to keep the quality of the trustees that we have, because 
we encounter real problems when we are not able to do that. So 
I don't know that----
    Mr. Delahunt. Let me then reframe it. I understand that it 
will take years. I think it would behoove the bankruptcy 
trustees to begin to develop the software to compile that data 
so that years from now when none of us are here but there is 
another set of witnesses before a similar Committee, that the 
data is available, because I think we need to make an informed 
decision.
    I am for people earning money, and I know that being a 
trustee in bankruptcy can be very frustrating. I would like to 
see, you know--and I oppose the so-called Bankruptcy Reform Act 
that I think was clearly skewered toward the credit card 
issuers. Wait 'til that bubble bursts. We will have more than 
$500 or 500-point declines on the Dow.
    But the reality is there has to be, I think, a legitimate 
effort to do even more work to identify those that are inclined 
to game the system.
    I think you could be--you should be well compensated for 
doing I think a very tedious chore of compiling and analyzing 
and reaching conclusions. But, I mean, I have no problem saying 
$60 to $120. I could do $200. I could do $250. But you have got 
to, I think, make your case, is what I am suggesting to you.
    I mean, there is data out there. And I go one time to a 
bankruptcy court in Boston saying--we are unfamiliar with it. 
We are not practitioners. We are not in there every day. I 
mean, the people on this panel are intelligent, they can 
understand concepts. They have some data available. You are 
here in a very discreet issue. If you don't have the data now, 
and you can't get it in timely fashion because there is a 
crisis, I think you will find the Chair and the Ranking Member 
very sympathetic to your cause.
    But what I am suggesting is as time goes on there should be 
that data available so that you can come in here and you can 
reel off those answers, not in anecdotal fashion, but with some 
empirical evidence, because somebody might say, you know, $60 
for 5 hours work? No, that is wrong. Maybe we have to go to an 
hourly system. Let's think outside the box. Let's not just 
imagine ourselves beholden to what we have always done.
    You have got, what 1.2 million filings this year? Is that 
the projected? Think of what it is going to be like next year.
    Mr. Furr. Sir, I hope not.
    Mr. Delahunt. Well, you know, we had a good day on the Dow, 
it only went down 50 points.
    Ms. Sanchez. The time of the gentleman has expired.
    And I have been asked for unanimous consent to submit Mr. 
Conyers' opening statement into the record, and without 
objection it will be so ordered.
    I want to thank all of the witnesses for their testimony 
today.
    Without objection, Members will have 5 legislative days to 
submit any additional written questions, which we will then 
forward to the witnesses and ask that you answer as soon as you 
can, so that they can be made a part of the record.
    Without objection, the record will remain open for 5 
legislative days for the submission of any additional 
materials.
    Again, I want to thank everybody for their time and 
patience.
    And this hearing of the Subcommittee on Commercial and 
Administrative Law is adjourned.
    [Whereupon, at 3:07 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

      Response to Post-Hearing Questions from Robert Furr, Esq., 
                  Furr and Cohen, P.A., Boca Raton, FL




                                

 Response to Post-Hearing Questions from Jack F. Williams, Professor, 
             American Bankruptcy Institute, Alexandria, VA



                                 
