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