[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
CHAPTER 7 BANKRUPTCY TRUSTEES' RESPONSIBILITIES AND REMUNERATION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, COMMERCIAL
AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JULY 27, 2011
__________
Serial No. 112-68
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania DEBBIE WASSERMAN SCHULTZ, Florida
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
[Vacant]
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on Courts, Commercial and Administrative Law
HOWARD COBLE, North Carolina, Chairman
TREY GOWDY, South Carolina, Vice-Chairman
ELTON GALLEGLY, California STEVE COHEN, Tennessee
TRENT FRANKS, Arizona HENRY C. ``HANK'' JOHNSON, Jr.,
DENNIS ROSS, Florida Georgia
[Vacant] MELVIN L. WATT, North Carolina
[Vacant]
Daniel Flores, Chief Counsel
James Park, Minority Counsel
C O N T E N T S
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JULY 27, 2011
Page
OPENING STATEMENTS
The Honorable Howard Coble, a Representative in Congress from the
State of North Carolina, and Chairman, Subcommittee on Courts,
Commercial and Administrative Law.............................. 1
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 6
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Ranking Member, Subcommittee on Courts,
Commercial and Administrative Law.............................. 10
WITNESSES
Robert C. Furr, Founding Partner, Furr & Cohen, P.A. (Boca Raton,
FL), on behalf of the National Association of Bankruptcy
Trustees
Oral Testimony................................................. 12
Prepared Statement............................................. 15
H. Jason Gold, Partner, Wiley Rein LPP (Washington, DC) and
Chapter 7 Trustee (E.D. VA), on behalf of the American
Bankruptcy Institute
Oral Testimony................................................. 22
Prepared Statement............................................. 69
William E. Brewer, Jr., Founder, The Brewer Law Firm (Raleigh,
NC), on behalf of the National Association of Consumer
Bankruptcy Attorneys
Oral Testimony................................................. 74
Prepared Statement............................................. 77
Blake Hogan, President, American Infosource (Houston, TX)
Oral Testimony................................................. 82
Prepared Statement............................................. 84
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the American Bankers Association submitted
by the Honorable Howard Coble, a Representative in Congress
from the State of North Carolina, and Chairman, Subcommittee on
Courts, Commercial and Administrative Law...................... 4
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 7
American Bankruptcy Institute report submitted by H. Jason Gold,
Partner, Wiley Rein LPP (Washington, DC) and Chapter 7 Trustee
(E.D. VA)...................................................... 23
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Steve Cohen, a Representative
in Congress from the State of Tennessee, and Ranking Member,
Subcommittee on Courts, Commercial and Administrative Law...... 92
Response to Post-Hearing Questions from Robert C. Furr, Founding
Partner, Furr & Cohen, P.A. (Boca Raton, FL)................... 97
Response to Post-Hearing Questions from H. Jason Gold, Partner,
Wiley Rein LPP (Washington, DC) and Chapter 7 Trustee (E.D. VA) 102
Response to Post-Hearing Questions from William E. Brewer, Jr.,
Founder, The Brewer Law Firm (Raleigh, NC)..................... 104
Response to Post-Hearing Questions from Blake Hogan, President,
American Infosource (Houston, TX).............................. 107
GAO Report titled Bankruptcy Reform, Dollar Costs Associated with
the Bankruptcy Abuse Prevention and Consumer Protection Act of
2005........................................................... 111
CHAPTER 7 BANKRUPTCY TRUSTEES' RESPONSIBILITIES AND REMUNERATION
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WEDNESDAY, JULY 27, 2011
House of Representatives,
Subcommittee on Courts,
Commercial and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 9:34 a.m., in
room 2141, Rayburn Office Building, the Honorable Howard Coble
(Chairman of the Subcommittee) presiding.
Present: Representatives Coble, Cohen, and Conyers.
Staff present: (Majority) Daniel Flores, Subcommittee Chief
Counsel; Travis Norton, Counsel; Johnny Mautz, Counsel; Ashley
Lewis, Clerk; (Minority) James Park, Counsel; Carol Chodroff,
Counsel; and Rosalind Jackson, Clerk.
Mr. Coble. We have others who are enroute, I am told. If
the witnesses would take their seats, we will start
momentarily, hopefully.
Good morning, ladies and gentlemen. The Subcommittee will
come to order. Mr. Cohen is on his way I am told. But in
recognition of your time, I am going to go ahead and give my
opening statement, and he will be here hopefully ultimately.
Chapter 7 trustees play an essential role in the
administration of a liquidation bankruptcy. A Chapter 7 trustee
investigates the financial affairs of the debtor, preference
and fraudulent conveyance claims on behalf of the bankruptcy,
and objects to creditors' proofs of claims. Section 704 of the
Bankruptcy Code also requires a trustee to serve as the
administrator of the debtor's ERISA plans.
Notwithstanding their performance of numerous bankruptcy
duties, in most cases Chapter 7 trustees are paid only a flat
fee of $60 for their service; that is it. This dollar amount
was fixed by statute in 1994, was not indexed to inflation like
other dollar amounts of the Code, and has not been increased in
17 years.
In rare liquidation cases where assets are distributed to
creditors, a trustee earns a commission based on the value of
the administered's assets. The average trustee commission in an
asset case in 2010 was approximately $2,200, but out of 1.4
million Chapter 7 cases filed in 2010, only about 60,000 were
asset cases in which the trustee had the potential to earn more
than the $60 fee.
It appears to me that Chapter 7 trustees may be under
compensated for the value of the important work they perform in
a liquidation bankruptcy. This is especially true in cases
where the bankruptcy code requires the trustee to administer
and close out the debtor's 401(k) and other ERISA qualifying
benefits plans. Sometimes this process takes years, but even in
those cases, the trustee only receives the $60 in base pay.
Congress should consider whether and how to raise Chapter 7
trustee compensation levels. One option is to raise bankruptcy
filing fees. Another is to charge the commission bankruptcy
formula in Section 326. But any method to increase trustee
compensation should be sensitive to the concerns of all
stockholders, including creditors, debtors, and the judiciary
which currently pays a portion of the flat fee.
We look forward to hearing from our witnesses today. And,
again, if you all will bear with me and rest easy, we should be
able to get under way momentarily. And, again, we thank you all
for your taking time to be here and contributing to this
worthwhile hearing. So, we will rest easy for the moment.
We will bend the rules of procedure. I am going to go ahead
and introduce the witnesses now to save a little time in the
end.
Mr. Robert Furr is the founding partner of Furr & Cohen, a
law firm in Boca Raton, Florida that specializes in bankruptcy
law. He is a Chapter 7 panel trustee for the U.S. Trustee
Program in the Southern District of Florida. Mr. Furr is a past
president of the National Association of Bankruptcy Trustees,
on whose behalf he is testifying today. Mr. Furr testified
before this Committee at a similar hearing almost 3 years ago,
2008. Good to have you back, Mr. Furr.
Mr. Jason Gold is a partner of Wiley Rein in Mclean,
Virginia, where he serves as chair of preferred bankruptcy and
financial restructuring practice. Mr. Gold is also a Chapter 7
panel trustee for the Eastern District of Virginia and has been
for 24 years. Super Lawyers magazine recently named Mr. Gold
one of D.C.'s top 100 lawyers and one of Virginia's top 50
lawyer in recognition of his illustrious career as a bankruptcy
attorney. Today he is testifying on behalf of the American
Bankruptcy Institute, the Nation's largest multidisciplinary
association of insolvency professionals, with over 13,000
members. I look forward to his testimony as well.
Mr. William Brewer is the founder of The Brewer Law Firm in
Raleigh, North Carolina, and a fellow of the American College
of Bankruptcy. Today he is testifying on behalf of the National
Association of Consumer Bankruptcy Attorneys, of which he is
currently the president. The NCBA represents the interests of
consumer debtors and their attorneys in legislative and
judicial forums across the United States. Mr. Brewer holds a
bachelor's degree in English and a law degree from the
University of North Carolina. And I may treat him a little
better than the rest of you because he is a fellow North
Carolinian. But good to have all of you here nonetheless.
Finally, Mr. Blake Hogan is the president and founder of
American InfoSource, a provider of bankruptcy accounting
management services based in Houston, Texas. American
InfoSource regularly performs data analyses on trends in
Chapter 7 cases, including analyses on asset versus no-asset
cases and Chapter 7 trustee commissions. According to the
Administrative Office of the U.S. Courts, Mr. Hogan's firm is
the largest commercial purchaser of bankruptcy data. Mr. Hogan
has over 18 year of experience in the bankruptcy services
industry.
And we welcome each of you with us today. And I, again,
apologize for the irregular procedural abuse that I have given
to the rules of the Subcommittee, but hopefully I will be
forgiven for that.
We have now been joined by the distinguished gentleman from
Maryland--from Michigan--I will stand corrected. Not Maryland,
Michigan--former Chairman of the full Committee and presently
Ranking Member of the full Committee. And I will be glad to
recognize Mr. Conyers for an opening statement.
And, John, before you start, if I may, I would like to ask
unanimous consent to submit for the record a statement on
behalf of the American Bankers Association and a letter from
the Judicial Conference addressed to Chairman Lamar Smith of
some days ago. Without objection?
[The information referred to follows:]
__________
Mr. Conyers. Thank you, Chairman Coble. Top of the morning
to all of our witnesses. I beg your indulgence for not being on
time.
We began a discussion of this in 2008, and I am a little
bit taken aback by the fact that we are studying this like it
is a rocket science matter. We are not paying the Chapter 7
trustees adequately. Everybody agrees on that.
There is only one question: are we going to put it on the
backs of the poor devils that come in that are bankruptcy that
already are pleading with the court to have their whatever is
left of their remains and property equitably distributed among
their creditors, or are we going to find another way to
compensate for this? And we have already suggested the other
way. H.R. 4950, we have been through this, Chairman Coble.
And, you know, this Congress does not have a very good
reputation at this moment. It does not seem like we can solve
anything. And here is a simple matter. We are telling lawyers
and accountants that they can only get $60 for a no-asset case.
And that has been since, what, 1984, 1994? That is disgraceful.
They are on the verge of sitting on the other side of the
table. They have to leave their profession, and they are
willing to do this, but we are not even willing to compensate
them adequately.
I do not what this breaks down to an hour, but these are
not professional wages. We are not compensating members of the
Bar and accountants, frequently certified public accountants,
adequately. And we have been 3 years studying this.
And so, somebody proposed that we study it some more. Well,
witnesses, I am tired of studying it, and I assume or hope that
you are as well. And this Committee has got to do something
about it. We cannot even get anybody to come to this hearing.
And so, I will put my statement in the record and await your
testimony.
[The prepared statement of Mr. Conyers follows:]
__________
Mr. Coble. I thank the gentleman.
The gentleman from Tennessee, the Ranking Member of the
Subcommittee, is now recognized for his opening statement. Mr.
Cohen?
Mr. Cohen. Thank you, Mr. Chairman. I am sorry about being
late, but I was hearing where we are. It is a scary place.
As far as I can tell, no one seems to disagree that Chapter
7 trustees deserve some sort of compensation increase. There
has been no effort over 17 years and there is has been no
increase in per case compensation in these non-asset cases. And
that is the bulk of Chapter 7 cases. The real debate is over
how best to do this in a manner that is fair to all parties in
the bankruptcy process, the debtors, the creditors, the
judiciary.
Last Congress, I introduced H.R. 4950, The Chapter 7
Bankruptcy Adjustment Improvement Act of 2010, which I think
maybe possibly the Chairman--not the Chairman--the former
Chairman, the Ranking Member, my dear and beloved friend, the
esteemed and honorable John Conyers, might have talked about.
That legislation offered an equitable solution to the problems
of how to fairly increase trustee compensation. H.R. 4950 would
have increased the potential compensation that the trustees
could earn by increasing the maximum percentage of assets that
could be used to compensate trustees in Section 326 percentage
caps, which have not been raised since 1994. At the same, the
bill maintained some judicial discretion to determine the
reasonableness of trustee compensation, clarified that that
compensation in asset cases should be treated as a commission,
and avoided increasing the cost burden on debtors of an
increased filing fee.
In this way, the bill increased potential compensation for
trustees, while at the same time recognizing the judiciary's
prerogatives in protecting already financially strapped and
overburdened debtors.
When I introduced the bill, it is my understanding all
parties would be impacted, but were on board. Ultimately, those
certain creditor interests raised concerns that the bill would
reduce the potential recoveries in the future of Chapter 7
asset cases, greed, one. It is only fair that creditors be
asked to shoulder a marginally greater burden than they
currently do in ensuring just increased compensation for
Chapter 7 trustees.
One of the principle purpose of Chapter 7 trustees is to
protect and maximize the size of the bankruptcy estate so the
assets can be liquidated and the proceeds distributed to
creditors to the greatest extent possible. Chapter 7 trustees'
work primarily benefits creditors; therefore, creditors should
be prepared to give up just a little to increase compensation
for those trustees. It seems that we have a parallel universe
here in the Congress this year on the debt ceiling.
While I believe that my bill offers the best solution to
increasing Chapter 7 trustee compensation in an equitable
manner, I am open to considering other suggestions that all
interested parties can get behind. I would be deeply concerned,
however, with any measure that forces the burden of increasing
trustee compensation on consumer debtors, as I am concerned
about revenue being used to deal with the debt ceiling.
Consumer debtors already pay a disproportionate share of
the costs of the bankruptcy system. Otherwise I noted it is
creditors, not debtors, who mostly benefit from the worker
Chapter 7 trustees. Equity demands that consumer debtors not be
forced to bear the burden of a trustee compensation increase.
With the economy continuing to struggle, the last thing
Congress should do is increase the financial burdens of people
who are already on the brink of financial ruin, although it
seems we are about to do that in a bigger picture. This is a
microcosm, this hearing, of what is going on on the floor.
My charge for our witnesses is to develop a solution that
increases compensation for Chapter 7 trustees, does not burden
consumer debtors, and addresses the concern of creditors.
I thank Chairman Coble, a wonderful gentleman, a great
Chairman, and a distinguished Member, for holding this hearing.
I look forward to a fruitful discussion that will be just and
fair.
Mr. Coble. I thank you, Mr. Cohen.
Steve, I introduced the panelists earlier. Would you like
for me to introduce them again?
Mr. Cohen. No, sir.
Mr. Coble. All right.
Gentleman, we will start. And we try to comply, gentleman,
with the 5-minute rule. You have a panel on your desk. When the
light is green, that tells you you're skating on thick ice. It
will then turn amber, and then when it is red, that is your 5
minutes have expired. So, if you all could confine your
statements on or about 5 minutes, we would be appreciative.
And, Mr. Furr, we will start with you?
TESTIMONY OF ROBERT C. FURR, FOUNDING PARTNER, FURR & COHEN,
P.A. (BOCA RATON, FL), ON BEHALF OF THE NATIONAL ASSOCIATION OF
BANKRUPTCY TRUSTEES
Mr. Furr. Chairman Coble, Ranking Member Cohen, 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 this
subject. My name is Robert Furr. I am a past president of the
National Association of Bankruptcy Trustees. I am on its board
of directors and executive committee.
In 2010, there were 1,139,000 Chapter 7 cases filed in the
United States. That is an 8 percent increase over 2009. There
were 25,000 cases filed in North Carolina and 50,000 cases in
Tennessee, so we know it is a big issue around the country.
Trustees conduct the major work that is done in Chapter 7
bankruptcies. We protect both debtors and creditors from abuses
of the system. We carry out important public policy priorities
as directed by Congress involving issues of child support,
patient health care records, dishonesty, criminal activity,
fraud, mortgage scams, in addition to administering the cases
in the normal way that we have always done.
We have had no raise since 1994, no adjustment to our
compensation. The Bankruptcy Abuse and Consumer Protection Act,
BAPCPA, which was passed in 2005, gave other duties to Chapter
7 trustees without additional compensation. Chapter 7 trustees
that I know, and I know most of the around the country, are
shouldering those burdens and moving forward, and doing the
work required of us under BAPCPA at a very, very commendable
way, but they are not being compensated for it.
Trustees receive $60 for administering a Chapter 7 case and
what is called a no-asset case in every case they get, and that
is all they are guaranteed to get. It is truly an
entrepreneurial kind of business that I am in. In many areas of
the country, it is a mom and pop kind of business, and in some
larger urban areas it is a more sophisticated kind of business.
But it is truly a business where you if you are skilled and you
work hard, you can make money. If you work hard and you are
smarter than the other person, you may make more money. So, it
is a great business to be in.
The last increase in the filing fees occurred in 1994--
excuse me in the trustee compensation occurred in 1994 when the
filing fee was $130. Today the filing fee is $299, and the
trustee's fee is still $60, or 20 percent of the filing fee.
Every case essentially begins as a no-asset case. After
all, Chapter 7 is a liquidation bankruptcy. It is hard work for
the trustee to determine if there are assets in the estate.
Last year, I would like to report to you that Chapter 7
trustees paid $2.3 billion to creditors, including $132 million
to taxing authorities, including the Internal Revenue Service.
We did this by taking an average of commission of 5.7 percent
in those Chapter 7 asset cases, a record which is much less
than the average commercial collection lawyer would charge of
25 to 33 percent.
We have enjoyed bipartisan support in the House, and I
appreciate all the kind words that everyone has said this
morning. Currently, we think the trustees should receive a per
case fee increase of $40 so that the no-asset fee goes to $100.
Based on inflation figures alone, trustees should be earning
$28 more per case since 1994. So, this brings us up to $40
more. That would compensate us for the money we do not make in
informa popras cases, or cases where the filing fee is waived
and we receive no compensation.
The other day I had two cases on my calendar where
attorneys appeared charging $1,200 to their clients, and having
the filing fee waived because the client in forma pauperis
guidelines. And there is nothing I can do about that. I did not
get paid, and the attorneys did get paid $1,200.
A couple of other issues I would like to talk about in the
time remaining. First is trustee commission issues. In 2005
when BAPCPA was passed, Congress changed and added 330(a)(7) to
the Code, which said that trustee fees shall be treated as a
commission. Most of the bankruptcy judges around the country
have honored that, and honored that even before that time. But
there are a few courts in the country who do not treat the fees
as a commission, but instead still use Lodestar factors, such
as time factors, in awarding fees. And we think that should be
changed. The law should be changed to make it clear that the
commission is a presumptive commission, and only in
extraordinary circumstances should it be changed by the courts.
Finally, I want to talk about pension plan
responsibilities, and this was mentioned by the Chairman a few
minutes ago. BAPCPA placed on the Chapter 7 trustees the
responsibility to handle pension plans in corporations and
businesses that we receive into our hands. That creates a huge
problem for trustees because we are not really set up to do
that kind of work. It is a separate entity than the debtor
itself.
In 2006, after the passage of BAPCPA, the Department of
Labor developed a regulatory scheme and created something
called a qualified termination administrator, an independent
administrator which can do those plans. We would like that
section changed in the Code, that Section 704(a)(11), to take
that responsibility away from trustees and let it go to these
QTAs under the supervision of the Department of Labor. I do not
think the Department of Labor would object to that. Again, that
is an important issue for us.
I want to thank you again, Chairman Coble, for holding this
hearing. Chapter 7 is the most and common form of bankruptcy in
the United States with well over a million cases per year. On
behalf of all the trustees, thank you for hearing our problem.
[The prepared statement of Mr. Furr follows:]
__________
Mr. Coble. Thank you, Mr. Furr.
Mr. Gold? Mr. Gold, your mic, I do not think, is on?
TESTIMONY OF H. JASON GOLD, PARTNER, WILEY REIN LPP
(WASHINGTON, DC) AND CHAPTER 7 TRUSTEE (E.D. VA), ON BEHALF OF
THE AMERICAN BANKRUPTCY INSTITUTE
Mr. Gold. Thank you, Chairman Coble, Mr. Cohen, and Members
of the Subcommittee. I am Jason Gold. I am a partner in the
Mclean, Virginia and Washington, D.C. law of Wiley Rein. We
have over 275 lawyers in our firm, and we practice in nearly
two dozen practice areas. I am the chair of our bankruptcy and
financial restructuring practice, and I have more than 30 years
of experience as a bankruptcy trustee--excuse me, as an
attorney. I have had 24 years as a bankruptcy trustee.
Before being appointed as a trustee, I had a great deal of
experience representing debtors in Chapter 7 cases before I
actually joined the Bankruptcy Trustee Panel. And I have served
as trustee in over 21,000 cases.
I appear here today as a representative of the American
Bankruptcy Institute. The American Bankruptcy Institute is
comprised of over 13,000 insolvency professionals around the
country, and indeed many around the world.
The $60 no-asset fee, as we all understand, has not been
raised since 1994, yet the duties of the Chapter 7 trustee have
continued to expand, and most recently, of course, with the
enactment of BAPCPA as was discussed.
Mr. Chairman, the initial duties of the trustee start even
before the debtor appears before me at the so-called meeting of
creditors, a 341 meeting. I must review the bankruptcy
petition, the schedule of assets and liabilities, the sworn
statement, all those papers that are filed in these cases. And
I am appointed to about 110 cases every month or so, broken up
into two dockets, again, each month. Now, over 90 percent of
the cases are no-asset cases, as we all now know, and trustees
file the no distribution report. But we do all this work for
$60 per case, and that includes, of course, those cases where
we are not paid at all, the informa popras cases.
Mr. Chairman, there is a report that has been submitted to
the Committee, a preliminary report, issued by the American
Bankruptcy Institute entitled ``The Costs of BAPCPA:
Preliminary Report on BAPCPA's Impact on Chapter 7 Trustees
Administering Consumer Cases'' authored by Lois R. Luprica,
dated today, July 27, 2011. I would ask that that be included
in the record.
Mr. Coble. Without objection.
[The information referred to follows:]
__________
Mr. Gold. Thank you, Mr. Chairman. And I want to just quote
very briefly from the report. After interviewing many, many
trustees around the country, the report quotes one, and this
was agreed to many others, in fact, probably the vast majority,
two or three times as much work in no-asset cases as trustees--
I am paraphrasing--as trustees had to perform before BAPCPA,
two or three times as much. So, you can imagine the $60 has not
been raised; the amount of work is two or three times just
since 2005 when BAPCPA was enacted.
Now, certain of our bankruptcy responsibilities are more
demanding and challenging than others. Most recently, this new
requirement of administering employee benefit plans with that
whole range of Federal regulation under ERISA and other
regulations, which now we are responsible for, with all the
liabilities and all the issues that go along with that. That is
very, very important work, and yet, again, that is all subsumed
within the $60 fee, unless, of course, we are lucky enough that
there might be an asset case involved.
In health care bankruptcies, trustees also have the
obligation to transfer patient records and even the patients
themselves sometimes from facilities that are being closed. And
we have to safeguard patient privacy, of course, as well.
Mr. Chairman, this year the bankruptcy will handle some 1.5
million cases, and that is far greater than the total number of
cases handled by all the other Federal courts. No system,
however well designed, is better than the people who operate
within it. Therefore, we must retain and attract competent,
honest, and committed trustees. And as designed, our system
will work only if we have these folks employed. Therefore, I
certainly support, and these views are my own, but I certainly
support the increase to $100 the no-asset fee.
And let me also finally echo Mr. Furr's comment with
respect to the commission and how some bankruptcy judges around
the country have interpreted what most bankruptcy lawyers think
is very clear, that indeed the compensation is commission
based. Like a real estate agent who sells a house gets 6
percent, bankruptcy trustees should get the commission as
provided in the statute, and not adjusted by simply the views
of a particular bankruptcy judge, unless of course there is
wrongdoing or misdeeds and the like.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Gold follows:]
__________
Mr. Coble. Thank you, Mr. Gold.
Mr. Brewer?
TESTIMONY OF WILLIAM E. BREWER, JR., FOUNDER, THE BREWER LAW
FIRM (RALEIGH, NC), ON BEHALF OF THE NATIONAL ASSOCIATION OF
CONSUMER BANKRUPTCY ATTORNEYS
Mr. Brewer. Chairman Coble, Ranking Member Cohen, thank you
for the opportunity to appear today on behalf of the National
Association of Consumer Bankruptcy Attorneys. I am William E.
Brewer, Jr., and the president NACBA. NACBA is the only
national organization dedicated to serving the interests of
consumer bankruptcy attorneys and, more importantly, protecting
the rights of consumer debtors in bankruptcy.
Some NACBA members, including my predecessor as president,
serve as Chapter 7 trustees, giving us a broad perspective on
the issues before the Subcommittee today. NACBA appreciates the
opportunity to offer its views on compensation to Chapter 7
trustees in no asset cases.
Let me be clear. NACBA supports increased compensation for
Chapter 7 trustees. We recognize that trustees have had not had
their fees increased in 17 years, despite expanded duties under
the 2005 Bankruptcy Act.
Let me emphatically clear. NACBA opposes any increase in
fees for bankruptcy filers as a way to pay for the increased
compensation to Chapter 7 trustees. Cash strapped and
overburdened debtors have had the filing fees more than double
in those same 17 years. Furthermore, their fees and other costs
associated with filing bankruptcy have gone up a whopping 90
percent in the wake of the 2005 Act. Since 2005, the filing
fees have increased from $205 to $299. This does not include
the cost of the mandatory credit counseling. Incredibly,
Congress increased fees on bankruptcy consumers as a way to
reduce the deficit in 2006.
When Congress increased the filing fees in 2005, it was
well understood that the new law would impose new
responsibilities on Chapter 7 trustees. Why has not some
portion of the $94 increase in the filing fee gone to Chapter 7
trustees to compensate them for their expanded workload, rather
than further burden financially distressed Americans who have
suffered an extended period of unemployment, home foreclosure,
or other financial calamity by piling on yet another fee
increase? Congress should determine where all the money is now
going into the bankruptcy system is being spent, and reallocate
the existing revenue so that the Chapter 7 trustees are
adequately compensated.
Consumer debtors are already paying more than their share
of the costs of the administration of the bankruptcy system.
There are approaches to this issue that NACBA can and will
support. For example, in 2008, the Senate included language in
Senate 1638 that would increase the compensation to Chapter 7
trustees, but also provided that no additional fee could be
charged to the debtor for the fee increase to trustees. Under
this approach, the court would fund the increase through the
fees through the judicial conference that the United States
already collects.
More recently, Representatives Cohen, Whitfield, and
Conyers sponsored legislation in the last Congress, H.R. 4950,
that would make a relatively modest adjustment to the
percentage price points used to compensate trustees in cases in
which there are assets, roughly 5 to 10 percent. This
adjustment would supplement the fixed fee compensation that is
provided in the no-asset cases. Under this approach, trustee
compensation would be paid not only by debtors through existing
filing fees, but also by creditors who directly benefit from a
trustee's work in administering asset cases.
Fees could be charged for creditors for filing proofs of
claim. There is an industry of debt buyers purchasing claims in
bankruptcy and benefitting from the system. A modest fee to
file an assignment of claim could be imposed.
In summary, NACBA respects the role of the Chapter 7
trustees in maintaining the professional function of our
bankruptcy system. We must ensure that the system continues to
attract and retain competent, experienced, and qualified
private trustees, like the ones here today, in light of this
critical role. Increased compensation with Chapter 7 trustees
is a part of that equation; however, it must not fall to the
financially distressed consumers to shoulder that increase.
NACBA stands ready to work with this Subcommittee and other
interested parties in advising an equitable approach to this
issue. Thank you.
[The prepared statement of Mr. Brewer follows:]
__________
Mr. Coble. Thank you, Mr. Brewer.
Mr. Hogan?
TESTIMONY OF BLAKE HOGAN, PRESIDENT,
AMERICAN INFOSOURCE (HOUSTON, TX)
Mr. Hogan. Mr. Chairman and Ranking Member Cohen, my name
is Blake Hogan, and I am the president and founder of American
InfoSource, the market leader in providing bankruptcy specific
filing and information services to participants in the
bankruptcy system. We are based in Houston, Texas, with
operations in Oklahoma City, Oklahoma.
American InfoSource provides account management services
and performs many bank case functions for eight of the largest
financial institutions in the country, as well as health care
institutions, retailers, utility, and telecom companies.
I would like to explain a little bit about myself and my
company so that the Subcommittee can understand the views I
have on the topic of trustee compensation.
In 1995, I built the first direct connection to the
bankruptcy courts, creating the first comprehensive bankruptcy
database of its kind. The business was sold to First Data
Corporation in 1996, and the original organization has since
been sold to another company. My current company, launched in
2000, has successfully automated bankruptcy procedures from
notification, to payment processing in a safe, reliable, and
cost-effective manner.
Today American InfoSource is the leading filer of
bankruptcy claims, and, according to the administrative office
of the U.S. Courts, we are the largest commercial purchaser of
bankruptcy data. As a consequence, we have amassed a great deal
of data about the actual function of the consumer bankruptcy
system as it exists in practice.
I am pleased to provide my perspective to the Subcommittee
on the important issue of Chapter 7 trustee compensation. As I
have noted, and I want to reiterate, I provide services to
lenders and trustees. American InfoSource is not a lender,
creditor, borrower, or debtor. The perspective I bring to the
issue is based on the sound data collection and analysis of the
facts.
First, let me start by saying I personally support an
increase in the no-asset fee for Chapter 7 trustees. Thanks in
large measure to the hard work of many talented Chapter 7
trustees, our consumer bankruptcy system works as well as it
does. It is only fair to ensure that this work is compensated
according to its value.
I am confident that the fee set in 1994 has eroded in value
over time. After all, prices for other goods and services have
increased since 1994, and I believe the same would be true for
the Chapter 7 no-asset fee.
I am aware that there have been past proposals to increase
compensation to Chapter 7 trustee in no-asset cases by
increasing commissions paid in asset cases under Section 326 of
the Bankruptcy Code. Based on the data I have reviewed, such
proposals would not work and would merely reduce dividends paid
to creditors in Chapter 7 asset cases. As one of the witnesses
today said in prior testimony in 2008 before this Subcommittee,
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 in small or rural areas.
Following this logic, increasing amounts paid in asset
cases to those trustees who live and work in cosmopolitan areas
will do nothing to help trustees in other areas of the country.
For instance, our data shows that 75 percent of the asset cases
are administered in 15 states.
Finally, I would like to address the question of whether
increasing commissions under Section 326 would actually
incentivize greater collection for creditors. While there may
be anecdotal evidence to support this theory, there is no
statistically significant data which supports this premise. I
believe, based on our data, that creditors would in effect pay
more for the same services if commission amounts under Section
326 were increased.
In sum, Mr. Chairman, it may be advisable for Congress to
increase compensation in no-asset Chapter 7 cases. I also
believe this should be done by increasing the statutory no-
asset fee. Proposals to make up for below market no asset fee
by increasing commissions in Chapter 7 asset cases would help
only a select few trustees and would likely impose costs on
creditors in the form of reduced dividends without collateral
benefits to creditors.
We appreciate the opportunity to share our views, and I
look forward to any questions that you might have.
[The prepared statement of Mr. Hogan follows:]
__________
Mr. Coble. Thank you, Mr. Hogan. Thanks to all of you for
what you do. I just told Mr. Cohen, I have never been exposed
to a bankruptcy matter, either as a trustee, creditor, or
debtor. So, we look to you all as experts.
Gentleman, we try to comply with the 5-minute rule as well,
so if you all could keep your questions tersely, we would
appreciate that.
Mr. Furr, if you had your choice, would you rather be freed
from the duty to wind down a debtor's ERISA case plans or raise
trustee compensation in no-asset case?
Mr. Furr. I would rather raise the no-asset fee.
Mr. Coble. Mr. Brewer, my fellow Carolinian. I have another
question here.
Mr. Brewer, do you believe that a trustee who is not an
expert in employment or labor law should have the duty to wind
down the debtor's ERISA plans?
Mr. Brewer. I really see no need for that to happen, I
mean. And if so, they have got to find some way to compensate
them, for that can be a lot of work. Now, I have never done it.
I have never served as a Chapter 7 trustee. So, I do not know
how competent I am to answer that question, but I know from my
friends of the trustees in North Carolina, they find it quite
burdensome.
Mr. Coble. They find it quite?
Mr. Brewer. Burdensome.
Mr. Coble. Thank you, sir.
Mr. Gold, in your testimony, you advocate the raising of
the $60 flat fee to $120. Do you have any recommendation how we
in the Congress would alter the law to that end?
Mr. Gold. How to fund that----
Mr. Coble. Yes.
Mr. Gold.--Mr. Chairman? Well, there are several ways as
has been debated now for many years. My personal view is that
perhaps a combination of ways might be effective. For example,
raising the filing fee slightly or to some degree, which would
less of a burden on debtors. I think trustees are very
sensitive to the burden on debtors. But even the filing fee
hasn't been raised since 2006, which is not nearly as long ago
as 1994. But raising it perhaps slightly might be an advantage.
And then perhaps raising funds through a more complicated, the
PACER system, which is the electronic filing and data system
used in bankruptcy in Federal courts. These are fees paid by
law firms typically, and of course the public, to some degree.
But law firms could certainly afford perhaps a one or two cent
increase in PACER fees per page. But we understand there are
complications with that with respect to the judiciary.
Mr. Coble. Thank you, sir.
Let me beat the red light with a question to Mr. Hogan, and
then I will yield to Mr. Cohen.
Mr. Hogan, are you aware of any evidence to support the
proposition that raising the Section 326 commission would
result in higher asset recoveries by trustees?
Mr. Hogan. No, I am not. I think it is all about equity in
the fact that if you take after State number 10, the number of
asset cases that are administered in the United States, fewer
than 3 percent of the cases in the remaining States are
actually asset cases. So, it is very difficult to understand
how taking an increase in fee on that would be equitable for a
majority of the trustees in the program. It would not result in
them having an increase in that.
Mr. Coble. I thank you, sir.
The distinguished gentleman from Tennessee, Mr. Cohen, is
recognized for 5 minutes?
Mr. Cohen. Thank you, Mr. Coble, and I will be quick.
Mr. Furr, how many Chapter 7 trustees have resigned since
2005?
Mr. Furr. We think about 20.
Mr. Cohen. About 20? And what was the principle reason why
they resigned, do you think?
Mr. Furr. Well, the reason, and I put it in my part of my
remarks here, a Chapter 7 trustee from Wisconsin resigned a few
weeks ago, and decided the duties that he has to fulfill in a
BAPCPA versus the amount of money he is being paid and the risk
he takes, he resigned for that reason. And I hear that from
time to time.
Most trustees are sticking to it and really trying to stay
with it. This is a profession for most of us. I have been a
trustee for over 22 years, and I am 61 years old. And I will be
a trustee for many years to come. I enjoy it a lot; I do not
want to give it up. And I think most trustees feel that way. It
is a great way to practice law, or accounting if you are an
accountant. And something I do not want to give up.
Mr. Cohen. Or Congress if you are a congressman.
Mr. Furr. That is correct.
Mr. Cohen. Yes.
Mr. Furr. I mean, a judge. Thank you, Mr. Cohen. So, I do
not want to give it up. I think most trustees really do not.
They want to struggle through this and find a solution.
Mr. Cohen. Can a trustee be forced to continue to serve by
the judge in a Chapter 7 trustee case?
Mr. Furr. Yes, sir, he can. He could resign, but if he
resigns and refuses to take a case, I think the U.S. Trustees
Office would not take kindly to that.
Mr. Cohen. Mr. Gold, when a Chapter 7 trustee administers
an asset case, who is the primary beneficiary to that?
Mr. Gold. Well, typically it would be the creditors, Mr.
Cohen. The creditors, of course, receive the benefit in terms
of the money that is distributed. There are, of course, duties
to the debtor as well and to the bankruptcy system, but in
terms of the economic benefit, it is 100 percent, in my view,
to the creditors.
Mr. Cohen. Okay. And are the creditors themselves, some of
the creditors are against increasing this compensation, to the
best of your knowledge?
Mr. Gold. I think the creditor industry would not like to
see the brackets increased on the asset cases, as was discussed
earlier this morning, because that would in theory reduce the
net amount that goes to the creditors. I do not agree with
that. I think it is well understood in the American economy and
capitalism, incentives do work. It is only a question of
degree. And it is not to say that all incentives work, but if
you increase the percentages, I think most trustees, I would
certainly feel like this is now even a greater incentive to
raise more money to work even harder.
So, increasing the brackets, I think, would be an
advantage. And, frankly, I think it would be an advantage to
the creditors as well, certainly the creditors because----
Mr. Cohen. Since it would be an advantage to the creditors,
and since they are the primary beneficiaries of the trustees'
work, should the doctrine of estoppel be invoked to say that
they should estopped to be against any increase in the fees?
[Laughter.]
Or should the definition of chutzpah be applied for being
against it?
Mr. Gold. Chutzpah could be a better word. My grandmother
would agree, yes.
Mr. Cohen. Okay. Mr. Brewer, what is it that makes you
believe that these, other than the fact that trustees have been
having the same fee since '94 and that they are quitting the
profession, that you think that their fee should be increased
in asset cases as well as non-asset cases?
Mr. Brewer. Well, I mean, to me, the issue is they need
more money, you know, for what they do. I think they are
probably fairly adequately compensated based on the fee
schedule for the asset cases. But we have got to find a way to
increase the fee, whether it be another $60, $40, some amount,
to the Chapter 7 trustee in the no-asset case.
The trouble is, in my opinion, that the consumer debtors,
the no-asset folks, and they are the low people on the totem
pole. If you are trying to look around for who can kind of
suffer more financial difficulty, those are the people who can
least do it. We just cannot put them on to those people. So, we
have go to----
Mr. Cohen. But they are the closest to the floor, so they
are the easiest to step on, and normally that is an easier
solution.
Mr. Brewer. No, I understand, you know. I mean, these
people, where I come from--you probably have the same in
Tennessee. You know, you cannot get blood out of a turnip. And
these folks are flat out turnips. And, you know, you can keep
squeezing them, but at some point, you know----
Mr. Cohen. And BAPCPA caused them to pay some more money
already, did it not, in 2005?
Mr. Brewer. Oh, very much so. There was some talk about,
you know, what the Chapter 7 trustees duties have in cost. You
ought to come to my office and look at the extra duties I have
got. Chapter 7 trustees do not really have to deal with the
means test much. That becomes----
Mr. Cohen. I am about to get to the red light.
Mr. Hogan, is Bank of America one of your clients?
Mr. Hogan. Yes.
Mr. Cohen. And is Bank of America against this bill?
Mr. Hogan. Again, I have not consulted with them with this,
about whether they are for or against this bill.
Mr. Cohen. I will forgo further questions for the red light
has appeared.
Mr. Coble. Thank you, Mr. Cohen.
Gentleman, thank you all for your attendance today and your
contribution to this very important issue.
Without objection, all Members will have 5 legislative days
to submit to the Chair additional written questions for the
witnesses, which we will forward and ask the witnesses to
respond as promptly as they can so that their answers may be
made a part of the record.
Without objection, all Members have 5 legislative days to
submit any additional materials for inclusion in the record.
With that, again I thank the witnesses.
This hearing stands adjourned.
[Whereupon, at 10:23 a.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 C. Furr,
Founding Partner, Furr & Cohen, P.A. (Boca Raton, FL)
Response to Post-Hearing Questions from H. Jason Gold, Partner,
Wiley Rein LPP (Washington, DC) and Chapter 7 Trustee (E.D. VA)
Response to Post-Hearing Questions from William E. Brewer, Jr.,
Founder, The Brewer Law Firm (Raleigh, NC)
Response to Post-Hearing Questions from Blake Hogan,
President, American Infosource (Houston, TX)