[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


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



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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

                              ----------                              

                             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

                              ----------                              


                        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)












                                











































































































                                 
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