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COMMENTARY ON DUTIES OF THE STANDING CHAPTER 13 TRUSTEE

It is a luxury to be understood.
- Ralph Waldo Emerson

  1. General Comments About Bankruptcy Trustees
  • "... First and foremost, bankruptcy trustees are fiduciaries [emphasis added]. They are not servants. They are not agents. They are not employees of the U.S. trustee, any particular creditor or group of creditors, the courts, or the United States of America, including any of its departments, agencies, or instrumentalities. . . . As fiduciaries, their loyalty and duty is to the bankruptcy estate and its beneficiaries..."
  • Moreover, pursuant to 11 U.S.C. 323(a), the trustee is the representative of the estate.
  • The role of a trustee differs under the different chapters of the Bankruptcy Code.
  • As a creature of statute, the trustee in bankruptcy only has those powers conferred upon it by such a statute.
  1. General Comments About Chapter 13 Trustees
  • Although the Bankruptcy Code delineates a chapter 13 trustee's duties, the role of a chapter 13 trustee differs from jurisdiction to jurisdiction. There is much variation in how chapter 13 trustees satisfies the statutory responsibilities based upon the expectation of their judges, United States trustees, Clerks of the Bankruptcy Courts, and local bar associations.
  • "The [chapter 13] trustee's role is one of much ambivalence. The trustee in a chapter 13 case works with everyone and for no one. The trustee has many rights and powers that can be exercised for or against the interests of the debtor or a creditor.!
  • If the number of chapter 13 cases in a particular region so warrant, the United States trustee, subject to the approval of the Attorney General of the United States, appoints an individual to serve as standing trustee.
    • Appointed, never elected. In Re Alpine Lumber and Nursery, 13 B.R. 977 (Bankr. S.D. Cal. 1981) Chapter 13 trustee is appointed "as a matter of course."
    • Shall serve in all cases in the district. In Re Saberman, 3 B.R. 316 (Bankr. N.D. Ill. 1980)
    • The term 'interim trustee" does not apply to chapter 13 trustee. The language is delineated in the chapter 7 provisions.
  • It is the policy of the United States Trustee program that the total number of pending cases to be administered by any one standing trustee should not usually exceed 9,000.
  • Individuals serving as standing chapter 13 trustees have been subjected to full scale security, FBI, and tax compliance investigations before their initial appointment and at 5 year intervals thereafter.
  • Chapter 13 trustee expenses are not paid out of public funds or court fees nor filing fees. The compensation comes from the estates they administer, not from tax revenues.
  • The duties of a chapter 13 trustee are outlined in 11 U.S.C. 1302.
  • While there is no specific requirement in 11 U.S.C. 1302 that a standing chapter 13 trustee be disinterested, the trustee clearly cannot have an interest adverse to the estate.
  • "The role of the chapter 13 trustee is unique. The trustee does not take into his or her possession or control property of the estate. The trustee does not operate the debtor's business. Rather, the trustee receives payments from the debtor, and disburses those payments to the debtor's creditors pursuant to the debtor's plan. The chapter 13 trustee does, however, counsel with and advise the chapter 13 debtor on all matters relating to the plan other than legal matters. In short, the chapter 13 trustee is an amalgam of social worker and disbursing agent."
  1. Statutory Basis of Chapter 13 Trustee Duties: 11 U.S.C. 1302 & 1326(c)
  • The Chapter 13 Trustee performs certain duties imposed upon other standing trustees under other sections of the Bankruptcy Code - 11 U.S.C. 1302(b)(1) - including to:
    • Be accountable for all property received; 11 U.S.C. 704(2)
    • Ensure that the debtor shall perform his or her intention as specified in 11 U.S.C. 521(2)(B) [this is the section that requires the debtor to perform his or her intention regarding property within 45 days after the filing of a notice of intent or within such additional time as the Court, for cause, fixes] 11 U.S. C. 704(3)
    • Investigate the financial affairs of the debtor; 11 U.S.C. 704(4)
    • If a purpose would be served, examine proofs of claims and object to the allowance of any claim that is improper; 11 U.S.C. 704(6)
    • If advisable, oppose the discharge of the debtor; 11 U.S.C. 704(6)
    • In Re Dunn, 83 B.R. 694 (Bankr. D. Neb. 1988). Although 11 U.S.C. 1302 incorporates 704(6) and requires that the trustee, if advisable, oppose the discharge of the debtor, the trustee lacks standing to oppose the dischargeability of a specific claim.
  • Unless the Court orders otherwise, furnish such information concerning the estate and the estate's administration as is requested by a party in interest; 11 U.S.C. 704(9)
  • The trustee shall appear and be heard at any hearing that concerns -
    • The value of property subject to a lien; 11 U.S.C. 1302(b)(2)(A)
    • Confirmation of a plan; 11 U.S.C. 1302(b)(2)(B)
    • Modification of the plan after confirmation; 11 U.S.C. 1302(b)(2)(C)

     

  • The trustee shall dispose of, under regulations issued by the Director of the Administrative Office of the U.S. Courts, moneys received or to be received in a case under Chapter XIII of the Bankruptcy Act; 11 U.S.C . 1302(b)(3)
  • The trustee shall advise, other than on legal matters, and assist the debtor in performance under the plan; 11 U.S.C. 1302(b)(4)
    • Trustee is prohibited from giving legal advice, and this section cannot be used as an argument that the chapter 13 trustee can be used as a substitute for effective debtor counsel.
    • In some jurisdictions, the standing trustee provides extensive counseling and education to all chapter 13 debtors in the form of seminars or videotapes that the debtors may be required to attend.

 

  • The trustee shall ensure that the debtor commences making timely payments under section 1326 of this Title; 11 U.S.C. 1302(b)(5)
  • If the debtor is engaged in business, then in addition to the previously described duties, 11 U.S.C. 1302(c) provides that the Chapter 13 Trustee shall also have the duties in ...
  • 11 U.S.C. 1106(a)(3) [Duties of Trustee and Examiner]: except to the extent that the Court orders otherwise, investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtor's business, and the desirability of the continuance of such business, and any other matter relevant to the cases or to the formulation of a plan;

 

  • 11 U.S.C. 1106(a)(4) as soon as practicable -
    • File a statement of any investigation conducted under paragraph (3) of this subsection, including any fact ascertained pertaining to a fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor, or to a cause of action available to the estate; and
    • Transmit a copy or a summary of any such statement to any creditors' committee or equity security holders' committee, to any indenture trustee, and to such other entity as the Court designates.

 

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