The role of debtor’s counsel from the trustees’ perspective

The opinions expressed in this article are those of the authors only and do not necessarily reflect the opinion of the Office of the United States Trustee or any other Panel Trustees.

Debtor’s counsel may be surprised to learn that Chapter 7 Trustees generally hold them in high regard and appreciate the role they play in the Chapter 7 bankruptcy process. Trustees’ roles and duties, beyond the scope of this article, in the first instance, depend to a considerable extent upon the cooperation and diligence of debtor’s counsel. Because a trustee’s first involvement with any case is the review of the petition and schedules, the accuracy of those schedules is essential. When schedules are deficient or inaccurate a great deal of time can be wasted.

Although debtor’s counsel clearly represents the interests of the debtor, and therefore may perceive the trustee as an adversary, they should know that the role of the trustee does not start out as adversarial to the debtor. Trustees have administrative duties required by the Bankruptcy Code (11 USC ‘704)1 and the Office of the United States Trustee,2 and at least in the early stages of the case, the trustee is mindful that the purpose of Chapter 7, from the debtor’s perspective, is a fresh start. Therefore trustees want to be able to rely upon the debtor’s schedules and debtor’s testimony at the first meeting to determine if the debtor is eligible for Chapter 7, has disclosed all of his or her assets and financial affairs, and if any proceedings are necessary to recover assets for the estate. The relationship turns adversarial only when the trustee believes the debtor is less than forthcoming in testimony, or schedules are incomplete, deficient or inaccurate. Of course, at least as to the schedules, trustees expect that debtor’s counsel present complete and reliable information so that the review of those schedules can be accomplished quickly and thoroughly. When debtor’s counsel fails in this regard, not only do they develop a representation among trustees that their work product (the schedules) is unreliable, but the work load of the trustee increases significantly.

Trustees rely on debtor’s counsel’s representations and expect them to file accurate schedules. Pursuant to BAPCA,3 debtor’s counsel have an obligation to perform due diligence to confirm the accuracy of the debtor’s schedules. 11 U.S.C. 707(b)(4)(C) and (D). Thus, it is disappointing when a Trustee is questioning a debtor at a 341 meeting and discovers that the schedules are inaccurate. Unfortunately, sometimes debtor’s counsel is just as surprised by the inaccuracies as the trustee. At that point it becomes clear that debtor’s counsel did not perform a thorough and diligent investigation. Debtor’s counsel cannot simply accept the information provided by the debtor. They must perform their own research and check if it is correct and they also must check to make sure that the debtor did not leave out pertinent information, i.e. assets and liabilities. A prime example of this is when a debtor does not list the correct bank balance in his schedules. This is something that debtor’s counsel can check and should check prior to filing the petition. Another example is when joint debtors list that they both own a vehicle when in fact only one debtor is on the title certificate. This is discovered by the trustee because he requests a copy of the title certificate, which is something debtor’s counsel should do prior to the filing. These kinds of mistakes create volumes of extra work for the trustee and could easily be avoided if debtor’s counsel performed a proper investigation.

Though trustees are by nature independent and each trustee has his or her own methods of fulfilling his or her duties within the applicable guidelines, trustees do communicate among themselves and seek advice from other trustees. One of the most popular and effective forms of communication is the List serve provided by the National Association of Bankruptcy Trustees, the only organization of Chapter 7 Trustees, and almost all of the some 1,300 trustees in the United States are members. Recently trustees discussed the issues that they have with debtors’ counsel and these issues are instructive because it offers debtors’ counsel a perspective that they may not otherwise be aware of. Criticism at the first meetings, publicly or privately, is not always the most ideal place or time for constructive criticism. Here are some of the most mentioned trustee pet peeves:
Attorneys that aren’t prepared, i.e. don’t have all of the necessary documentation; don’t have amendments previously requested by the trustee.
Attorneys that do not sufficiently prepare their clients for the trustee’s questions; i.e. don’t advise their clients that a trustee may ask about pre-petition banking transactions.
Attorneys that arrive late and then expect the trustee to call their cases out of order.
Incomplete or inaccurate schedules; claiming the wrong exemptions; attorneys that try to answer questions for debtors.
Attorneys that try to have discussions with debtors during the 341 exam; sending in another attorney to cover the case who is unfamiliar with the file.
Requesting an adjournment the day before the scheduled 341 meeting.
Attorneys that send in documentation the day before the 341 meeting.
Attorneys that bring documentation to the 341 meeting and expect the trustee to review it at that time.
Attorneys that blame their paralegal or secretary for mistakes and sloppiness.

Since the enactment of BAPCPA in 2005 Chapter 7 Trustees all over the country have seen steady increases in their workload. Over this same period of time, the panel trustees have been asked by the office of the United States Trustee to perform additional duties and responsibilities, yet there has been no increase in the compensation for the “no asset” case which constitutes the overwhelming majority of cases assigned to panel trustees. The role of the trustee varies depending on the circumstances of each case. But, in every case, the trustee reviews schedules, exemptions, investigates the debtors’ pre-petition affairs and examines the debtors at a 341 meeting. As an integral part of the bankruptcy proceeding process, it is the responsibility of debtor’s counsel to facilitate this process as much as possible. Debtor’s counsel should know that trustees know which attorneys are thorough, professional and cooperative, and those attorneys are appreciated.

Kenneth Kirschenbaum, Esq. is a partner at the law firm Kirschenbaum & Kirschenbaum, P.C., and a United States Bankruptcy Trustee in the Eastern District of New York. Stacy Spector, Esq. is administrative bankruptcy counsel at Kirschenbaum & Kirschenbaum, P.C.

1. Pursuant to 11 USC ‘704 the trustee has certain duties in order to ensure the proper administration of each case. The trustee depends on debtors’ counsel when fulfilling his duties, specifically when a trustee investigates the financial affairs of the debtor because the trustee expects debtors’ counsel to make sure the debtors provide the trustee with all requested documentation. Trustees also depend on debtors’ counsel in their process of reviewing claims. Trustees need to rely on the debtors’ schedules as a primary basis to determine if it is necessary to object to a claim.
2. Trustees must follow the guidelines set out in the Trustee Handbook. An example of one of the trustee’s duties set out in the Trustee Handbook is that trustees must file timely objections to improper exemptions. Thus, when debtors’ inadvertently claim improper exemptions, it becomes time consuming for trustee’s and creates additional work for them.
3. Bankruptcy Abuse Prevention and Consumer Protection Act, enacted in October 2005.