By Walter Metzen
The US Trustee’s Office is an entity often referenced in blog entries on this site. We mention the US Trustee generally in passing, with the warning that, in any Chapter 7 or Chapter 13 bankruptcy, it is best not to attract the notice of this office.
But who is the US Trustee? Or who are they? What do they do, and what is their role in the consumer bankruptcy process in Detroit?
What Is The US Trustee’s Office?
The US Trustee’s Office is the division of the US Department of Justice (DOJ) tasked with the administration and oversight of the bankruptcy process in the United States.
It is an administrative governmental office that has the power to investigate, litigate, and seek to dismiss bankruptcy cases filed in bad faith and to criminally prosecute cases of bankruptcy fraud.
The US Trustee’s Office also oversees the activities of the privately chartered Chapter 7 “panel” Trustees and Chapter 13 Trustees who directly administer bankruptcy cases on a file-by-file basis. Note that the US Trustee should not be confused with the Chapter 7 Trustee who has a much different role in a Chapter 7 bankruptcy case.
It is a national administrative agency with local offices in every state. The US Trustee’s Office in the Eastern District of Michigan is located here in Detroit.
In theory, the US Trustee keeps a watchful eye on all participants in the bankruptcy process: debtors, creditors, attorneys representing either, and the Chapter 7 and Chapter 13 Trustees.
In practice, it is questionable whether this department scrutinizes anybody other than debtors and their attorneys.
A review of US Trustee’s Office press releases online reveals very few (if any) instances of a creditor’s prosecution for filing a false proof of claim in a Chapter 13, for forging mortgage documents, or for engaging in any of the acts that creditors are known to regularly commit.
In other words, the US Trustee is largely a potential problem for you and less so for the moneyed interests adverse to you in your Chapter 7 or Chapter 13 bankruptcy case.
Who Works in the Detroit US Trustee’s Office?
The Detroit US Trustee’s Office is staffed by a lead Assistant US Trustee and 8 staff trial attorneys.
The office also employs 5 “bankruptcy analysts” and a number of paralegals, legal assistants, and one secretary.
It is a well-populated office seeking a daily reason to exist from a government paycheck standpoint, in other words.
You do not want that reason to be your Chapter 7 or Chapter 13 petition.
What Do They Do in the US Trustee’s Office?
The staff of the US Trustee’s Office primarily scrutinizes the Chapter 7 Means Test filed by debtors in that form of consumer bankruptcy.
They review Schedules I (monthly average income) and J (monthly average expenses) in cases referred to them by Chapter 7 Trustees for opportunities to file motions to dismiss on “bad faith” grounds.
“Bad faith,” by the way, is not well-defined in the US Bankruptcy Code, but it generally, in this context, indicates the general proposition that a person has filed Chapter 7 bankruptcy when, on the basis of income or inflated expenses, ought to be in a Chapter 13 bankruptcy or perhaps not in bankruptcy at all.
One of the most notable victories of the Detroit US Trustee’s Office has been to criminally prosecute a number of so-called “petition preparers.”
Historically, these non-attorney form-fillers, largely operating within the City of Detroit, charged people money to simply fill out bankruptcy petition forms for them. They charged as much as or more than actual, licensed attorneys do.
They did this despite the fact that the fees that such “bankruptcy petition preparers” can charge for such “services” were (and are) limited by law to $100—and require disclosure of the fee and petition preparer’s identity in the bankruptcy petition.
These “petition-preparers” charged what they wanted, left their names and fees off of the paperwork, and told their customers to tell the Chapter 7 Trustees at 341 Meetings that their “friend” helped them complete the documentation—to commit perjury, in other words.
Reducing, if not eliminating, the activity of these characters was a useful service by the US Trustee’s Office.
Whether the office provides any other service useful to debtors in bankruptcy is up for debate.
The national US Trustee’s Office in Washington, DC also randomly audits Chapter 7 case-filings every year.
Cases are randomly selected for audit—or are less randomly selected, it’s difficult to tell.
When a case is selected, the debtor’s bankruptcy attorney (if they are represented by one), is notified by letter of a deadline by which the debtor must provide a plethora of additional income documentation, bank statements, tax returns, and other documents already largely provided to the Chapter 7 Trustee assigned to the case to an email inbox in DC.
It means extra work for you and your attorney, but the process generally otherwise falls into the “minor annoyance” category.
If your case is selected for random audit and your documentation has been prepared properly by your attorney using good information provided by you, the audit will usually conclude with an “all-clear.”
But, as with every other challenge posed by the bankruptcy process, that will ultimately be determined by the information you’ve provided to your lawyer.
Providing well-organized, complete documentation that is fully disclosing of your income, your expenses, and your assets, in the manner specifically requested by your lawyer, is going to avoid a whole host of difficulties for you in the bankruptcy process.
How to Handle US Trustee Investigation of Your Chapter 7 or Chapter 13 Bankruptcy Case
What do you do when your bankruptcy lawyer tells you that the US Trustee is requesting further documentation?
First of all, if you aren’t represented by an experienced bankruptcy attorney when contacted by the US Trustee, you had better look into retaining one now.
You will not competently respond to the US Trustee or, certainly, successfully litigate with the US Trustee without an attorney on your side.
That aside, when this occurs, you should be aware that you are now entering a “sideline” process in your case that will be time-consuming for you, for your lawyer, and may not feel (or actually be) fair to you or your circumstances.
Nevertheless, it is not an option to fail to respond to US Trustee information request. A motion to dismiss your case filed by the US Trustee, also, can certainly not be ignored.
Thus, the first order of business is to provide whatever information or documentation is required. It is always beneficial to you to do a good, neat job of this. Organize your paperwork properly, scan items to email to your attorney so that they are legible, and don’t wait until the last possible minute to do it.
The US Trustee will often take its time reviewing your information. You may be subpoenaed to appear at a sort of deposition called a 2004 Examination, with your attorney. Be patient, be polite, and try not to panic.
Your attorney will advise as to what is happening each step along the way.
Be aware, also—although this may be dependent on your particular retainer contract with your lawyer—that dealing with the US Trustee in any way is very likely to be outside the scope of the (very common) flat fee retainer that you paid to your lawyer for the filing of the basic case.
Hourly fees may apply at the point that the US Trustee enters your case.
Discuss with your lawyer.
If the US Trustee files a motion to dismiss your case, your lawyer will advise you as to how to respond.
It is worth remembering that the US Trustee is not a judge in your case. They are a “party in interest” like you and your creditors—and they are often wrong.
The US Trustee does lose cases.
However, they win them also. The staff attorneys in Detroit are highly competent litigators.
Nevertheless, with the right legal representation on your side and good information working to support your case, you will always stand a good chance of demonstrating to the actual judge in your Chapter 7 or Chapter 13 case that you are indeed a “good faith” debtor deserving of a fresh start, free from debt.
The US Trustee: Experienced Lawyer Required
The bottom line is that, if you are dealing with the US Trustee in any respect in your Chapter 7 or Chapter 13 case, you need to have a good lawyer on your side.
The best way to ensure that you do is to retain one to assist you from the beginning and not simply when trouble rears its head. Many Detroit-area attorneys will be reluctant to step in and assist with a case filed without an attorney.
Attorney Walter Metzen has successfully assisted thousands of Detroit-area Chapter 7 and Chapter 13 for over 28 years.
Contact us now to schedule your free initial consultation.