One element of the bankruptcy process that is frequently confusing to new bankruptcy practitioners and nonbankruptcy lawyers is the U.S. Trustee Program. Although it is not infrequently assumed that the U.S. Trustee Program is part of the judicial branch, the U.S. Trustee is a component of the Department of Justice. According to its mission statement, the U.S. Trustee is charged with “promot[ing] the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders – debtors, creditors, and the public.” In more practical terms, the U.S. Trustee is responsible for overseeing the integrity of the bankruptcy system. On a day-to-day level, the Office of the U.S. Trustee is tasked with (1) appointing and supervising bankruptcy trustees, (2) preventing bankruptcy fraud and abuse and otherwise ensuring compliance with the Bankruptcy Code, (3) referring potential criminal matters for investigation and prosecution to other branches of government, (4) appointing creditors’ committees, (5) reviewing employment and fee applications, (6) providing courts with a more “neutral” viewpoint in hotly contested cases, and (7) generally ensuring that the Bankruptcy Code is complied with.
The U.S. Trustee Program is broken down into 21 regional offices, which together cover 48 of the 50 states. Interestingly, Alabama and North Carolina are not under the jurisdiction of the U.S. Trustee Program, but run under a separate Bankruptcy Administrator system. Each of the regional offices is headed by a U.S. Trustee for that given region. In addition to the regional office, the U.S. Trustee has satellite offices that are governed by an Assistant U.S. Trustee. Depending on the size and population of the state, a state may have one or more satellite offices. In addition to the Assistant U.S. Trustee, each satellite office is generally staffed by trial attorneys, paralegals, legal assistants, bankruptcy analysts and other personnel.
Perhaps the highest profile of the U.S. Trustee’s duties is overseeing the trustee system. This includes both “panel trustees,” a group of private individuals approved by the U.S. Trustee’s office who are automatically assigned cases as bankruptcy trustees, and “non-panel trustees, ” who may be selected to be bankruptcy trustees intermittently on a case-by-case basis.
Overseeing the panel trustee system includes not only selecting the persons who serve as panel trustees in chapter 7 and 13 cases (and in some states, chapter 12), including thoroughly vetting them, but also providing oversight of their work, ensuring that cases move along in a timely fashion, that funds are not misused, and generally reviewing the quality of work performed by the panel trustees. Panel trustees, although selected and overseen by the U.S. Trustee, are private parties who frequently practice law outside of their work as bankruptcy trustees, and are not government employees. Perhaps as a result of this, panel trustees are subject to significant oversight by the U.S. Trustee’s Office, including a complex system of financial reporting, which tracks virtually every dollar belonging to every bankruptcy estate in every case overseen by a panel trustee. Although not frequently used, under 28 C.F.R. 58, the U.S. Trustee also has the power to suspend or remove a panel trustee if necessary.
In addition to the panel trustees, the U.S. Trustee’s Office also approves and oversees non-panel trustees appointed in bankruptcy cases. For example, when a chapter 11 trustee is appointed under § 1104, although the bankruptcy court makes the decision regarding whether or not to appoint a chapter 11 trustee, the U.S. Trustee determines the identity of the trustee who is appointed. Frequently, this results in an existing panel trustee being appointed as the chapter 11 trustee, but other persons can also be appointed as chapter 11 trustees, provided that they are vetted, approved and selected by the U.S. Trustee.
U.S. Trustees play a key part in overseeing the bankruptcy system. Prior to the establishment of the U.S. Trustee Program, established as part of the Bankruptcy Reform Act of 1978, bankruptcy courts performed both an administrative and a judicial role in bankruptcy cases. The U.S. Trustee Program was intended to split off the administrative functions previously performed by the bankruptcy court, and move them to a more typical separation-of-powers system, with the administrative role being played by the executive branch in the form of the U.S. Trustee, and the judicial role being played by the bankruptcy courts. Although it is not without its critics, the U.S. Trustee system is a key part of today’s bankruptcy landscape, and practitioners would be well advised to familiarize themselves with its operations.