In all bulk legal practices, there is a concept of a case that is “off the wheel”: a case that cannot be processed through the system in an orderly, cost-effective and efficient manner along with the hundreds of similar cases. Anyone having a bulk practice will tell you that an off-the-wheel case necessarily draws attention to itself; it requires greater overview and inquiry.
The administration of bankruptcy cases by every panel trustee and every standing trustee is a bulk practice. Smart debtors’ attorneys know that most of the time, the best result for a debtor is to do everything possible to keep the case on the wheel and inconspicuous. As a debtor’s attorney, one of the easiest steps you can take toward achieving this goal is to file complete initial documents when you file the bankruptcy case and get the trustee all the documents that trustee requires, at the time that the trustee requires them. Do not make the trustee chase you for paperwork.
Although debtors have a self-executing duty to surrender all property of the estate and all financial records to the trustee, without request by the trustee,[1] there is no trustee who could function if every debtor brought all of their assets and financial records to the trustee’s office upon the filing of a case. Therefore, each trustee develops a procedure as to what is required to be provided in advance of the § 341(a) meeting of creditors, what is required to be brought on the day of the meeting and what might need to be provided subsequent to the meeting.
Why Does the Trustee Want “That” Now?
Debtors’ attorneys often seem perplexed about why a particular trustee will or will not hold the § 341(a) meeting if certain documents are not complete and provided in advance, or why one will hold a meeting without proof of certain items being tendered at the meeting, whereas others will simply not hold the meeting that day and will continue the meeting for another day. The answer to those questions begins by under- standing that in order to comply with the Handbook for Chapter 7 Trustees[2] or the Handbook for Chapter 13 Standing Trustees,[3] all trustees where the U.S. Trustee has jurisdiction[4] must review certain documents at some point — and, for some of those documents, obtain them by a specific time. These handbooks implement the document review and timing requirements contained in the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, as well as the preferences of the Executive Office for the U.S. Trustees as to what documents the trustee should be reviewing and when.
Thus, within the parameters of each trustee’s unique request for when they want certain documents are the required documents specified in the handbooks. All trustees are obligated to make sure that the debtor timely files all necessary documents, and that those documents are sufficient.[5] A trustee is instructed to confirm that the credit counseling certificate (demonstrating that the class was taken in a timely manner) is filed.[6] Also, a trustee must receive the debtor’s most recently filed federal income tax return no later than seven days before the date first set for the § 341(a) meeting of creditors.[7]
At the § 341(a) meeting of creditors, all trustees must inspect a debtor’s photo identification and evidence of a Social Security number, review the required payroll advices, and look at the statements that include the petition date for all bank, investment and other financial accounts.[8] Perusing those documents for each debtor during the meeting itself would be time-consuming, so most trustees request that the documents be provided in advance of the § 341(a) meeting.
From this point, the duties under the handbooks for a chapter 13 standing trustee and chapter 7 panel trustee diverge in accordance with the process of each chapter and the relief accorded to the debtor under each chapter. Some of those divergent duties are mandatory, while some are optional. Even though the likely goal of the trustee handbooks is to create uniformity among trustees nationwide, the point where duties become optional is the point where each trustee starts to develop a unique way of handling cases. Each trustee decides how to best fulfill his/her broad duties contained in the handbooks. Naturally, each trustee will ask for the documents that he/she feels are necessary to do so.
Probably the most important point for a debtor’s attorney to realize is that both chapter 13 and 7 trustees are not only administrators of the assets entrusted to them for the benefit of creditors, they are also the gatekeepers: the front-line protectors of the integrity of the bankruptcy system. This is why trustees may want or need documents above and beyond the initial required documents. Trustees must be sure that debtors who do not comply with the Bankruptcy Code and Rules’ requirements and who do not utilize the bankruptcy process in good faith are not allowed to reap the rewards that bankruptcy provides to a compliant and honest debtor, such as being able to retain property and pay under a plan in a chapter 13 or receive a discharge under either chapter 7 or 13.
Debtor’s Duty to Disclose and Cooperate
A debtor has the affirmative duty to surrender records to the trustee.[9] “This duty is non-negotiable... (‘Shall means shall.’). Section 521(a)(3) also requires that a debtor ‘cooperate with the trustee as necessary to enable the trustee to perform the trustee’s duties....’ Federal Rule of Bankruptcy Procedure 4002(a)(4) underlines those responsibilities by requiring that debtors ‘cooperate with the trustee in ... the administration of the estate.’”[10] Frankly, most of what a debtor does to meet this standard has to do with “paper.” Preparing complete and accurate initial filing documents is the start; providing the required documents under 11 U.S.C. § 521 is the next step. Giving the particular trustee in the case what he/she wants before the § 341(a) meeting of creditors follows. Amending filings, or providing the trustee anything requested during or at any time after the meeting of creditors, wraps it up.
A debtor who does not observe these steps does so at his/her own peril. The trustee is not supposed to overlook those failings and is obliged to act in that event. A chapter 7 trustee who is required to move for turnover of assets or information must also (1) move to dismiss a case, object to a debtor’s discharge or seek revocation of it depending on the nature and scope of the debtor’s noncompliance, failures to appear and/or to cooperate, or for bad faith; and (2) report abuse of the process to the U.S. Trustee.[11] Similarly, a chapter 13 trustee (1) is to oppose the discharge of the debtor if advisable, (2) may move to dismiss the case for untimely filings of documents or for providing incomplete documents, and (3) is required to report bankruptcy crimes to the U.S. Trustee.[12]
A debtor’s duty to cooperate, including to produce documents, does not end when the discharge is granted.[13] Yet some debtors’ attorneys take the position that because the failure to cooperate after an entry of the discharge can only lead to revocation of the discharge if the debtor’s actions amount to fraud under § 727(d)(1),[14] a debtor’s mere lack of cooperation, without the debtor also having originally obtained the discharge by fraud, insulates the debtor. Courts do not condone such action when it perverts the purposes of the bankruptcy process.
For an attorney to take that position in a chapter 7 case is a mistake, as the Tenth Circuit Bankruptcy Appellate Panel (BAP) confirmed in In re Auld.[15] The court concluded that “recorded information” might be ordered produced under § 542(e) and that a debtor’s duty of cooperation (as imposed by § 521(a)(3) and Rule 4002(a)(4), and supplemented by Local Rule 4002-1) allows a trustee to obtain “other information” after the discharge has been entered.[16] In Auld, the bankruptcy court had refused to enter an order on an unopposed trustee’s motion for turnover of an asset, documents and information.[17] The BAP held that the bankruptcy court should have entered an order compelling the debtor to turn over assets, as well as all re- corded and unrecorded information.[18]
Although not addressed in the Auld case, since long before the Bankruptcy Code was enacted, amendments to the Bankruptcy Act meant that it was “no longer necessary or proper for a bankruptcy judge to withhold the discharge during the pendency of the bankruptcy proceedings to aid in exacting the bankrupt’s cooperation. The discharge can now be revoked ... for failure to obey a lawful order of the Court.”[19] This concept was carried into the Bankruptcy Code, where a ground for revocation of discharge is if a debtor “refuses to obey a lawful order of the court or to testify.”[20] What this means is that a chapter 7 trustee can obtain a revocation of the uncooperative debtor’s discharge so long as the debtor simply refuses to abide by a court order that the debtor provide documents or information. There is no “fraud” requirement. Similarly, an attorney for a chapter 13 debtor will fail if using the discharge as a bar to the trustee ad- ministering assets that the trustee discovers after the discharge has been granted. In one instance where the strict grounds for revocation of discharge under § 727 were not present, one court held that the trustee could use Bankruptcy Rule 9024 to vacate a discharge in order to administer a tax refund that the debtors knew was coming toward the end of their plan but had failed to disclose to the trustee, and of which the trustee did not learn until after the discharge had been granted.[21]
Know the Requirements, and Know Thy Trustee
Needless to say, knowing that the trustee is required to make sure that a debtor performs the duties required by the Bankruptcy Code and Rules, the first order of business for a debtor’s attorney should be to ensure that the debtor is complying with 11 U.S.C. § 521. The attorney should endeavor to fully understand the requirements (e.g., that the § 521 pay advices to be tendered to the trustee do not cover the same time period as those required to determine current monthly income as part of the means test).
Furthermore, by looking at the trustee handbooks,[22] a debtor’s attorney often will find answers to their questions as to why trustees request certain documents. It is not widely publicized to bankruptcy practitioners that the Handbook for Chapter 7 Trustees and Handbook for Chapter 13 Standing Trustees are readily available for viewing on the U.S. Department of Justice’s website[23] and are not some secret initial documents only given to trustees upon appointment. Also, the website has a section for “Frequently Asked Questions for Trustees,” with several sections that would greatly aid attorneys for debtors, most notably “Chapter 13-Specific Issues” and “Debtor Duties and Dismissal of Cases.”[24]
Beyond the basics, knowing specifically what your particular trustee wants and when will make a debtor’s case flow much more smoothly. For example, knowing that the trustee wants bank statements does not tell you whether the trustee wants just the statement that shows the balance on the date of filing as required by the chapter 7 handbook or whether the trustee wants the last 30 days of statements. If the trustee does not have a website or does not send out a notice or email describing specifically what he/she requires, contact the trustee’s office.
Throughout the rest of the case, promptly provide the trustee with any documents, information or amendments to led documents that the trustee has requested. Delay on your part does nothing good for you or the debtor. Trustees, like anyone else, are only human. If your actions delay the trustee’s administration of the case (take it “off the wheel”), you have created an impression in the trustee’s mind that you are inattentive — so a trustee might wonder what else your inattention caused you to miss. Equally concerning is if a trustee senses that a debtor is delaying, a natural response is to wonder whether the debtor has something to hide.
Conversely, if the trustee knows that you can be counted on to make things ow smoothly, you get the benefit of that favorable impression in dealing with that trustee in the future. Furthermore, if the debtor provides requested documents quickly, the trustee can see that the debtor is serious about performing his/ her duties and being forthright in the case. This creates a win/win situation for everyone.
[1] 11 U.S.C. § 521(a)(4); In re Auld, 561 B.R. 512 (B.A.P. 10th Cir. 2017).
[2] See Handbook for Chapter 7 Trustees, Dep’t of Justice, Executive Office for U.S. Trustees, available at https://www.justice.gov/ust/file/handbook_for_chapter_7_trustees.pdf/do… (unless otherwise specified, all links in this article were last visited on May 25, 2017).
[3] See Handbook for Chapter 13 Standing Trustees, Dep’t of Justice, Executive Office for U.S. Trustees, available at justice.gov/sites/default/files/ust/legacy/2015/05/05/Handbook_Ch13_Standing_Trustees_2012.pdf.
[4] Bankruptcy cases in Alabama and North Carolina are not under the jurisdiction of the U.S. Trustee Program. Trustees in those states still perform the duties required of the trustee, as well as ensure that debtors perform their duties under the Bankruptcy Code and Federal Rules of Bankruptcy Procedure.
[5] 11 U.S.C. § 521; Handbook for Chapter 7 Trustees, § 3(B); and Handbook for Chapter 13 Standing Trustees, Chapter 3(A) ¶ 2.
[6] Id.
[7] Id.
[8] Handbook for Chapter 7 Trustees, § 3(D), ¶ 5, and Handbook for Chapter 13 Standing Trustees, Chapter 3 Part (B)(5). Fed. R. Bankr. P. 4002(b)(2).
[9] See 11 U.S.C. § 521(a)(4).
[10] In re Lopez, 532 B.R. 140, 151-52 (Bankr. C.D. Cal. 2015) (citing Brower v. Evans, 257 F.3d 1058, 1068 n.10 (9th Cir. 2001), and In re Starky, 522 B.R. 220, 227 (B.A.P. 9th Cir. 2014)).
[11] See, e.g., Handbook for Chapter 7 Trustees, § 3(D), ¶ 13; § 4(B); § 4(d), ¶ 5; § 4(G); § 4(N), ¶ 7; and § 4(N), ¶ 9.
[12] Handbook for Chapter 13 Standing Trustees, Chapter 1(C); Chapter 3(A), ¶ 2; Chapter 3(B); Chapter 5(A); and Chapter 5(B).
[13] In re James, 77 B.R. 174 (Bankr. S.D. Ohio 1987).
[14] In re Albers, 80 B.R. 414, 417 (Bankr. N.D. Ohio 1987).
[15] In re Auld, 561 B.R. 512 (B.A.P. 10th Cir. 2017).
[16] Id. at 521.
[17] Id. at 517.
[18] Id. at 521-22.
[19] In re Hobson, 424 F. Supp. 375, 376 (E.D. Mo. 1976).
[20] 11 U.S.C. § 727(d)(3) (directing that refusing to obey court order as set forth in § 727(a)(6) is a basis for revocation of discharge).
[21] In re Midkiff, 342 F.3d 1194, 1201 (10th Cir. 2003).
[22] For example, the frequent question of what proof of a Social Security number will a trustee accept is set forth in both handbooks. They state that the only acceptable documents that a trustee may accept as evidence of a Social Security number is a “Social Security card, medical insurance card, pay stub, W-2, IRS form 1099 and Social Security Administration Statement.” What is clear is that any document created by the debtor, such as the debtor’s own tax return, is insufficient.
[23] Supra n.2 and n.3.
[24] See “Frequently Asked Questions for Trustees,” Dep’t. of Justice, available at justice.gov/ust/frequently-asked-questions-faqs-trustees.