Chapter 13 Trustees Prosecutorial Discretion

While administering cases, Chapter 13 Trustees should carefully exercise their prosecutorial discretion. Trustee discretion is a powerful tool. It should be used wisely and consistently.  Trustees should have office policies in place fort heir attorneys and office staff.  What matters involve discretion? The UST Chapter 13 Handbook describes some:

  • Objections to claims if a purpose to be served
  • If advisable, oppose debtor’s discharge
  • File for dismissal for debtor filing multiple cases
  • File for dismissal for plan default
  • Continuances of Section 341 meetings and other hearings
  • Review of debtor’s attorney’s fees

We asked the NACTT Emeritus Trustees for their thoughts and examples of using trustee prosecutorial discretion:

      1. Herb Beskin’s viewpoint:

        • Objections to claims if a purpose to be served

        –I chose not to object to late student loan claims, since no good purpose would have been served

        –If a creditor was not properly listed on the initial schedules and matrix and filed a late claim, I would not object if the claim was filed within the Code-based time frame beginning when they found out, or were noticed about, the case

        –If a small or unsophisticated creditor failed to file a claim on time and called me, and there was a good reason for the failure, I would sometimes talk to the debtor’s attorney and see if there was some way to avoid an objection

        • If advisable, oppose debtor’s discharge

        –There is precedent in our adjoining District for opposing discharge if the debtor was behind in her direct-by-debtor mortgage at the end of the case; I chose never to raise that issue

        –If a debtor at the end of her case was very close to finishing but was in default, and the 60 months had run out, we would almost always continue our motion to dismiss for a few extra months beyond the 60 to allow the debtor to limp across the finish line

        –In two particularly egregious situations we filed motions to revoke the discharge

        • File for dismissal for debtor filing multiple cases

        –I would consult with the AUST whenever I thought a case should be dismissed with sanctions, and we would coordinate our efforts.  If the cases were filed over a long period of time, or if there were good reasons for the multiple filings, I would let the attorney know I would be watching the case closely but would hold off seeking dismissal to give the debtor a chance

        • Continuances of § 341 meetings and other hearings

        –I almost always gave the debtors the benefit of the doubt on a first continuance, even if there was no reason or no good reason for the continuance; the second continuance needed a good reason

        –Continuation of confirmation hearings required some showing of progress or good faith, but I was lenient about those as well.  We would usually set conditions for a continuance to keep the pressure on the debtor. Our process was made more efficient by the fact that in every case, our post-341 report to the Court and the debtors contained a pending motion to dismiss until the case was confirmed

        • Review and object to debtor’s attorney’s fees: trustee should exercise discretion

        –I and the other District Trustee assisted, and joined with, a group of debtor’s counsel in petitioning the Court for an increase in the no-look fee after an interval of five years.

        –A big part of my job on this issue was trying to ensure consistency in the fees being sought and awarded for post-confirmation work.  In some cases that meant alerting attorneys to their right to apply for more fees than they were asking for; more often it meant seeking to reduce their fees to the generally allowed amounts.

        –In those few cases where attorneys kept contemporary time records and were billing by the hour, we reviewed their time records to ensure the requested fees were “reasonable”

        • Addressing discourteous debtors and/or their attorneys:

        –The biggest, most time-consuming, and most difficult situations involved attorneys who needed to be either sanctioned or driven out of the practice.  I always consulted in such cases with the AUST; sometimes I proceeded on my own, sometimes in conjunction with her.  Actions taken included a range of options: letters or phone calls laying out the problems; lunches to try to resolve the issues; Court petitions to disgorge fees; referral to the state bar for substance abuse counseling; petitions to prevent the attorney from continuing to practice before the Court; working with the attorney and the state bar to refer (sometimes hundreds of) clients to new attorneys;

        –Dealing with debtor complaints about their attorneys: I felt it was my responsibility to make sure these mostly-legally-unsophisticated clients knew their options if they wanted to pursue a complaint.  So, I did three things: I kept a list of all debtor complaints about their lawyers; I would send a standard letter to debtors outlining their complaint options; and I would tell the attorney about the complaint and suggest they contact the unhappy client.

      2. George Stevenson recalled:

        Using discretion when dealing with informants both real and anonymous. Also, being cautious in acting where there have been threats directed at the trustee or staff.

      3. Nancy Grigsby writes:

        I know we filed many actions to recover transfers, both money and property. It was amazing how often debtors wanted to repay friends and family outside bankruptcy.

        Also, sales of real property often saw attempts to bypass the court and pay equity into debtor’s pockets. Title companies who improperly disbursed from settlement was a big one. We had a very strict policy that settlement statements had to be approved by the trustee ahead of closing. We looked for attorneys trying to get paid directly from settlement without court approval and direct payment of debts where claims had been filed and were to be paid by the trustee. Many times, we settled but filing the complaint to get the parties an incentive to settle was usually needed.

      4. Robert Wilson reports:

        In decisions and actions, I tried to apply a modified Business Judgment Rule. I would investigate the facts, take the care of a reasonably prudent person, act in the best interest of all the constituents, and proceed in good faith. While some decisions were not always appreciated, most folks knew I was not acting in my own self- interest or contrary to my fiduciary obligations

      5. Jan Johnson notes:

        There is a lot of discretion in the Motion to Dismiss process, especially when it refers to delinquency. Each trustee has their limits as to how delinquent a plan is before filing aMTD. If a debtor is working diligently and proactive in their case, the trustee may be willing to give a bit more leeway. This becomes crucial in the last few months of a plan,where you want the debtor to receive a discharge, but they must want it also.

        Claim objections should be filed “if a purpose would be served”. I think that gives the trustee some discretion in the objection process.

      6. Michael Joseph observes an important area for trustee discretion:

        Confirmation objections:  Plan distributions, direct or under the plan, classification of claims to be paid, and order of payments.

        My policy was to be consistent in our approach.  A rationale was needed if the proposed plan veered off in a direction different than customary for the district.For example, many times debtor’s attorneys sought to have their fees classified as top priority to be paid first. Since most cases involved adequate protection distributions for secured vehicles I would not agree to that classification.  Instead, I would, in my discretion, advise the attorney I would only recommend confirmation if the attorney agreed that fees would be paid pro rata with priority and secured creditors.  This worked well as the attorneys bought into the system.

      7. Jan Hamilton writes:

            1. There are three main sources of information, which may temper what one might do in any one case.
              1. The Handbook for Chapter 13 Trustees while not mandated, is one of the first places your United States Trustee will cite to you on any one matter involving your discretion.  Review the Handbook.
              2. Positions taken by the United States Trustee in your region.   While you may wish to consider the position of the UST, you are the trustee and if they disagree with your position, they know where the courthouse is.
              3. Your judges…Know them well.  ‘Nuff said…
              4. And the trump card here is….what do the Bankruptcy Code and the Rules say?
            2. The Handbook describes various items, which may involve prosecutorial discretion. Review Chapter 3 of the UST Chapter 13 Trustee Handbook:
              1. While the handbook notes that objections to claims should be filed, if there is a purpose to be served, I objected to late filed claims routinely.  My reasoning was that if there was a recovery for the estate of some consequence, in hindsight an objection should have been filed.  However, note that if there is no objection, the claim is allowed.   See 11 USC 501 and 502.   There is no process for allowing a claim to be filed out of time by motion, although there are many nuances to this concept.
              2. I don’t recall ever opposing a debtor’s discharge, unless it was for failure to pay child support.
              3. I rarely objected to attorney fees.  In my view, I would have to have an expert witness.  I know there are some judges who contend they are, per se, experts, but not only is this reasoning specious, it turns the judge into an advocate.  I was often pressured by the UST to file such objections, but I routinely pushed back, for the reason noted above.   I don’t think the UST fully appreciated the amount of work, which went into a Chapter 13.  I felt arguing that the fees should be similar to a Chapter 7 fee, ignored the realities of a Chapter 13 case.
              4. We routinely filed motions to dismiss for default.  However, we tended to give debtors a lot of rope here.  If the case was dismissed for default, then probably there would just be another bankruptcy.
              5. We did file motions to dismiss for “frequent filers”. Again, know your judge.  The debtors nearly always have a story.  And many are the poorest of the poor.  There were times I had to defend my practice in this regard to the UST.  I was surprised at the apparent lack of understanding that it is the judge that decides these matters and I wasn’t going to file an objection until I thought it would stick.  Similarly, continuances often gave the debtor a chance to get caught up..alternatively that gave the debtors enough rope to figuratively hand themselves.  Often, we sought a dismissal with a bar to refiling, for a certain period of time.
              6. When assets were to be disposed of by the debtor, I always insisted upon a motion and order, unless it was in the ordinary course.  A good example of this would be sales of cars off a car lot.   Getting the proceeds of a sale to the estate was always my primary objective.
              7. I think our local bar was well familiar with what would happen if the non-bankruptcy attorney sought to be paid direct.
              8. Of course, we filed objections to confirmation. There are lots of grounds for such a course.   Although we looked hard at feasibility, I was always surprised at the debtors of limited means who completed their plans and debtors of means who did not. This is an area in which the Trustee should be given final say.
            3. While the UST may have standing in many of the areas in which a Chapter 13 Trustee might operate, I rarely found that the UST’s involvement was helpful. A good example of this was the Wark case. In re Wark, 542 B.R. 522 (2015). In that case, the UST attempted to obtain dismissal of several cases, which they believed were not feasible. The results for decidedly debtor oriented. I commend this case to you if you are being pressured to opposed low dollar Chapter 13 cases.
            4. By way of a final word, understand that you are an independent trustee.    You get to make you of prosecutorial decisions.  Having a consistent approach to cases and developing a format for how you will administer your cases is important.    If your view of a case is different than the UST’s, be prepared to support you decision.  On several occasions I noted that although I had made the decision to take a challenged action and invited the UST to file its own operative pleading.

        Additionally, the same holds true of pressure from creditors attorneys. No one should be able to dictate how you run your office. Defend yourself.

      8. Finally, it is important to remember that prosecutorial discretion encompasses reasonableness, courtesy, and civility.
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Former Chapter 13 Standing Trustees

The NACTT Emeritus Trustee Committee is made up of former Chapter 13 Standing Trustees from all over the country: Michael Joseph, Herb Beskin, Chuck DeHart, Pete Fessenden, Mike Fitzgerald, Nancy Grigsby, Mary Grossman, James Henley, Howard Hu, Jan Johnson, Jeff Kellner, Tom King, Bill Miller, Frank Pees, Jan Hamilton, Denise Pappalardo, George Stevenson, and Robert Wilson.

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