Greater Oversight and Guidance of Bankruptcy Process Needed

GGD-84-55: Published: Aug 21, 1984. Publicly Released: Aug 21, 1984.

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GAO reviewed the activities of bankruptcy trustees in eight judicial districts to determine whether the interests of debtors and creditors are being protected during the administration of cases under chapters 7 and 13 of the Bankruptcy Reform Act. Chapter 7 of the act provides for the liquidation of a debtor's nonexempt assets; chapter 13 provides a debtor with the opportunity to retain his assets and repay his creditors over a set period of time.

In the chapter 7 cases reviewed, GAO found that: (1) liquidated assets were frequently deposited in non-interest-bearing accounts for several months; (2) some trustees who were appointed by the court to act as their own attorneys were being paid attorney fees for performing trustee duties; and (3) the minimum dollar limits used to determine whether to liquidate or abandon assets varied widely among trustees. GAO found that chapter 13 trustees, in four of the eight courts visited, improperly claimed and received compensation and expenses above the 10-percent ceiling set by the act. GAO believes that, if the judiciary and the Department of Justice would monitor trustee activities more closely and provide detailed procedural guidance to bankruptcy trustees, debtors and creditors could more fully realize the benefits of the bankruptcy process.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: P.L. 99-554, the Bankruptcy Judgeship and U.S. Trustee Act of 1986, transferred trustee oversight and supervision to the Department of Justice. As a result, this recommendation no longer applies to the Administrative Office (AO).

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should require trustees to invest estate funds to reduce the cost of estate administration and provide the maximum return to creditors.

    Agency Affected: Administrative Office of the United States Courts

  2. Status: Closed - Implemented

    Comments: Justice advised GAO that, on December 18, 1984, the Executive Office of U.S. Trustees issued policies and procedures on trustees' fee applications for attorney services.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should instruct trustees that, if they act as their own attorneys, they will not be reimbursed for attorney fees when they perform trustee duties.

    Agency Affected: Administrative Office of the United States Courts

  3. Status: Closed - Not Implemented

    Comments: P.L. 99-554, the Bankruptcy Judgeship and U.S. Trustee Act of 1986, transferred oversight and supervision of trustees to Justice. As a result, this recommendation no longer applies to AO.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should instruct trustees that, if they act as their own attorneys, they will not be reimbursed for attorney fees when they perform trustee duties.

    Agency Affected: Department of Justice

  4. Status: Closed - Not Implemented

    Comments: P.L. 99-554, the Bankruptcy Judgeship and U.S. Trustee Act of 1986, transferred oversight and supervision of trustees to Justice. As a result, this recommendation no longer applies to AO.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should require U.S. trustees and estate administrators to scrutinize the trustees' billing statements and to advise bankruptcy judges of the appropriateness of the services rendered.

    Agency Affected: Department of Justice

  5. Status: Closed - Implemented

    Comments: Justice advised GAO that, on December 18, 1984, the Executive Office of U.S. Trustees issued policies and procedures on monitoring trustees' billing statements.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should require U.S. trustees and estate administrators to scrutinize the trustees' billing statements and to advise bankruptcy judges of the appropriateness of the services rendered.

    Agency Affected: Administrative Office of the United States Courts

  6. Status: Closed - Implemented

    Comments: Justice does not agree with GAO that a dollar limit should be established districtwide for trustees to follow in liquidating assets. It believes that trustees should have some flexibility in this area and provided guidance on December 18, 1984, for trustees to follow when deciding to liquidate assets.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should require U.S. trustees and estate administrators to develop districtwide dollar limits for trustees to follow when deciding to liquidate assets.

    Agency Affected: Administrative Office of the United States Courts

  7. Status: Closed - Not Implemented

    Comments: P.L. 99-554, the Bankruptcy Judgeship and U.S. Trustee Act of 1986, transferred oversight and supervision of trustees to Justice. As a result, this recommendation no longer applies to AO.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should require U.S. trustees and estate administrators to develop districtwide dollar limits for trustees to follow when deciding to liquidate assets.

    Agency Affected: Department of Justice

  8. Status: Closed - Not Implemented

    Comments: P.L. 99-554, the Bankruptcy Judgeship and U.S. Trustee Act of 1986, transferred oversight and supervision of trustees to Justice. As a result, this recommendation no longer applies to AO.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should require U.S. trustees and estate administrators to closely monitor chapter 13 trustees' annual financial reports to ensure that trustees are not exceeding the maximum compensation and expense levels. In addition, monitoring activities should be supplemented by having the internal audit staffs of Justice and the judiciary review the financial activities of bankruptcy trustees.

    Agency Affected: Administrative Office of the United States Courts

  9. Status: Closed - Implemented

    Comments: Justice advised GAO that, on December 18, 1984, the Executive Office of U.S. Trustees set policies and procedures for trustees to follow in investing estate funds.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should require trustees to invest estate funds to reduce the cost of estate administration and provide the maximum return to creditors.

    Agency Affected: Department of Justice

  10. Status: Closed - Implemented

    Comments: On December 19, 1985, Justice implemented this recommendation, except that the DOD General Counsel issued an opinion stating that interest earned on deposit-of-plan payments can be used by trustees to defray administrative costs, even though this could result in the trustees' compensation exceeding the 10-percent maximum.

    Recommendation: The Attorney General and the Director, Administrative Office of the U.S. Courts, should require U.S. trustees and estate administrators to closely monitor chapter 13 trustees' annual financial reports to ensure that trustees are not exceeding the maximum compensation and expense levels. In addition, monitoring activities should be supplemented by having the internal audit staffs of Justice and the judiciary review the financial activities of bankruptcy trustees.

    Agency Affected: Department of Justice

 

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