Washington, D.C.
Office of Research and Planning
PRESS RELEASE
For Immediate Release
October 30, 2001
U.S.
TRUSTEE PROGRAM LAUNCHES
BANKRUPTCY CIVIL ENFORCEMENT INITIATIVE
WASHINGTON, D.C.--The
United States Trustee Program has launched an initiative to
more aggressively use existing civil enforcement methods to
curb abuse of the bankruptcy system, Martha Davis, Acting
Director of the Executive Office for United States Trustees,
announced today.
"Effective case
administration is vital to ensure the American public that
the bankruptcy system provides relief for honest but unfortunate
debtors overcome by serious financial difficulties," Davis
stated. "The Civil Enforcement Initiative emanates from the
U.S. Trustee Program's long-standing commitment to enforce
the Nation's bankruptcy laws and explore other meaningful
strategies to bolster public confidence in the integrity and
effectiveness of the bankruptcy system."
"The priorities
of the initiative will require a concerted effort nationwide
to use existing tools in a way that best accomplishes tangible
results and improvements for case administration," Davis continued.
"Many of our offices use such strategies today and we hope
to build upon their experience. By focusing our resources
on these priorities, we also seek to address some of the concerns
that have been at the forefront of debate in recent years
both before Congress and in other public venues. In the end,
this is very much a community effort that will require communication
and cooperation with private bankruptcy trustees and with
the bankruptcy bench and bar."
These are the
priorities of the Civil Enforcement Initiative:
- Ensuring that Chapter 7 is not abused and that
Chapter 7 debtors are held accountable. Chapter
7 debtors who do not comply with the law will have their
cases converted or dismissed, or their bankruptcy discharges
denied or revoked. Enforcement measures include motions
to dismiss Chapter 7 cases under 11 U.S.C. §§ 707(a) and
707(b), and complaints to bar or defer discharge under 11
U.S.C. § 727.
- Protecting consumer debtors, creditors, and others
who are victimized by those who mislead or misinform debtors,
make false representations in connection with a bankruptcy
case, or otherwise abuse the bankruptcy process.
Attorneys and bankruptcy petition preparers (non-attorneys
who prepare bankruptcy documents for a fee) must engage
in full disclosure, be free of conflicts of interest, and
engage in ethical practices. Enforcement measures include
motions for sanctions, contempt of court, and disgorgement
under 11 U.S.C. § 329 for misconduct by attorneys,
and complaints and motions under 11 U.S.C. § 110 for misconduct
by bankruptcy petition preparers.
- Ensuring that Chapter 11 debtors proceed with
their cases promptly, and are informed of and held to account
for their obligations under the Bankruptcy Code.
Enforcement measures include Initial Debtor Interviews and
motions to convert or dismiss Chapter 11 cases under 11
U.S.C. § 1112.
- Fighting fraud and abuse by making criminal referrals
and assisting United States Attorneys in criminal prosecutions.
The U.S. Trustee
Program is a component of the Justice Department that oversees
the administration of bankruptcy cases and intervenes in court
to enforce the bankruptcy laws. There are 21 regions in the
Program, each headed by a U.S. Trustee appointed by the Attorney
General.
The Civil Enforcement
Initiative took effect Oct. 1, 2001, with the start of the
federal government's 2002 fiscal year. Previous U.S. Trustee
Program initiatives have focused on issues such as enhancing
the supervision of private trustees who administer Chapter
7 bankruptcy cases, increasing the efficiency and speed of
Chapter 7 case administration, and increasing the efficiency
and speed of Chapter 11 case administration.
Civil
Enforcement Initiative:
Case Examples
Here are some examples of civil enforcement actions by the
U.S. Trustee Program:
Bankruptcy Petition
Preparers -A bankruptcy petition preparer is a non-attorney
who, for compensation, prepares bankruptcy documents for filing
with the Bankruptcy Court. The conduct of BPPs is governed
by 11 U.S.C. §110, which provides penalties for fraudulent
acts and is enforced by the U.S. Trustee.
- Five defendants in a complaint filed by the U.S. Trustee
in the Middle District of Pennsylvania agreed to a consent
decree and order providing for entry of a $300,000 judgment
and permanently enjoining them from acting as bankruptcy
petition preparers. The defendants operated a foreclosure
scam. They solicited persons who were facing foreclosure,
offering to provide assistance in delaying foreclosure and
obtaining refinancing, for an initial payment of $1,000
and additional monthly payments of $300 to $700. In reality,
the defendants frequently coached clients in the preparation
and filing of pro se bankruptcy petitions as a tool to delay
foreclosure. The clients failed to file the additional disclosures
to the court that are required by law, and their bankruptcy
petitions were dismissed.
- The Bankruptcy Court for the Central District of California
approved a settlement between a bankruptcy petition preparer
and the U.S. Trustee, under which the BPP agreed to sanctions
of $29,000 and a permanent injunction against operating
anywhere in the country. The U.S. Trustee alleged that in
at least 35 cases the BPP misled clients into believing
they were being represented by attorneys by using the names
of licensed attorneys without their knowledge or consent.
- The U.S. Trustee instituted civil enforcement actions
against a bankruptcy petition preparer who committed perjury
before the Bankruptcy Court for the Eastern District of
Virginia. In addition to obtaining a disgorgement order
and other civil relief, the U.S. Trustee referred the matter
to the U.S. Attorney, who prosecuted the BPP on criminal
charges. The BPP ultimately pleaded guilty to perjury, mail
fraud, wire fraud, and bankruptcy fraud for actions that
included: fraudulently obtaining $19,000 in funds wired
from a New York couple seeking his help in saving their
home from foreclosure; advising a debtor to overstate income
and understate debts in a bankruptcy filing; and misrepresenting
himself as an attorney to collect a fee.
Attorney Misconduct--
Sanctions against attorneys include fines, contempt of court
orders, temporary suspension from practice, and disbarment.
- The Colorado Supreme Court disbarred an attorney in a
consolidated disciplinary proceeding involving five separate
claims, 14 different client matters, and a finding of 49
individual rules violations. The U.S. Trustee filed the
grievance upon which three of the five claims and 13 of
the rules violations were premised. The violations included
the failure to file a client's bankruptcy case after receiving
payment from the client, and the failure to adequately represent
clients after filing their cases.
- The Texas Commission for Lawyer Discipline ordered the
interim suspension of a bankruptcy attorney, based in part
upon evidence provided by the U.S. Trustee showing that
the attorney made unauthorized charges on clients' credit
card accounts and used debtors' vehicles that were intended
to be surrendered to secured creditors.
- The Bankruptcy Court for the Eastern District of Louisiana
granted the U.S. Trustee's motion to hold an attorney in
contempt of court for failure to file required documentation
and failure to appear on behalf of clients at statutorily
mandated meetings of creditors and bankruptcy court hearings.
Denial of Discharge
under 11 U.S.C. §727 -Section 727 states the grounds
upon which the Bankruptcy Court shall completely deny a debtor's
Chapter 7 discharge.
- The Bankruptcy Court for the Northern District of Georgia
denied a Chapter 7 debtor's discharge of more than $834,570,
based on the U.S. Trustee's complaint. The debtor and his
corporation failed to disclose on their bankruptcy schedules
the pre-bankruptcy sale of vending machines and accounts,
and the pre- and post-bankruptcy receipt of payments for
the machines and accounts. The debtor also denied under
oath that the vending machines and accounts had been sold.
- The Bankruptcy Court for the Eastern District of Virginia
revoked a debtor's Chapter 7 discharge based on the U.S.
Trustee's complaint alleging that he had removed around
$28,000 from his company's bank account while the company
was in bankruptcy, and had failed to report that action
along with other required information. The Bankruptcy Court
found that the debtor had obtained his personal bankruptcy
discharge by committing fraud.
- Based on the U.S. Trustee's filing, the Bankruptcy Court
for the Central District of California denied a Chapter
7 discharge where the debtor knowingly and fraudulently
listed another person's Social Security number on his bankruptcy
petition. The debtor also stated at the meeting of creditors
that the information on his bankruptcy petition was correct
and that he had two Social Security numbers.
Motions to Dismiss
a Case for "Substantial Abuse" under 11 U.S.C. §707(b)-
Section 707(b) permits the Bankruptcy Court to dismiss a Chapter
7 consumer case, or to convert the case to a Chapter 13 repayment
case, if granting Chapter 7 relief would be a substantial
abuse of the Bankruptcy Code.
- The Bankruptcy Court for the Northern District of Georgia
granted the U.S. Trustee's motion to dismiss the Chapter
7 case of a debtor whose monthly income exceeded $9,600.
The debtor proposed to reaffirm (agree to repay, in order
to avoid losing collateral) two secured debts on his $270,000
home and a debt secured by his Mercedes Benz, but he proposed
to discharge an $81,000 judgment debt owed to an individual.
The U.S. Trustee argued that allowing the debtor to discharge
a single unsecured debt while maintaining an extravagant
lifestyle would constitute a substantial abuse of the bankruptcy
system.
- The Bankruptcy Court for the Western District of Texas
granted the U.S. Trustee's motion to dismiss the Chapter
7 case of a couple who earned $9,000 per month, claimed
more than $500,000 in retirement accounts as exempt, and
listed the following among their monthly expenses: $900
in contributions to various retirement plans; $870 for transportation
other than car payments; and $250 for recreation.
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