Remarks of Director Cliff White at the 2022 Mid-Year Meeting of the National Association of Chapter 13 Trustees (Pre-recorded)

INTRODUCTION

Welcome back to Washington, DC. Over the past few months, I have had the occasion to speak with the NACTT’s leadership team several times. I greatly appreciate that your President, Mary Viegelahn, has worked closely and cooperatively with the U.S. Trustee Program (USTP or Program) on so many important issues, including tackling the threat of mass evictions. The Department of Justice (DOJ), along with other agencies of the federal government, has been involved in an effort to sensitize courts at all levels to the risk that so many families face of losing their homes as the moratoria on rental evictions expire. The Attorney General has spoken with state judges and we in the USTP have talked with bankruptcy judges.

Importantly, all of you have been instrumental in getting the word out to chapter 13 debtors about the availability of emergency rental assistance (ERA) programs. These funds can provide a much-needed lifeline to landlords and tenants alike—such as by covering arrearages and preventing the necessity of an eviction. Among other things, you have been distributing to all debtors and counsel who come before you the one-pager we developed that provides helpful information on ERA programs and links to local agencies dispensing ERA funds. Some chapter 13 trustees have gone even further by arranging for a mass mailing of the notice through the NDC, posting it prominently on their websites, and sending email blasts to consumer practitioners. I have heard from many sources how effective your efforts have been in informing those facing eviction about ERA programs and giving them a chance to avoid the heartbreak that losing the family home inevitably brings. You have my sincere thanks for all your support and assistance in this joint effort to help those in need.

THE FUTURE OF SECTION 341 MEETINGS

I am confident that your collaboration with us on other projects will be equally successful. Key among these will be important changes to the way we conduct section 341 meetings.

The section 341 meeting is one of the essential gates through which all debtors must pass. It is the only formal proceeding a consumer debtor attends in a typical bankruptcy case. At these meetings, debtors testify under oath and answer questions from the trustee, the U.S. Trustee, and creditors. Attendance at the meeting is usually the most significant step in the process towards confirmation of a chapter 13 repayment plan and eventual emergence from bankruptcy.

I have said for some time now that the USTP would make permanent changes to the section 341 meeting process after the pandemic. Currently, under special emergency procedures, the vast majority of meetings are being held by telephone, although some trustees, particularly chapter 13 trustees, have been conducting them by video.

Next month, the USTP will begin to phase in a new approach by which all initial section 341 meetings in chapter 7, 12, and 13 cases will move on a permanent basis to a video platform. There may, of course, be exceptions in rare cases when video is not possible and conducting the initial examination by telephone will still be necessary. There also may be cases when a continuance is needed and there is a preference for it to be in-person regardless of whether the initial meeting was conducted by phone or video. Until such time as the pandemic recedes, however, only video or telephonic meetings are permitted (except in the most exceptional circumstances and after consultation with the U.S. Trustee).

As part of this permanent move to video and to help ensure consistency, security, and proper privacy protections, the USTP will procure Zoom licenses for use by trustees. The Program also will carefully regulate and oversee these virtual meetings. We will first issue interim procedures as we phase in the new policy during the pandemic that will address various aspects of the conduct of meetings, such as recordings, uniform questioning of debtors to ensure proper debtor identification, limitations on continuances, and standards for proper decorum by all participants. We will then later update the Manual and Handbooks with this information, along with appropriate adjustments based on lessons learned.

I commend Mary and the NACTT leadership for working with us to address the many technical and other issues that must be resolved before rolling out the new video meetings on a nationwide basis. We expect that this move to video will not only continue to provide ease of access to the meetings by both debtors and creditors, but also will ensure the evidentiary reliability of the meetings. At this point, meetings will continue to be conducted in accordance with the current protocols until such time as the Program completes its initial testing and begins a formal rollout.

The permanent move to video section 341 meetings represents the most fundamental change in the conduct of these meetings in at least a generation. We must get it right because about one million of our fellow citizens each year will be directly affected by this change. And the efficiency and integrity of the bankruptcy process depends upon section 341 meetings that provide for probative questions and essential fact-finding.

As we move to a nationwide system of conducting these meetings by video, we hope to gradually—but significantly—reduce the section 341 meeting space the USTP currently rents for trustees to use, which should result in significant savings for taxpayers. There likely will be bumps in the road, but with your help, we will get it right. And the system will better serve debtors, creditors, and the public.

CONSUMER PROTECTION

Another top priority of the USTP for the year ahead is protecting vulnerable debtors from fraud and abuse. We have made important progress in this area and I wanted to share a few examples with you of our recent activity.

First, two financial institutions self-reported to the Program systemic errors that included, among other things, the filing of thousands of inaccurate proofs of claim in chapter 13 cases. After discovering the problem, the banks came to us to work out an appropriate remedial scheme. To correct the errors, the banks are in the process of providing refunds, credits, or loan forgiveness to impacted debtors and making corrective filings in bankruptcy cases where needed.

There are two good lessons we can take away from this. First, these institutions recognized that the best solution is to self-report. This is a far cry from the situation we used to face with mortgage and credit card companies that would continue improper activities until they were caught. Second, the solution involved making debtors whole and having the banks implement internal corrections to prevent recurrence of the problems. The bottom line is that thousands of debtors in bankruptcy have already received or will receive credits, refunds, or forgiveness totaling several million dollars.

In addition to the progress we have made with institutional creditors, new proposed amendments to the Bankruptcy Rules would further enhance protections for homeowners in chapter 13. The proposed rules would refine current requirements that mortgage creditors must follow when filing proofs of claim and add new reporting obligations to enhance transparency and ensure the accuracy of mortgage-related claims. More specifically, the amendments add a mid-case review so that debtors, the trustee, and other parties can detect and resolve any discrepancies relating to payments, fees, and charges well before the end of a case. The amendments also refine and clarify the procedure for determining the status of a mortgage claim at the end of a case.

The Judicial Conference’s Committee on Rules of Practice and Procedure recently published these amendments to Bankruptcy Rule 3002.1 for public comment. The NACTT was instrumental in proposing the amendments to the Rule and in working with the USTP and other members of the Bankruptcy Rules Advisory Committee to advance the amendments through the rulemaking process.

In another recent example of our efforts to protect consumer debtors, a chapter 13 trustee made a referral to the U.S. Trustee when he became aware that a debtor’s attorney committed serious errors by failing to properly analyze and disclose the value of a debtor’s property. To make a long story short, the error left non-exempt equity exposed and would have required the debtor to pay substantially more into the chapter 13 plan. Based on the referral, the USTP took an enforcement action against the attorney that resulted in disallowance of his fees and a requirement that the attorney pay an additional $16,000 into the plan so the debtor did not bear the cost of the errors. This is a perfect example of the unheralded diligence of the chapter 13 trustee in identifying the attorney’s poor performance and then working cooperatively with the U.S. Trustee to protect the debtor’s chance for a successful reorganization.

The USTP’s enforcement action in this case falls within its larger efforts to address the problem of malfeasance and nonfeasance by debtor’s attorneys. You may recall that the final report issued by the American Bankruptcy Institute’s Commission on Consumer Bankruptcy identified this as one of the most significant problems confronting debtors and the bankruptcy system. As we have discussed before, one issue is with certain debtors’ attorneys who file chapter 13 cases for higher fees even when the debtor would be better served in a chapter 7 liquidation and it can be reasonably known that the debtor cannot sustain a repayment plan. Sometimes this scheme is employed to ensure payment of attorneys’ fees that otherwise could not be paid post petition in a chapter 7 case. But sometimes it can be worse. A debtor may pay the higher chapter 13 fee only to have the case promptly dismissed after the attorney is paid—with the debtor receiving no benefit beyond a brief stay. An article by Pro Publica also suggested that there may even be an element of targeting minority populations with this scheme. To address this problem, the USTP has been developing enforcement tools and strategies to identify patterns of such attorney behavior. Stay tuned for further progress.

CHAPTER 13 TRUSTEE MANAGEMENT AND ADMINISTRATION

As we look to the New Year, we know there will be both continuing and new management and administration challenges.

Chapter 13 Filings

Many of these challenges will be driven by the number of bankruptcy filings. Perhaps due to low interest rates for mortgages and federal relief that has been made available on a widespread basis to debtors who are teetering on the precipice of bankruptcy, we saw a historically low number of filings starting in mid 2020. During the first year of the pandemic, the decline in chapter 13 filings was double that of chapter 7 filings, but that changed in the second half of FY 2021, when chapter 13 filings were nearly flat compared to the same period in FY 2020 while chapter 7 filings continued to decline.

Through the first quarter of FY 2022, chapter 7 filings remained down by nearly 30 percent, but chapter 13 filings increased by eight percent. We do not know the cause of this increase or whether it will continue. Many of you attribute the increase directly to the expiration of foreclosure and eviction moratoria. This highlights the continuing need for us to ensure that debtors are made aware of available rental assistance and other federal relief programs that may help them find alternatives to bankruptcy.

If the chapter 13 filing trend continues upward, then it will be important to have reserve funds in trustee operational accounts. Collaboration between trustees and their U.S. Trustees to determine the necessary percentage fee that will provide sufficient reserves to maintain or expand necessary staffing levels remains incredibly important. We have been and will continue to be flexible in setting individual chapter 13 trustee office budgets and fees to provide necessary reserve funding.

Trustee Outreach and Recruitment

Another area we will continue to focus on this year is trustee recruitment. We have seen an increase in the turnover of chapter 13 trustees over the past several years, in large part due to retirements. In fact, in FY 2021, the USTP conducted nine recruitments, the highest number in a decade.

We anticipate that this trend may continue and there will be additional recruitments in FY 2022. And, with those recruitments, we will focus on ways to support our diversity and inclusion efforts. This will include (1) expanding outreach efforts on digital and social media platforms to reach a broader audience; (2) increasing engagement with national and local affinity organizations; and (3) participating in national and local recruitment fairs.

The USTP also has developed a trustee training module that will be included in this year’s local and regional training programs. The new training module focuses on enhancing diversity and inclusion goals by reminding trustees of the need to always be vigilant in looking for and reporting any conduct that impinges on the integrity of the bankruptcy system; constantly evaluating interactions to ensure fairness; and focusing on environmental justice and other issues that may disproportionately impact underrepresented and low-income communities, including how to spot and report them.

Through our combined efforts, I am confident that we can continue to build a bankruptcy system that is reflective of our communities and offers a fair shake to all who seek the “fresh start” bankruptcy can offer.

EXPRESSION OF PERSONAL APPRECIATION

Finally, I want to express my personal appreciation not only for all your support of recent and ongoing initiatives, but also for making my life as Director so much more productive and effective for the bankruptcy system than it possibly could have been without your efforts. In 2021, I reached a milestone birthday and chalked up another year in my more than 40 years of federal service. After holiday reflection, I have decided to retire this Spring. I will pursue other opportunities to make a difference outside of government. In the meantime, I am committed to getting my job done and working with the Justice Department’s leadership on an orderly transition.

I am so thankful for the many public service opportunities made available to me, including during my 17 years as head of the USTP. As the Director, my colleagues and I have striven every day to carry out our mission and core duties with professionalism and diligence. We successfully implemented sweeping legislative changes to the Bankruptcy Code by strictly adhering to the law and exercising sound discretion; promoted consumer protection by pursuing violations by national creditors, including mortgage servicers and credit card companies, and cracking down on attorney misconduct; and worked to ensure compliance and accountability by management and professionals in corporate reorganization cases. These efforts have helped ensure the integrity and efficiency of the bankruptcy system for the benefit of all parties and the American public, protected the rights of millions of consumer debtors and creditors, and provided billions of dollars in remediation to wronged parties and the public. And each of you played an important role in these achievements.

CONCLUSION

We have been on quite a roller coaster over the past two years due to the pandemic, but we are coming through it and the bankruptcy system is well positioned to face future challenges. That is in no small measure due to your dedication and spirit of cooperation.

I thank you for your past contributions to the bankruptcy system and, even more, for the contributions that I know you will make in the future.

Godspeed to all of you.

# # #