STANDING TRUSTEE HANDBOOK
This handbook explains the operating standards required by the Executive Office for United States Trustees (Executive Office). Individual United States Trustees may - - in light of circumstances existing in their districts -- impose more stringent requirements.
APPOINTMENT AND REQUIREMENTS:The United States Trustee appoints one or more individuals as chapter 13 standing trustee (hereinafter "trustee") in a judicial district if the number of chapter 13 cases commenced there warrants the appointment. The appointment process by the United States Trustee will include, but is not limited to, advertising for the most competent individual in a publication of wide and public circulation. All appointments or removals are subject to the approval of the Director of the Executive Office, as delegate of the Attorney General.
Each candidate for appointment must complete an application, Form SF-86 (Security Investigation Data), Form DOJ-488 (Tax Check Waiver) and Form FD-258 (Fingerprint Card). Trustees must meet the qualifications set out in 28 C.F.R. section 58.2-5 and appointments are made on a non-discriminatory basis, as provided in 28 C.F.R. section 58.5 (see Appendix A). Trustee employment practices must also be nondiscriminatory to the same extent as provided in 28 C.F.R. section 58.5, and all prospective employees should be so advised by the trustee.
It is the policy of this program that the total number of pending cases to be administered by any one standing trustee should not usually exceed 9,000. If this number is exceeded in any fiscal year in any district with only one standing trustee, the United States Trustee may, with the approval of the Director, appoint an additional standing trustee. Over time, the case loads of the two trustees should be balanced, but this should be done without substantial disruption to the office of the senior trustee.
DUTIES OF THE STANDING CHAPTER 13 TRUSTEE: The duties of a trustee are set forth in section 1302 of the Bankruptcy Code (all citations to sections that follow are to sections of the Bankruptcy Code unless otherwise specified) but, as a threshold matter, the trustee should determine from the petition whether the debtor is eligible for chapter 13 relief. If the debtor is not, the court may be deprived of jurisdiction and the trustee would be without authority to administer the case. The trustee must personally preside at the section 341 meeting, unless another qualified individual is approved in writing by the United States Trustee, and should appear and be heard at hearings on valuation, confirmation, modification of plan, and sale of property. The trustee must review the budget and other financial reports transmitted to the trustee by chapter 13 debtors. In addition, the United States Trustee may require the trustee to submit a report of the section 341(a) meeting and a final report to the United States Trustee on each chapter 13 case. The trustee must prepare an annual budget request and an annual report which will be subject to audit.
DEBTORS' PAYMENTS: The trustee must file objections to the debtor's plan, if the debtor proposes to make a payment directly to a creditor on an impaired claim rather than through the trustee, whether or not a fee is to be paid to the trustee. If such a plan is confirmed over the objection of the trustee, the trustee must immediately notify the United States Trustee.
DUTY TO FILE TAX RETURNS: Sections 6012(b) (4) and 1398(a) of the Internal Revenue Code do not apply to estates or individuals under chapter 13 of the Bankruptcy Code. In addition, the chapter 13 estate is not subject to the separate entity rules and section 1398. Consequently, it is clearly the responsibility and duty of the chapter 13 debtor and not that of the trustee to prepare and file tax returns.
As to any tax returns for the standing trustee individually or for any of the accounts maintained as standing trustee, it is strongly urged that a tax accountant or attorney be consulted.
FINANCIAL INTERESTS: Trustees may not have any financial interest in any business providing debt counseling, consolidation, extension, or proration services, or perform any duties for any such business whether with or without compensation. No charge may be made for cashing a debtor's check, nor may trustees operate a checkcashing business as a function of the office of the standing trustee, whether on the same premises or elsewhere.
CONFLICT OF INTEREST: If any person related by affinity or consanguinity within the degree of first cousin to the trustee has or acquires a financial or other interest in a business providing debt counseling, consolidation, extension, or proration services in the commercial area served by the trustee, the trustee must notify the United States Trustee. The United States Trustee, in consultation with the Director, will determine whether a conflict of interest exists, or whether an appearance of impropriety is created to such an extent as to impair the functioning and responsibility of the trustee.
A trustee who maintains any interest in any real estate, appraisal, or auction company, shall not provide any of such services to an entity that is a party in interest in any chapter 13 case assigned to that trustee. The trustee shall not represent any individual, partnership, or corporation that is a party in interest in any chapter 13 case under the trustee's supervision.
SOLICITATION OF GRATUITIES, GIFTS, OR OTHER REMUNERATION OR THING OF VALUE: Neither a trustee nor any employee of the trustee's office may solicit or accept any gratuity, gift, or other remuneration or thing of value from any person, if it is intended or offered to influence the official actions of the trustees in the performance of their duties and responsibilities. A certification to this effect must be signed by the trustee and the employees in the office of the trustee, and a copy provided to the United States Trustee on an annual basis. (See Appendix B).
INSURANCE: Trustees may not act as agents for insurance companies on any sale of insurance to chapter 13 debtors, nor make any claim for commissions on any premiums paid to an insurance company by chapter 13 debtors. This restriction extends to any person related by affinity or consanguinity within the degree of first cousin to the trustee.
ADVERTISING: The trustee may not advertise in newspapers or other public information media, or take any other action that could reasonably be interpreted as encouraging debtors to file petitions under chapter 13 of the Bankruptcy Code. Subject to the approval and guidance of the United States Trustee, a trustee may disseminate information to interested persons about chapter 13, and may participate in meetings, educational seminars, or institutes concerning chapter 13.
ACCOUNTABILITY: Trustees are to maintain accounting records in conformity with such rules and regulations as the Executive Office for the United States Trustees may require. These accounting records must reflect all payments received and disbursed under plans, other revenues, and all expenses and compensation paid. In addition, trustees are to submit to the United States Trustee reports that provide for uniform and systematic review of their financial administration of chapter 13 cases.
Trustees must establish a system of internal controls that ensures the accuracy of the accounting records, and the safeguarding of accounting records, funds, and other assets. At a minimum, the trustee must establish and maintain the following accounting records:
- Cash Receipts and Disbursements Journal (see sample at Appendix C), except trustees with annual receipts of $250,000 or less who may maintain a separate trust account for each case.
- Individual Case Cash Receipts and Disbursements Ledger (see sample at Appendix D).
- General Ledger (see sample at Appendix E).
The Individual Case Cash Receipts and Disbursements Ledger should show the date payments are due, as well as the date payments are received, in order to monitor the debtor's performance under the plan.
INVENTORY: Trustees must provide at least annually a listing of the physical assets that are the exclusive property of the office of the trustee. The list must include each asset and its cost, and be updated on an annual basis.
The trustee must obtain approval from the United States Trustee prior to purchasing any equipment, fixtures, furniture and other fixed assets with a value in excess of $1,000, or entering into any lease or lease/purchase agreement with rental in excess of $1,000 monthly, or such lower amount as the United States Trustee may specify, unless approval was previously obtained incident to the submission of the trustee's annual proposed budget. In other words, purchases of capital assets or monthly lease obligations in excess of $1,000 to be funded from the trustee's expense account must receive prior written United States Trustee approval if not previously approved as part of the current year's budget. All capital expenditures, regardless of amount, to be funded from the surplus reserve carried forward from a prior year must receive prior written United States Trustee approval prior to the end of the current fiscal year.
All fixed assets purchased with funds from the trustee's expense account or surplus reserve is property of the office of the trustee. This property will be transferred from the incumbent trustee to any successor trustee at the time prescribed by the United States Trustee and at no cost to the successor trustee.
The trustee must maintain adequate insurance on the physical assets that are property of the office of the trustee, as well as liability and workmen's compensation insurance.
BONDING: The minimum bond for a Chapter 13 trustee is 150% of the average monthly bank balances for the prior three months (balances per banks, not per books for all trust and expense accounts). At a minimum, a quarterly review of the bond amount must be performed and adjustments should be made at that time, based on significant increases or decreases in actual and projected receipts. The bond amount may not be decreased from amount set without the approval of the United States Trustee. If the trustee has invested funds in certificates of deposit or other forms of permissible investments, the amount of the bond will not be computed to include those invested funds, provided that; (1) the United States Trustee's counter-signature is required for the withdrawal of those funds, and (2) a separate written agreement has been provided by the depository institution that the invested funds are not subject to offset.
Employees of the trustee who have access to receipts or disbursements of cash or negotiable instruments, or to the financial records of the office, must be covered under the trustee bond, or covered by a separate employee fidelity or honesty bond. The amount of the employee bond is to be in the sum determined to be appropriate in writing by the United States Trustee. The trustee shall maintain a copy of the United States Trustee's employee bond authorization in the trustee's files. The amount of the employee bond as approved by the United States Trustee should be determined based on a risk assessment of the individual standing trustee's operation.
CASH DEPOSITORIES: All payments under plans are to be deposited immediately upon receipt in trustee accounts in a depository insured by the Federal Deposit Insurance Corporation (FDIC).
If the aggregate of funds held by the trustee is on deposit in a single depository and these funds together with any interest income exceed the $100,000 amount insured by the FDIC, the depository must be bonded or must deposit securities for the excess over $100,000. This may be done by a specific bond or a deposit with the Federal Reserve Bank of securities of the kind specified in 31 U.S.C. section 9303 (see Appendix G), in the amount by which the aggregate of all account balances exceed FDIC insurance limits. When the securities are deposited, a copy of the Federal Reserve document evidencing the deposit must be sent to the United States Trustee. The United States Trustee is the "bond approving officer" who is responsible for approving any bond provided or securities pledged. If the trust accounts and the expense account are maintained in the same depository, the amounts in those accounts must be treated as one account for purposes of insurance coverage.
Trustees are required to maintain all bank statements and/or other documentation as to deposits and interest income, and to make arrangements with the depository to permit the United States Trustee, at any time, to examine or obtain copies of the depository's records of the trustee's deposits and withdrawals.
Any depository in which the trustee maintains chapter 13 funds is to be directed by the trustee to provide the United States Trustee with an affidavit detailing any personal financial relationship with the trustee and, if such a relationship exists, a statement that the trustee does not receive any preferential treatment.
ACCOUNTS AND INVESTMENT POLICIES: All trustees are to maintain at least three accounts, a pre-confirmation trust account, a post-confirmation trust account (trustees with receipts of less than $250,000 may maintain a separate trust account for each case) and an expense trust account.
Following is a description of the separate accounts;
- A pre-confirmation trust account, either interest bearing or not, for the deposit of pre-confirmation payments. Upon confirmation of a plan, the debtor's pre-confirmation deposit is to be transferred to the post-confirmation trust account and any interest earned on the deposit to the expense trust account. If the case is dismissed prior to confirmation, the deposit and any interest earned will be refunded to the debtor after deducting any section 503(b) award. The percentage fee and any section 503(b) award to the trustee are to be transferred to the expense trust account after all other section 503(b) awards have been paid. If interest of $10 or more is earned on the deposit, the required Form 1099 reporting the exact interest earned will have to be furnished to the Internal Revenue Service and to the debtor. The United States Trustee may provide written authorization to a trustee to maintain a pre-confirmation trust account as a separate account within the post-confirmation account if the United States Trustee has determined that the trustee's accounts reflect the pre-confirmation deposits separately, credit the interest earned to the appropriate deposit, prevent the transfer of accrued interest to the expense trust account before the plan is confirmed and that, in the event the case is dismissed prior to confirmation, the trustee will be able to compute and pay over to the debtor the exact amount of interest earned and issue a Form 1099 whenever required.
- A post-confirmation trust account for payments received by the trustee under confirmed plans. All deposits made prior to plan confirmation are to be transferred to this account as soon as the order of confirmation has been entered. This account is to be used to make all disbursements of the percentage fee to the expense trust account. Interest earned on the funds in this account must be transferred to the expense trust account monthly. The Cash Receipts and Disbursements Journal maintained by the standing trustee must reflect every transaction made in the account, including all receipts, refunds, payments, investments, and interest earned.
- An expense account for the deposit of amounts paid from the trust account including the percentage fee fixed for the trustee, interest income and awards to the trustee under section 503(b), and for the disbursement of amounts payable for actual and necessary expenses of administration, trustee's compensation/benefits, and payments to the United States Trustee under 28 U.S.C. section 586(e)(2). Under no circumstances should a trustee deposit the percentage fee into any account other than the expense account. The purpose of the expense account is to identify clearly all actual and necessary expenses of the trustee paid out of the percentage fee and section 503(b) awards. Expenses for other purposes, or for any portion of general office expenses unrelated to the administration of the trustee's chapter 13 cases, may not be paid out of the expense account.
- Such additional accounts as the United States Trustee deems necessary under exceptional circumstances.
Trustees are directed:
- to invest all funds not needed for immediate disbursements in interest bearing accounts or certificates of deposit insured by the FDIC or, upon United States Trustee approval, in obligations of the United States (preconfirmation trust account funds may or may not be interest bearing);
- not to invest in repurchase agreements (repo's) or reverse repo's since they are not insured by the FDIC; or in non- bank money market accounts or commercial paper since the latter are not investments authorized under 11 U.S.C. section 345;
- not to make any investments that would delay disbursements under confirmed plans in violation of the trustee's duty to make timely payments to creditors.
PAYMENTS: Payments received by the trustee prior to the entry of an order confirming the debtor's plan must be separately identified in the Cash Receipts and Disbursements Journal, Individual Case Cash Receipts and Disbursement Ledger, and the General Ledger.
If confirmation does not occur and the case is dismissed, the payments are to be returned promptly to the debtor, unless the court orders otherwise. If the court makes a section 503(b) award to the trustee under section 1326 (a)(2), that award should be transferred to the trustee's expense account.
Once a plan is confirmed, payments to creditors must be made at least monthly, unless Bankruptcy Rule 3010(b) is applicable, or the confirmed plan provides otherwise. A request to make quarterly disbursements may be submitted in writing, and authorized in writing by the United States Trustee, where appropriate, for standing trustees with small case loads.
If the case is converted to a chapter 7, undistributed funds should be disbursed only pursuant to court order or rule.
EXPENSES: Reasonable, actual and necessary administrative expenses of the trustee are to be supported by proper documentation, and property records are to be maintained for depreciable assets purchased. The following is a brief description of administrative expenses recognized by the Executive Office as being actual and necessary:
Employee Salaries and Benefits: Regular salaries and wages, including bonuses paid directly to employees and amounts withheld for employees' share, and including amounts paid for employer's share of retirement and insurance contributions, taxes, etc. Employee salary and benefits will be reviewed and monitored to ensure they are commensurate with services performed, but shall not exceed the limitations in 28 U.S.C. 586(e). No employee of a Chapter 13 trustee may receive compensation and benefits of a value greater than the maximum allowable statutory compensation for a chapter 13 trustee.
Each Chapter 13 trustee must have a written position description for each employee. These position descriptions should itemize all duties performed by each employee with sufficient clarity and detail that the positions described can be graded for purposes of determining salary, benefits, and promotion. The position description or descriptions must accompany the yearly budget when submitted.
Should the trustee wish to increase the compensation and benefits of an employee during any twelve mouth period, the trustee shall provide the United States Trustee with an appropriate amendment to his/her budget, including a written justification for the increase. The applicable position description must accompany the amended budget.
Rent and Utilities: Charges for rental of office space, including conference rooms, garage space, and storage space; charges for utilities should include the service of heat, water, gas, and electricity to the extent they are not included in the rental charge.
Bookkeeping/Accounting Services: Charges incurred for services obtained on outside contracts, including all bookkeeping and accounting charges necessary for the operation of the trustee office, including charges for preparation of payroll, payroll taxes, annual reports, and reconciliation of bank accounts.
Computer Services: Charges for services for the development and modification of software systems, data preparation and conversion (keying: data coding, key- to-tape, key-to-disk, and card-to-tape), consulting, and research and development, including initial processing fees charged by a computer firm. NOTE: The Executive Office makes no recommendation as to the utilization of any computer firm, as long as all requirements contained herein are met.
Audit Services: Charges incurred for services of any independent auditing firm selected by the Executive Office.
Consulting Services: Charges incurred under contract with individuals for services by attorneys, accountants, and for automated data processing consulting. Approval by the United States Trustee is required prior to the employment or retention of an attorney.
Telephone: Charges for local phone service, long distance service, switchboards, and installation of telephone equipment.
Postage and Mailing: All postal charges and rental of post office boxes, mailing machines, and postage meters.
Office Supplies: Charges incurred for consumable supplies and other property of little monetary value.
Bond Premiums: Fees for premiums on surety bonds, including any premiums paid on behalf of an employee.
Clerk Fees: Do not include any filing fees or other court costs that are provided to be paid under the plan or pursuant to section 1326(a)(2).
Dues to Professional Organizations: Charges for membership in professional organizations in connection with the duties of the trustee. However, professional licensing fees and/or association dues required for the trustee to engage in the practice of his/her profession are not an approved expenditure.
Publications. Charges for subscriptions to and copies of journals and periodicals, and for books and directories as pertinent to the duties of the trustee.
Insurance other than Employee Benefits: Charges for premises liability insurance for the office of the trustee and automobile insurance, if said automobile is owned or leased by the office of the trustee upon authorization by the United States Trustee. (For a discussion of errors and omissions insurance, see page 19 of this handbook.)
Conference Expenses: Charges for training and tuition, including charges for conference registration, textbooks and supplies, airfare, mileage, meals, lodging, and other costs incurred as related to approved travel in connection with training activities associated with the duties of the trustee and employees of the trustee. Travel expenses for NACTT Liaison Committee members, and other members of the NACTT for attendance at committee meetings, board meetings, and executive meetings is not an allowable expenditure from trustee's expense funds unless such meetings are with and at the request of the Executive Office for United States Trustees or held in conjunction with the Annual NACTT National Conference.
Maintenance: Charges incurred for the repair and maintenance of the office suite and office equipment, including all office machines and furnishings, and including charges for custodial services when not included in the basic lease agreement.
Photo Services and Transcripts. Charges incurred for photo copying, printing and purchase of transcripts and court reporting services necessary for the administration of Chapter 13 cases.
Travel: Charges incurred for official travel necessary for the administration of Chapter 13 cases including airfare, mileage, meals, lodging and other costs incurred as related to official travel.
Equipment/Furniture Rental: Charges for the use of equipment owned by another, including copying machines, audio and visual aid equipment, rental of computer systems and software, printers, desks, tables, chairs, typewriters, calculators/ bookkeeping machines, and file cabinets, if total rental charges incurred over the life of the lease aggregate no more than the total purchase price of comparable equipment or furniture.
Equipment/Furniture Purchase: Charges for purchase of equipment and furniture, fittings, and fixtures; including desks, tables, chairs, file cabinets, typewriters, calculators, computers, including software and hardware, and any charges for services in connection with initial installation when performed under contract.
Leasehold Improvements. Charges incurred for space adjustments (including partitioning), alterations, and improvements to building or office suite, as previously approved by the United States Trustee.
PAYMENT OF TRUSTEE COMPENSATION. Pursuant to 28 U.S.C. ï½§586(e) the Attorney General shall fix a maximum annual compensation consisting of an amount not to exceed the annual rate of basic pay in effect for Level V of the Executive Schedule and the cash value of employment benefits comparable to the benefits provided by the United States to individuals who are employed at the same rate of basic pay. This maximum. annual compensation, including benefits as a percentage thereof, will be fixed on an annual basis after submission and approval of the standing trustee's budget.
The actual maximum allowable compensation pursuant to 28 U.S.C. ï½§586(e), as amended, is the lesser of:
28 U.S.C. ï½§586(e), as amended, does not specify the type of actual benefits which may be allowed to standing trustees. Rather, the statute provides that the Attorney General shall fix a maximum, annual compensation including the cash value of employment benefits. Therefore, the benefit allowance being part of the maximum annual compensation, may be paid to the trustee in the form of cash, and need not be related to, or in payment of actual benefits specified by the standing trustee in his/her budget submission.
The maximum annual compensation of a standing trustee, including the benefit cash allowance, for a particular fiscal year will continue to be arrived at by a pro-ration of the salary benefit level fixed for each portion of the fiscal year. A trustee must pay all approved actual and necessary expenses before a trustee can receive compensation/ benefits. While unpaid expenses may be carried over to the next year, unpaid compensation/benefits may not. Whereas 28 U.S.C. ï½§586(e), as amended, defines the cash benefit allowance as part of the trustees maximum annual compensation, the benefit allowance is separate and apart from the trustee's expenses. Therefore, no portion of the trustee's operating reserve/surplus expense funds carried forward from the prior year may be utilized to pay the trustee's compensation/benefits. The annual compensation, including the cash value of benefits, can only be paid pro-rata on a monthly basis throughout the year and may not be paid in advance.
ERRORS AND OMISSIONS INSURANCE/MISDISBURSED FUNDS: Trustees who are receiving the maximum compensation as authorized under 28 U.S.C. section 586(e) may pay for uncollectible misdisbursements from the trustee's expense account and retained surplus funds after receiving prior approval from the respective United States Trustee. This remedy is in lieu of the purchase of an errors and omissions insurance policy based on an analysis of standing trustee loss history versus proposed policy costs and coverage.
Trustees who are receiving compensation less than the maximum allowed under 28 U.S.C. section 586(e) may purchase an errors and omissions insurance policy. The premium and any deductibles for claims under the policy may be paid from the trustee's expense account funds. If the standing trustee chooses not to purchase a policy, he may pay a claim for uncollectible misdisbursements from the trustee's expense account to the extent funds are available and further provided that prior written approval of the United States Trustee was first obtained, but not otherwise.
United States Trustee approval for the payment of these claims requires a consideration as to the diligence and timeliness of the standing trustee's efforts and his ability to otherwise recover misdisbursed funds. The standing trustee shall provide his respective United States Trustee with a detailed request for approval to pay any such claim.
This guideline is limited to the payment of claims arising solely from errors and omissions relating to misdisbursed funds.
OPERATING RESERVE/SURPLUS EXPENSE FUNDS: Standing trustees may annually retain surplus funds in the amount of twenty five percent (25%) of the authorized actual and necessary expenses for the current year without regard to any aggregate dollar amount limitation. This reserve may only be reduced by capital expenditures, the payment of claims resulting from misdisbursements previously approved in writing by the United States Trustee, and/or for such emergency use as more particularly defined below which must first be approved by the United States Trustee. The purpose of this reserve is to make the necessary funds available for the payment of expenses during the beginning months of the new year. Therefore, to the extent the reserve is not reduced by approved capital expenditures, claims for misdisbursements, and/or emergency use, the reserve must be replenished prior to September 30th, the end of the fiscal year for chapter 13 standing trustees.
Surplus funds in excess of the twenty-five percent (25%) reserve may be retained for payment of approved actual and necessary expenses in the subsequent year only if this results in the fixing of a reduced percentage fee for the subsequent year. Otherwise, such surplus must be paid pursuant to 28 U.S.C. section 586(e)(2). Unpaid compensation for a prior year may not be recovered from surplus. In other words, a subsequent surplus may not be applied to reinstate any part of the compensation to which a standing trustee was entitled for the prior year under 28 U.S.C. section 586(e) but did not receive because his actual, necessary expenses incurred (and paid either from the percentage fee or out of pocket) effectively reduced his actual compensation from the percentage fee below the permissible level.
If a chapter l3 trustee's case load does not support previously approved expenses then the standing trustee shall be permitted, upon prior written approval of the United States Trustee, to utilize reserve or surplus funds to meet the necessary and reasonable expenses to operate the office of the trustee as authorized on the trustee's annual budget, previously approved by the United States Trustee. The changed conditions which resulted in the approved expenditure of surplus funds shall be reflected in the trustee's next fiscal year budget.
Charges for Creditor Inquiries: Whereas 11 U.S.C. sections 704 and 1302 require a standing trustee to furnish such information concerning the estate and the estate's administration as requested by a party in interest, separate charges by a trustee for creditor inquiries are not allowable. The assessment of such charges are not provided for by statute and the cost of performing this statutory duty cannot be paid for by assessment separate from the percentage fee fixed under 28 U.S.C. section 586(e). Should a standing trustee determine that the performance of this statutory function requires additional staff, a written request with justification should be presented to their United States Trustee. It is the position of the Executive Office for United States Trustees that a request for additional personnel to assist the standing trustee in the performance of his statutory duties should be approved should the circumstances warrant and if there are expense funds available to fund such additional position(s).
BUDGETS: Trustees must maintain an accounting system that will provide, at a minimum, the budget data required for fixing their percentage fees and annual compensation. The data is to be provided to the United States Trustee by August 1 of each year for review by the United States Trustee prior to submission of the data and recommendation of the appropriate fee and compensation to the Director by August 31 of each year.
No percentage fees or annual compensation will be authorized in the absence of sufficient supporting data.
Separate reports are required to cover the trustee's administrative expenses, personnel expenses, allocated expenses (including the basis for the allocations, including any chapter 12 activities), and workload exhibit (see Appendix F). Percentage fees and compensation authorized on the basis of data provided by the trustee can be adjusted during the fiscal year. The trustee must review the trustee's budget periodically and any substantial deviation from the original budgeted expenses must be approved by the United States Trustee (for example, hiring additional staff, etc). Requests during the fiscal year for amended orders fixing compensation and percentage fees must be supported by an amended budget and be approved by the United States Trustee.
CALCULATION OF PERCENTAGE FEE: The trustees' percentage fees are fixed by the Director of the Executive Office for United States Trustees by delegation from the Attorney General, after consultation with the United States Trustee for the district in which the trustee serves, pursuant to 28 U.S.C. Section 586(e). The trustee has no authority to negotiate a percentage fee other than that fixed by order of the Director. Percentage fees are calculated on all payments received by the trustee under plans. If the plan provides for payment of sums certain on any claims, payments under the plan will have to be computed so that the payment less the standing trustee's percentage fee is sufficient to pay the sums certain. The debtor can be advised that this computation can be made by dividing the total amount that is needed under the plan for payment on claims, not including the trustee's fee, by the number derived from subtracting the trustee's percentage fee from 100%. For instance, assuming that all payments to be made total $10,000 and the standing trustee's percentage fee is fixed at 5%, the number to be used is 100% minus the 5% or 95%. Dividing $10,000 by .95 results in a total payment of $10,526.32. The trustee's fee of 5% on the $10,526.32 payment is $526.32, leaving the $10,000, 95% of the payment, available to make distributions required under the plan. The same computation can be made to account for any percentage fee fixed for the standing trustee. For example, still assuming that $10,000 is required to make all plan payments on claims, excluding the trustee's fee:
|Total Payment to Trustee|
|(A)||$10,000.00 divided by .90 =||$11,111.11|
|(B)||$10,000.00 divided by .91 =||$10,989.01|
|(C)||$10,000.00 divided by .92 =||$10,869.57|
|(D)||$10,000.00 divided by .93 =||$10,752.69|
In (A) the trustee's 10% fee is $1,111.11 and the remaining 90% needed to pay all other claims is $10,000.
In (B) the trustee's 9% fee is $989.01 and the remaining 91% needed to pay all other claims is $10,000.
In (C) the trustee's 8% fee is $869.57 and the remaining 92% needed to pay all other claims is $10,000.
In (D) the trustee's 7% fee is $752.69 and the remaining 93% needed to pay all other claims is $10,000.
Percentage fees are to be paid to the trustee's expense account at the time of disbursements under the plan and not at the time of receipt of the payments by the trustee, except for payments of section 503(b) awards under section 1326(a)(2) which should be transferred to the trustee's expense account when return of funds to the debtor is made.
ADJUSTMENT TO PERCENTAGE FEE: Pursuant to 28 U.S.C. ï½§586(e) the Attorney General, after consultation with the United States Trustee, is required to fix a percentage fee, not to exceed 10%, sufficient to pay the trustee's maximum annual compensation and the actual necessary expenses incurred by the standing trustee. ï½§586(e) clearly contemplates that annual adjustments will be made to standing trustee's percentage fees and simple fairness dictates that such changes be applied across the board to all confirmed cases. In instances where a percentage fee is adjusted, disputes may develop in those jurisdictions where the practice has been to specify the trustee's percentage fee in the plan or in the order confirming the plan. [For example, the plan or order provides for the debtor to pay the trustee's percentage fee of 5%, as opposed to simply requiring the debtor to pay the percentage fee as fixed by the Attorney General under 28 U.S.C. ï½§586(e)]. Where an existing plan or order confirming plan delineates the percentage fee which is to be paid, and the standing trustee subsequently obtains an amended order adjusting the percentage fee, the trustee may:
- Apply the new percentage fee in all cases pending his/her administration; or
- If option (1) is not feasible, seek a formal order of the court modifying existing plans to allow for the payment of "such percentage fee as is fixed by the Attorney General from time to time, not exceeding 10%"; or
- Charge the percentage fee delineated in the plan or the order confirming the plan.
In all instances, the trustee will be required to maintain accounting records, for budgeting and annual report purposes, clearly identifying various percentage fees applicable to specific cases during the fiscal year.
To prevent these circumstances from reoccurring in the future, all standing trustees should object to any proposed plan that seeks to specify the trustee's fee in the plan and/or order confirming the plan. Plans and orders confirming plans should reflect language to the effect that the trustee shall charge such percentage fee as may periodically be fixed by the Attorney General pursuant to 28 U.S.C. ï½§586(e). This will alleviate the necessity for the standing trustee to seek formal modification to a confirmed plan when conditions require the standing trustee fee to increase.
STANDING CHAPTER 13 TRUSTEE REPORTS: The trustee is required to make certain reports to the United States Trustee and/or the Bankruptcy Court:
341 Meeting Report: If required by local rule, practice or procedures, an interim status report on each chapter 13 case within 15 days following the conclusion of the section 341 meeting at which the debtor is examined under oath. The report may be required to include the section 341 meeting minute report and such additional information as the United States Trustee or the Court requires.
Final Report: A final report must be filed for each chapter 13 case upon completion of all payments under the plan, entry of a hardship discharge, dismissal or conversion of the case, as required by section 704(9) pursuant to section 1302(b)(1).
Monthly Reports: Monthly reports are required by the United States Trustee to monitor and determine the proper amount of trustee's bond, collateralization of the estate funds pursuant to 11 U.S.C. section 345, as well as to recommend any necessary adjustment to the trustee's percentage fee. (See Appendix J as an example of the substance to be contained in such report.)
Annual Report: Each trustee must submit an Annual Report (see Appendix I) in the format prescribed by the Executive Office for the period covering October 1 to September 30, or for the portion of a fiscal year during which the trustee served. Annual Reports are to be submitted to the United States Trustee no later than November 15 following the end of the fiscal year, or if the trustee does not serve through the end of the fiscal year, within 45 days of the date the trustee's service ended.
The report will indicate the gross amount received by the trustee, the amounts disbursed under plans, the amounts disbursed to the trustee for compensation and expenses, the amount of interest earned, the amounts returned to the debtors, and the amounts to be remitted to the United States Trustee for payment to the Treasury. The Director or the United States Trustee may require more frequent reports.
TRUSTEE'S REPORTS TO THE DEBTORS: The trustee shall, no less than once per year, deliver to the debtor and debtor's attorney a report indicating all receipts from the debtor and disbursements made by the trustee's office within the prior year, or prior six months, if such reports are made semi-annually. Additionally, the reports must indicate the then existing undistributed funds on hand. (See Appendix K for samples).
AUDIT AND AUDIT CONTROLS: Each trustee is subject to audit annually, or more frequently at the discretion of the United States Trustee or the Director, by an auditor selected by the Director or by the United States Trustee with the concurrence of the Director. The expense of the audit is an expense of administration to be paid by the trustee from the expense account.
Each trustee must establish and maintain a system of internal controls. In connection with the annual audit, a management letter will be prepared by the auditors. The management letter will address, at a minimum, the following areas:Bank Lock Box:
Restrictive Endorsement of Debtor Checks Received: Debtor checks should be endorsed immediately upon receipt. This will avoid availability of negotiable checks.
Computer Input/Output Controls: Check listings and other data center control and error documents should be reviewed on a timely basis to ensure the integrity of data processed.
Initial Control Over Receipts: Debtor checks should be identified, batched and brought under numerical control to ensure that all, checks received are deposited.
Daily Deposit of Receipts: Debtor checks should be recorded on input sheets, deposit tickets prepared and funds deposited on a daily basis.
Hard Currency Remittances: Hard currency presents control problems regardless of internal procedures employed. In the event that cash is accepted, a pre-numbered receipt must be given to the debtor, and funds immediately deposited. An office procedure should be established to encourage payment by check or money order.
Creditor Overpayments and NSF Checks: Creditor overpayments and NSF checks should be recorded and monitored until resolved.
Facsimile Check Signing Machine and Signature Stamp: When a facsimile check signing machine is used procedures designed to overcome the absence of direct signer involvement must be established. Procedures would include sole control of the signature plate by the trustee or a single authorized staff person monitoring of the machine's meter indicating number of signatures affixed. Use of a signature stamp would require restriction to a designated person, security of the stamp in a locked safe or compartment and restricted access to the secured compartment.
Stale Dated Outstanding Checks: Stale dated outstanding checks should be cancelled and reissued within 90 days.
Debtor Refunds: Debtor refund, conversion and dismissal payments should be made promptly by check.
Review and Verification of Expense Documentation: Supporting documentation concurrent with expense checks must be maintained. Documentation should be cancelled to indicate completion of the disbursement process.
Distribution of Signed Checks: Individuals involved in the preparation of trust and expense disbursement checks should not be involved in their stuffing and mailing. Segregation of these duties, when possible, avoids access to signed checks by persons capable of inserting improper checks into the disbursement cycle.
Undeliverable Disbursement Checks: Disbursement checks that are returned, because of inadequate address or other reasons, should be processed by an individual not involved with the initial check authorization and preparation.
Timeliness of Bank Reconciliations: Reconciliations of trust, expense and other bank accounts should be conducted on a monthly basis. Reconciliations should be initialed by the individual responsible for performance of this task.
Correction of Reconciling Items: Bank account reconciling items requiring correction should be resolved in a timely manner.
Approval of Bank Reconciliations: Reconciliations should be reviewed and approved by the trustee and approval indicated by signature of the trustee.
Reconciliation of Debtor Ledgers with Checking and Time Deposit Balances: The best available verification that detail case records properly reflect overall receipt and disbursement activity is the reconciliation of debtor ledgers with checking and time deposit balances. This reconciliation should be conducted on a monthly basis.
Non-Interest Bearing Funds: Levels of non-interest bearing fund balances should be monitored to efficiently maximize interest on investments.
Limited Computer File Access: Dedicated computer passwords should be used to limit employee access to sensitive data fields.
Computer Password Security: Computer passwords used by authorized employees should be periodically changed.
Computer Program Security: Computer programmers should be limited to live debtor and creditor data files. The segregation of these duties is important to provide assurance that persons with access to and capability of changing programs cannot individually address and possibly change data.
Computer Lock and Key Security: A physical locking mechanism should be used to secure hardware when not in authorized use and the keys should be adequately secured.
Internal Software Edits: The computer program should include automatic edit checks to detect data entry, computer program and other errors.
Periodic Debtor Communication: Periodic statements should be mailed to debtors and debtors' attorneys in the ordinary course of business to provide a passive control over potential errors.
Delinquent Debtors: Delinquent debtor payments should be identified in a timely manner and action taken for maximum creditor protection.
Segregation of Other Chapter Cases: Chapter 13 funds may not be commingled with funds of Chapter 12 or any other chapter case funds.
Case File Maintenance: Case files should contain the typically expected documents and document copies and be maintained in an orderly manner.
Surety Bonding: Bond coverage must comply with United States Trustee Program requirements.
Bond or Deposit of Securities by Depositories: Pledges of Securities by Depositories must comply with United States Trustee Program requirements.
Operating Budgets: Operating budgets should be reviewed and updated as each year progresses. This will ensure that expenses are controlled and compensation limitations are monitored.
Fixed Asset Ledger: A detailed listing of trusteeship furniture and equipment must be maintained in such a way that each year's additions can be reconciled to dollar totals.
Segregation of Duties: The basic premise of sound internal control is that no one employee should have access to both physical assets and the related accounting records or to all phases of a transaction.
Documentation of Staff Procedures: Routine staff procedures should be documented. Written job descriptions ensure consistent staff performance and facilitate employee training.
Monitoring of Staff Attendance: Records of employees' time should be maintained and reviewed by the trustee. Records should also be maintained to document overtime worked for which staff are paid.
Safeguarding of Accounting Records: Accounting records should be stored in secure facilities. Accounting records must receive adequate protection to avoid a possibility of loss due to fire or other natural disaster.
Standing Trustee Involvement: The trustee must be actively involved with daily routines of the Trusteeship.
Joint Cost Allocation (i.e. between trustee operation and others such as private practice and other trustee operations): Documentation of expenses allocated between Chapter 13 and other activity must be maintained.
RETENTION OF RECORDS: Individual Case Cash Receipts and Disbursement Ledgers must be retained for three years following the date on which the trustee was discharged in the case. The trustee's General Ledger supporting each year's Annual Report must be retained for a period of not less than seven years.
The trustee must maintain all bank records, including bank statements, monthly bank reconciliations, cancelled checks, and deposit slips, separate from individual case files and in chronological order, for a period of not less than seven years.
Accounting records are to be supported by pre-numbered receipts for cash payments ( however, payments in cash should be strongly discouraged), bank prenumbered checks, and bank receipted deposit slips which identify each source of funds being deposited.
Individual Case Cash Receipts and Disbursements Ledgers, General Ledgers, and the Cash Receipts and Disbursements Journal may be transferred to microfilm or other similar form of record two years after the annual report covering those transactions has been submitted. Bank records may be so transferred five years after the report is submitted.
Individual case files must be retained until an order closing the case and discharging the trustee is entered by the Court. The period of time a trustee retains the individual case files beyond the closing of the case and the discharge is within the trustee's discretion. This discretion should be guided by the trustee's individual need for reference to the file for subsequent creditor/debtor inquiries or other reasons.
Should the trustee have possession of original court documents, such as proof of claims, the disposition of same should be in accordance with the directions of the Court and/or Clerk.
DISPOSABLE INCOME: Section 1325(b)(l) states:
(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan--
(B) the plan provides that all of the debtor's projected disposable income to be received in the 3-year period, beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.
Pursuant to section 1302(b)(5), it is the trustee's duty to "(5) ensure that the debtor commences making timely payments required by a confirmed plan". Therefore, where a debtor's confirmed plan contains a commitment of disposable income pursuant to section 1325(b)(1), the trustee must first make the necessary review to determine to what extent disposable income exists and, secondly, ensure its timely payment under the confirmed plan.
A trustee may require debtors to calculate disposable income in those instances where its payment has been committed under the confirmed plan, and object to any item that appears inaccurate or unreasonable.