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Remarks of Director Cliff White Before the 53rd Annual Seminar of the National Association of Chapter 13 Trustees


Miami, FL
United States


Good morning.  Thank you so much for the annual opportunity to talk with you about some of the most important bankruptcy issues that matter to both the United States Trustee Program (USTP or Program) and the chapter 13 community. 

It has been my tradition to start these reports with recognition of the NACTT leadership.  I do this because the USTP’s effectiveness depends in no small part on our ability to work productively with private trustees.  One of the most important ways we do that is by meeting regularly with the USTP/NACTT Liaison Committee.  In fact, the Liaison Committee meetings are so useful that, lately, I tend to go well past my allotted time talking, listening, and asking questions. 

I thank you, Joyce, for your patience and extremely successful tenure as President.  Your graciousness, combined with your efficiency, has assisted the USTP immensely.  I am deeply grateful.  Fortunately for me and my colleagues in the USTP, David Peake succeeds Joyce.  David has been part of the Liaison Committee and, already, I have relied upon him for his expertise and sound judgment.  So, David, congratulations on your new position.  And you know you will be hearing from me soon.


This year marks the 30th Anniversary of the national expansion of the USTP.  We are celebrating this milestone modestly, but meaningfully.  For example, throughout the year, we will recognize those staff who have been with us for three decades.  While many of the Program’s legends have retired in the past few years, I am proud to say that 10 percent of our current staff joined us 30 or more years ago.  That includes Acting Deputy Director Bill Neary and United States Trustee Dan McDermott, who are a significant part of our USTP-NACTT Liaison Committee.

This 30th Anniversary gives me a chance to reflect on the Program’s accomplishments and to be immensely grateful for my outstanding colleagues who have demonstrated expertise and judgment in meeting the series of challenges that have confronted the bankruptcy system over the years.  In the USTP, it is a team effort.   


One of the most important challenges confronting all of us in the bankruptcy system is dealing with the small percentage of consumer lawyers who harm debtors, creditors, and the courts by their inadequate representation of clients and failure to comply with bankruptcy law and rules.  Long ago, I concluded – and I know many others have concluded – that many of the biggest problems in consumer bankruptcy cases result from inadequate representation.  Most debtors are honest and in need of the bankruptcy protection contemplated in the United States Constitution.  But lawyers who are incompetent or dishonest or fail to satisfy minimal professional obligations impede the debtor’s “fresh start” and add costs to creditors and the entire system. 

USTP Enforcement Against Attorney Abuse of the System

As I reported to you last year, the USTP has a long history of addressing attorney violations of the Bankruptcy Code and Rules.  Most of that work has involved section 329 disgorgement actions, contempt actions, and other litigation aimed at remedying violations by an individual lawyer or law firm.

About three years ago, it became apparent that bad lawyering was on the rise.  Chapter 13 trustees told me that.  Bankruptcy judges told me that.  My own staff in our field offices told me that.  So we did what we always do in the USTP.  We formed a working group and adopted a national strategy to address the problem through appropriate civil enforcement actions.  That may sound bureaucratic, but it led to action.  In Fiscal Year 2016, the number of attorney misconduct and related actions taken by the USTP rose by 30 percent.  And we have sustained that higher level of activity.

Beyond the traditional enforcement actions, we also have addressed special problems created by national consumer law firms whose system-wide violations create widespread, multi-jurisdictional issues.  We also have looked at related schemes by non-lawyers who collaborate with consumer lawyers.  In our view, and in the words of one bankruptcy judge, bad conduct by lawyers sometimes stems from “a focus on cash flow over professional responsibility.”

Although we still use the traditional tools of section 105 (abuse of process), section 329 (disgorgement of fees), Rule 9011 (sanctions against attorneys), and the court’s inherent authority to address the conduct of lawyers appearing before them, we have made more use of section 526.  You may recall that section 526 was enacted as part of the 2005 bankruptcy reform amendments.  Section 526 protects debtors by placing disclosure and other obligations on debtor’s counsel.  It also imposes civil penalties and injunctions against lawyers who intentionally and habitually violate statutory requirements, fail to perform promised services, or make misrepresentations to their clients or the courts. 

It is ironic to me that some consumer attorneys’ interests historically have criticized section 526 as burdensome and even challenged one provision of that law that we, as part of the Justice Department, litigated successfully all the way to the Supreme Court.  In the past year, the USTP successfully litigated and obtained favorable court decisions in several attorney enforcement cases.  Although some of these are on appeal and will test the authority of the bankruptcy courts to address substandard conduct, we support the lowers courts’ findings of misconduct and hope that the appellate courts will, too. 

We are encouraged by one recent circuit court of appeals decision not involving the USTP.  The United States Court of Appeals for the Seventh Circuit upheld the permanent suspension of a consumer debtor lawyer from the practice of bankruptcy law.  The lawyer failed to provide adequate representation to approximately 100 clients by, among other things, forging clients’ signatures to documents filed under penalty of perjury, misleading the court, and disobeying court orders to refund fees.  In re Husain, 866 F.3d 832 (7th Cir. 2017). 

A Call for Broader Action

We in the USTP, of course, cannot police misconduct all by ourselves.  Chapter 13 trustees have provided referrals, practical insights, and support to the USTP in addressing attorney violations.  Joyce and the NACTT leadership team have highlighted this issue to their colleagues and have been of immense assistance.  In fact, Joyce wrote a very helpful column of advice for newer lawyers in the Spring issue of the NACTT Quarterly.

One of the chapter 13 trustee leaders who recognizes the importance of quality debtor representation is Mary Ida Townson of Atlanta, Georgia.  Mary Ida recently made a thoughtful presentation at a public hearing of the American Bankruptcy Institute’s Commission on Consumer Bankruptcy (Commission).  Your NACTT Academy Editor and Advisor, former Judge Bill Brown, serves a co-chair of the Commission and I serve as an ex officio, non-voting member.

In her remarks, Mary Ida reminded us that we all have a stake in promoting adequate representation for debtors.  Chapter 13 trustees certainly see the gradations in the quality of consumer lawyers.  You also see the adverse consequences for a debtor who has a lawyer who does not show up for a section 341 meeting or who sends all the legal work to a back room operation without attorney oversight.

The problem of bad lawyering is exacerbated by the ease with which some law firms can reach unwary debtors through extensive advertising, including on the Internet.  In many cases, the debtors have no previous experience with a lawyer and understandably have a difficult time distinguishing between adequate representation and a bankruptcy mill that is good on client recruitment, but abysmal on meeting ethical obligations to clients.  As Mary Ida put it in her statement to the Commission, “extensive advertising does not constitute adequate representation.”

If one adds the long-standing problem of inadequate consumer lawyering to the intentional practices of national law firms and non-attorneys who abet those bad practices, then all stakeholders who depend on the system – debtors, creditors, and the public alike – clearly suffer.  The key to improving consumer practice is to recognize that bankruptcy court is a federal court.  It deserves respect and adherence to rules.  It sometimes seems that conduct that never would be tolerated in district court is excused in bankruptcy court. 

Beyond the problem of bad lawyering, it may be time to reconsider other practices that have crept into the consumer bankruptcy system as well.  In reviewing these practices, we should always remember that the system is designed to serve debtors, creditors, and the public – not the economic interests of lawyers.  Although all of us want consumer lawyers to be fairly compensated, the bankruptcy system and its attendant rules should not be contorted to put lawyers’ economic interests first. 

Let me raise a few examples of practices in chapter 7 or chapter 13 consumer cases that may deserve further scrutiny:

  • Should all chapter 13 debtors’ lawyers be compensated in the same amount – without significant consideration of the quality of representation – through the “no look” fee that is common in many jurisdictions?

  • Should “fee only” chapter 13 plans be confirmed, meaning that creditors are paid nothing, but the attorney is paid in full?

  • Should factoring arrangements be permitted to justify higher fees for consumer lawyers?

  • Should lawyers be permitted to unbundle their services so clients are left largely unrepresented in pivotal aspects of their case?  And, if lawyers may unbundle, what safeguards should be imposed against lawyers who disingenuously claim that most or all of their services were provided post-petition?  After all, we know that properly prepared cases require a substantial amount of pre-petition consultation and legal work.

  • Should lawyers bring non-bankruptcy litigation on behalf of the client for the primary purpose of obtaining settlements that will be used exclusively to pay the lawyer for the cost of an already planned bankruptcy filing?

  • Should lawyers file chapter 13 cases knowing the debtor has no means to fund the plan and the case will be converted or dismissed, simply as a means of charging a higher fee, as one recent study has alleged?

  • And, finally, should debtors’ attorneys be paid under a chapter 13 plan ahead of all other creditors even if the case is dismissed?  As we know, that can leave the debtor worse off because creditors retain their rights to collect and the debtor has to pay a lawyer a second time to pursue a new case.


There are other consumer attorney practices that may deserve reconsideration as well.  And you, as chapter 13 trustees, are in a unique position to review and evaluate the appropriateness of many of these practices.

I know the bankruptcy landscape has changed in recent years.  I have sympathy for the economic plight of attorneys who conscientiously and skillfully represent consumer debtors.  Sometimes, however, the economic concerns of consumer lawyers are disingenuously expressed as a concern about access to justice.

All of us should share legitimate concerns about access to justice.  It is crucial that debtors be able to obtain proper legal representation.  But we should reject suggestions that consumer lawyers should be allowed to cut corners to provide that access.  The fact is that, sometimes, a debtor is better off having no lawyer rather than a bad lawyer who can do long-lasting damage to the debtor and the entire bankruptcy estate.

In our enforcement practice, the USTP often is confronted with the access to justice argument as a defense against our actions in and out of court.  But, to be candid, too often the phrase “access to justice” is misused to excuse bad lawyering, or to justify twisting the Bankruptcy Rules for the financial gain of the lawyers.  Access to justice should be about the client.  Period.

So I would like to amplify Mary Ida’s call for all participants in the bankruptcy system to join the effort to elevate consumer practice.  Enforcement of the law is a key component of that effort, and the USTP will continue its aggressive efforts in that regard.  But I ask other participants to join the USTs and the private trustees in saying it is time to stop tolerating unsatisfactory lawyering in bankruptcy court.  And it may be time to reconsider other attorney practices as well. 


There is another important priority of the Program in which chapter 13 trustees are critical partners with us.  That is, identifying bankruptcy crimes.

Last year, the USTP made 2,171 criminal referrals to federal law enforcement authorities, including to United States Attorneys, the FBI, and Postal Inspectors.  Since we began publicly reporting on criminal referrals for FY 2006, the Program has seen an increase in the number of referrals in 11 of 12 years.

Chapter 7 and 13 trustees are integral to the USTP’s criminal enforcement program.  A significant percentage of the referrals we make each year to our law enforcement partners are based on information we receive from private trustees.  But the work of private trustees can go well beyond just that referral.  You often work closely with us as we develop the case, are called upon to provide documentation, meet with law enforcement, or even testify at trial. 

For example, Kansas City chapter 13 trustee Richard Fink coordinated with our office after discovering a debtor had filed altered copies of checks with the court as proof of plan payments in response to the trustee’s motion to dismiss.  Based on information obtained by the trustee through a Rule 2004 subpoena of the bank for the original checks and a Rule 2004 examination of the debtor by our office, we successfully prosecuted a motion to dismiss the debtor’s case with prejudice with a bar to refiling.  Our office also made a criminal referral.  The United States Attorney charged the debtor, who pled guilty to wire and tax fraud.  The debtor also admitted in her plea agreement to embezzling more than $550,000 from her companies’ clients by diverting funds into her personal and business accounts, as well as failing to report the embezzlement income on her federal income tax returns.  The defendant was sentenced to four years in prison and ordered to pay nearly $1 million in restitution to her victims.

In another matter, Chicago chapter 13 trustees Marilyn Marshall, Glenn Stearns, and Tom Vaughn took successful civil enforcement actions against a consumer bankruptcy attorney under section 329.  The attorney failed to provide adequate services and failed to disclose the fees charged.  Based on the trustees’ actions and with their assistance, our office undertook an investigation of the attorney.  We successfully prosecuted a disciplinary complaint issued by the bankruptcy court and referred the attorney to law enforcement.  Ultimately, the United States Attorney charged the attorney, who pled guilty to filing false tax returns.  In his plea agreement, the attorney also admitted to causing his clients to file false documents related to attorney’s fees and filing his own false bankruptcy documents to conceal those fees.  Sentencing is scheduled for later this year. 

These examples highlight the importance of identifying potential criminal activity and notifying your local United States Trustee’s office.  Prosecution not only remedies economic harm to victims, but also vindicates the integrity of the bankruptcy system.  And when a case is prosecuted, it sends a strong message of deterrence to others who would misuse the bankruptcy process to advance a criminal scheme. 

With so many new United States Attorneys taking office over the past year, now is a good time for us to focus our efforts on criminal referrals.  All United States Trustees are meeting with the new United States Attorneys (USAs) in their districts.  Among the messages we are communicating are the following:

  • Bankruptcy crimes are an assault on vulnerable debtor and creditor victims, and also on the entire federal bankruptcy court system.  The bankruptcy process depends on voluntary compliance, as well as full and complete financial disclosures.
  • Bankruptcy often provides a treasure trove of sworn statements and financial information that reveals additional crimes that wrongdoers advance through the bankruptcy process. 
  • United States Trustees and private trustees can provide valuable assistance in helping to review financial information and even testify at trial.  Additionally, about 25 USTP attorneys serve as Special Assistant United States Attorneys to prosecute bankruptcy crimes.

The USTP is continuing its extensive training on bankruptcy fraud.  Last year, we trained approximately 2,400 law enforcement personnel, Program employees, private trustees, and members of the bar and other professional associations throughout the country.  This year, we have undertaken a series of joint training programs with the FBI’s Complex Financial Crimes Unit.  To date, we have reached more than 600 United States Attorney, FBI, and other federal agency personnel in more than 40 locations across the country.  I also was invited to make a presentation to the Attorney General’s Advisory Committee of United States Attorneys on our criminal enforcement efforts.  At that meeting, I was pleased to hear from several USAs about their positive experiences in dealing with United States Trustees and private trustees. 

Finally, I am very pleased to report to you that the March 2018 issue of the USA Bulletin, a bimonthly publication of the Executive Office for U.S. Attorneys’ Office of Legal Education, was devoted exclusively to bankruptcy and bankruptcy fraud.  The USTP contributed many of the articles.  The publication, which is available online, is widely read by federal law enforcement and should help a great deal in garnering law enforcement attention on the importance of criminal investigations and the prosecution of bankruptcy crimes.


There are many other matters of chapter 13 interest that merit attention.  Some of these issues were addressed in a panel presentation yesterday with Tiffany Carroll, Suzanne Hazard, and Assistant United States Trustee Monica Kindt.  Among other things, the panel discussed common audit findings, insurance, and identifying poorly performing attorneys.

The USTP continues to place emphasis on compliance by all parties in a bankruptcy case.  We pursue violations by unsecured and secured creditors in consumer and business cases.  Despite all of our joint efforts, I know that mortgage servicing violations remain a concern for chapter 13 trustees.  Although we have some legacy settlements still in progress, I have learned from you and our own USTP staff that the most recent violations often pertain to such issues as noticing trustees on mortgage modifications, rather than the more fundamental errors we saw in the past pertaining to inflated or entirely phony fees and charges imposed on debtors and bankruptcy estates.


Let me finish by touching base on a couple of matters concerning chapter 13 trustee administration.

As you know, the USTP has taken steps to expand security at section 341 meetings.  Beginning in 2015, we contracted with the Federal Protective Service to provide guards at 17 meeting room sites that are not in government buildings.  I am pleased to report that we are currently in the process of providing security guards at several additional sites.  Moreover, we are continuing efforts to permanently move section 341 meeting locations into secure federal space whenever possible. 

My last observation to share this morning pertains to the economics of chapter 13 trustee practice.  Importantly, the operating costs for a large majority to chapter 13 trustees were lower last year than the previous year.  That is good news and demonstrates efficiency for which trustees should be commended. 

Nonetheless, after a period of reductions in the percentage fee required to fund chapter 13 trustee operations, the average fee crept up last year from 6.8 percent to 7.3 percent.  And the number of trustees at the statutory maximum of 10 percent increased from 14 percent as of the end of FY 2017 to 18 percent currently, which is a trend meriting close observation in the future. 

Many of you recall that, just prior to the mortgage meltdown and Great Recession, percentage fees rose significantly.  Although there are probably many explanations, it makes sense that the percentage fee would be counter-cyclical to the economy and housing market.  When the economy is strong, as it is now, then debtors have a greater capacity to repay debts or even to refinance their houses.  That is good.  But all of us want to be aware of the costs of administration and keep them as low as possible.  On that score, I think we have formed an effective partnership and will continue our close review in the future.   


I appreciate your time and attention this morning.  One of the most gratifying experiences I have had as Director of the USTP is developing a close relationship with private trustees.  When we work together, we can address debtor abuse, attorney misconduct, creditor violations, and a host of other systemic problems. 

Chapter 13 trustees often do not receive the recognition they deserve for properly administering cases, and thereby returning billions of dollars in repayments to creditors and providing economic relief that literally may save the lives of many debtors in dire distress.  Your competence, commitment, and caring should be lauded.

It is my honor to serve the bankruptcy system alongside you. 


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Updated August 22, 2018