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Department of Justice
Executive Office for United States Trustees
Office of Research and Planning
For Immediate Release
October 30, 2001
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.
Here are some examples of civil enforcement actions by the U.S. Trustee
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.
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.
Contact a Detroit Chapter 7 Bankruptcy Lawyer that, not only fully
understands the bankruptcy process, but also can realistically advise you of
your options. Feel free to schedule your free initial consultation. During this
time, we can discuss your case and I can help you take charge of your financial
Bankruptcy Basics - For Cases Filed on or after October 17, 2005 (pdf)
Basics - For Cases Filed before October 17, 2005 (pdf)