Monday, January 7, 2008

Legal Victim Assistance Project
Telephone: (561) 488-7678
Facsimile: (561) 488-2861
Program Manager: Meryl M. Lanson

January 2, 2008

Senator Charles E. Grassley
135 Hart Senate Building
Washington, D.C. 20510


Dear Senator Grassley:

Your solid stance on Protecting Tax Dollars Against Fraud, published January 20, 2006, along with your career commitment to America’s promise that the government will be of, for, and by the people encourages us that we might turn to you. We turn to you because we are sure you recognize and agree with the premise that a private citizen can be extremely helpful to the federal government. Citizen assistance, when done voluntarily, can be an extremely valuable resource:

- By providing research at no cost to the federal government.

- By providing analysis of information at no cost to the federal government.

- By providing solutions and recommendations at no cost to the federal government.

On June 18, 2007, we submitted complete packages to every member of the Senate and House Judiciary Committee – Certified Mail, Return Receipt Requested. It was confirmed that every member received our work. In our package we told firsthand stories of FRAUD and ABUSE in the BANKRUPTCY COURT. We recommended that action be taken to prevent the genesis of all fraud and abuse in the Bankruptcy System by deterring “fraud on the court.” We identified this species of fraud as the primary reason for the loss of judicial accountability and fairness in the bankruptcy system as well as in other areas of the law.

Enclosed please find a copy of the initial correspondence. Since the submission of our initial package, through the “Legal Victim Assistance Project,” a 501(c)(3) organization, we have continued to perfect our observations and recommendations through research and hands on assistance to victims of these frauds and abuses; “victims” whose lives were permanently destroyed through a “corrupted” bankruptcy system.

It would be improper and incorrect for us to say that the entire system is corrupt; however, if there is ANY CORRUPTION, the system has failed. Citizens are relying on the bankruptcy system to reorganize and recover when financially challenged.

If one citizen is damaged by corruption of the bankruptcy system, the system has failed. We believe that any and all corruption stems from “fraud on the court” perpetrated by officers of the court. That was the theme of our initial correspondence to Congress.

The second attempt to influence change in the bankruptcy system is the Report entitled “Legal Victim Assistance Project – Report on Fraud and Abuse in Bankruptcy,” which is also enclosed with this letter. This Report discusses the failure of the U.S. Trustee Program to prevent fraud and abuse in the bankruptcy system. It also makes the accusation that the bankruptcy system is corrupted, and gives, as an example, a specific bankruptcy case, Baron’s, Case No. 97-25645-BKC-PGH, Region 21. This specific case has irrefutable evidence of “fraud on the court,” irrefutable evidence of the U.S. Trustee’s failures, and yet, after almost 10 years since the discharge, after a fraud trial, after countless notices to the U.S. Trustee, not one corrective step has been taken to recover assets fraudulently distributed.

The role of the U.S. Trustee in Bankruptcy is clear in the following excerpt:

Roberta A. DeAngelis, Acting United States Trustee for Region 3 United States Department of Justice before the Subcommittee on Commercial and Administrative Law – Committee on the Judiciary United States House of Representatives July 21, 2004

“Although only the bankruptcy court may approve employment and compensation, and although creditors and parties in interest may object to employment and compensation, the United States Trustee Program considers its authority to review these applications to be an important tool in carrying out its mission to uphold the integrity and efficiency of the bankruptcy system. Congress has prescribed a comprehensive regimen of legal standards and procedures governing the retention and compensation of professionals employed in Chapter 11 cases. Bankruptcy courts are expressly required to review and approve the employment of all professionals and the payment of all fees and expenses. The responsibility to identify non-compliance with these standards and procedures in Chapter 11 cases is a responsibility shared among the courts, the United States Trustees, and other participants in the bankruptcy system.”

As a direct result of the U.S. Trustee’s failure in the case of Baron’s, a fifty year old multi-generational family owned company, was lost. We live in an “economic world.” The unnecessary loss of Baron’s through fraud and abuse in the bankruptcy system cannot be viewed in terms of the loss to the owners of Baron’s alone – that is the tip of the iceberg. The real losses caused by FRAUD and ABUSE go further in a cascade of damages emanating from but this one case. Let’s look at an Economic Estimation of the Loss of Social Capital Damages to American Society arising from the failed reorganization of Baron’s.

- Baron’s was an S-Corporation producing taxable income to its owners and therefore Income Tax Payable of $100,000.00 per year.

Loss of 10 years Income Tax equals $1,000,000.00.

- Baron’s employed 200 workers with a payroll of $4,000,000.00 per year. The lost FICA tax employers share over the past 10 years at 7% (rounded) $280,000.00 x 10 years equals $2,800,000.00.

- Baron’s employees’ share of FICA would be mitigated by re-employment of workers; however, many workers were unable to find re-employment. Between unemployment compensation paid, and lost income tax, and lost employee share of FICA, it is estimated that the COST TO THE FEDERAL GOVERNMENT over 10 years equals $2,300,000.00.

- Baron’s paid Sales Tax to the State of Florida. Baron’s sales per year were $20,000,000.00 at 6% over 10 years equals $12,000,000.00.

- Baron’s also supported non-profit organizations through the Corporate entity or the Owners estimated at $20,000.00 per year over 10 years equals $200,000.00.



In the attached Report, reference is made to the 30,000 notices of FRAUD and ABUSE in fiscal year 2002. If 3% had a similar pattern of corruption, the loss in Social Capital would be over $18 billion for 2002 alone. The same Report that estimated the 30,000 reports was actually proud of recovering $160 million. That is an abysmal result.

We are seeking HEARINGS on this topic. We have the cases, the victims who will testify, and the research that should save significant investigative dollars. There is no topic more pertinent to the well being of the public than the issue of “FRAUD ON THE COURT.” Americans must depend on their courts to be fair, impartial and deliver honest services.

You gave birth to the anti fraud legislation describing the U.S. Department of Justice as the federal government’s best weapon against fraud. You asked for whistleblowers to come forward and expose wrongdoing. We have provided the evidence, the laws, and the path voluntarily. We have had no contact from any member of Congress. As we know your fine work, what we are handing over fits the bill. Please read all of the attached documents in light of your quote from January 20, 2006:

“In the last two decades, I have learned valuable lessons in my effort to expose financial mismanagement and outright fraud against the federal government. It takes constant vigilance by hard-nosed lawmakers, old-fashioned journalistic snooping by members of the media and courageous do-gooders working on the inside to unearth waste, fraud and abuse. I’m committed to continued work as a taxpayer watchdog in Washington.”
We are hoping that you will be the one Congress Person who will care about this issue and who will make use of the work we have done.

Very truly yours,

Meryl M. Lanson / Karin Huffer

Enclosures: With Certified Copy Only

1) June 18, 2007 Correspondence

2) Legal Victim Assistance Project – Report on Fraud and Abuse in Bankruptcy

Sunday, January 6, 2008

"Southern District of Florida Bankruptcy Judge Cristol's Testimony Before Congress"

Chief Judge Emeritus
United States Bankruptcy Court
Southern District of Florida
Hearing on the United States Trustee Program:
“Watch Dog or Attack Dog?”
before the
Subcommittee on Administrative and Commercial Law
House of Representatives Judiciary Committee
October 2, 2007

My name is A. Jay Cristol. I am a United States Bankruptcy Judge in the Southern District of Florida. This is my 23rd year on the bench. I served as chief judge from 1993 to September 1999. Prior to my appointment to the bench I was a civilian lawyer for 25 years with an extensive bankruptcy practice and service as a trustee in bankruptcy.

I also served twenty years in the Reserve Judge Advocate Generals Corps where, among other assignments, I lectured in the Pentagon and elsewhere to lower ranking enlisted personnel and military legal assistance lawyers on financial management and bankruptcy.

I am proud of the bankruptcy system of the United States of America and believe it was intended to be the most compassionate and, at the same time, most effective system in the world because it goes beyond the ancient concept of looking only to the distribution of assets to creditors and offers the honest debtor a fresh start. When the 1978 Code and its amendments were enacted the bankruptcy judge was elevated from a referee in bankruptcy to pure judge status and the administrative tasks were ultimately transferred to the U.S. Trustee who should have been more accurately named the U.S. Bankruptcy Administrator.

The program worked well for many years under the directorships of Gerry Patchen and others. In answer to the question, “Watch Dog or Attack Dog?” the answer is the U.S. Trustee is not one dog. It is a pack of dogs.

In the area of chapter 11 reorganizations the U.S. Trustee staff at local levels provides extremely valuable assistance to the Courts. In this area the U.S. Trustee is a beloved Lassie or a Rin Tin Tin. Sadly, in the area of chapter 7 and chapter 13 the U.S. Trustee program is a pit bull.

Let me be quick to say the local Assistant United States Trustees and their staffs are generally competent and understanding and the regional Assistant U.S. Trustees generally are the same. The problem, as I see it, comes from the top. As I mentioned, the program ran well when
Gerry Patchen was Director. Over the tenure of the past two directors, Lawrence Friedman and Clifford White, the policies sent from Washington to the soldiers in the field have turned the U.S. Trustee program in the area of consumer debtors into the pit bull.

I do not mean to make ad hominem attacks on Mr. Friedman or Mr. White. I respect them both as to their integrity and professional talents. It should be noted that Mr. White was honored in 2006 with a Presidential Rank Award for Meritorious Senior Professional Service.

The problem, as I see it, is the perspective of Mr. Friedman and Mr. White, whose distinguished career has been served in the office of the Federal Prosecutor. These gentlemen seem to view all debtors with suspicion through prosecutorial eyes as dishonest crooks trying to beat the system and perceive debtor’s lawyers as disreputable and untrustworthy.

Nothing is further from the truth. In my more than two decades on the bench I have observed that almost all consumer debtors seeking relief in the bankruptcy court are honest, decent, hardworking citizens who suffered a catastrophic financial tragedy, seldom of their own making, such as serious medical disaster and no health insurance, loss of employment, dissolution of a marriage or some financial mistake or misfortune. The consumer lawyers who represent them are generally competent and well-meaning without blemish on their character.

Yes, there are a few bad apples in the barrel. Prior to the U.S. Trustee’s much publicized “National Civil Enforcement Initiative” most of the bad apples were caught by the system. Some got away, just like things happen in all segments of our society.

The U.S. Trustee boasts in its Annual Reports of a small number of anecdotal success stories, most of which would have come to the same result without intervention by the U.S. Trustee. The total numbers boasted about are infinitesimal against the total numbers of bankruptcy filings.

Likewise, the U.S. Trustee reports of the initiative yielding “millions in debts not discharged.” The most recent report for fiscal year 2005 speaks of yielding $583 million in debts not discharged. There is substantial difference between debts not discharged and debts collected. The U.S. Trustee offers no figures on debts collected. The old adage “You cannot get blood from a stone” is especially applicable here. Very little of the non-discharged debts are collected so what has been accomplished?

The report claims a better than 99% success rate in the 1112 complaints filed to deny or revoke discharge. It fails to mention how many cases are won by default.

Think about it. A destitute, honest debtor that has appropriately turned over all his or her property to the panel trustee, except for exempt property, which in many states is meager, is served with a lawsuit filed by the United States of America, represented by highly skilled, wellpaid lawyers. In these circumstances most debtors have neither the money nor the will to fight. In many instances their remaining exempt property will not even cover the amount of a retainer to a competent attorney. It is not Goliath against David, it is more like Goliath against an ant.

And what is the benefit to society of most of these undischarged debts or denials of discharge? Without discharge and the fresh start it provides, these victims of the existing initiative find it difficult to get a job, get credit or climb out of the deep pit in which they are trapped. They are denied a fresh start and the opportunity to re-enter society as productive

The new law codified some useful procedures to assist panel trustees and the court in administering cases. The mean-spirited streak that permeates the new law provides draconian penalties for the most minor and insignificant failures to comply with the even unimportant statutory requirements. The U.S. Trustee is enamored of these harsh penalties and swings its sword with a vengeance. When local U.S. Trustee lawyers follow some of the policies set by Washington, I sense a feeling of embarrassment by the U.S. Trustee’s attorneys at what they have been directed to do. Some specific examples are:

Consumer bankruptcy attorneys have the experience of explaining the new requirements to prospective clients, only to have the clients go away discouraged, and never return. Debtors must obtain all “payment advices” for the 60 days before the bankruptcy is filed; they must obtain a tax return or transcript for the most recent year before the petition is filed; they must provide information on every penny of their income for the six months prior to when the petition is filed; they must provide bank statements to the trustee and evidence or other current income; they must attend a pre-petition credit counseling briefing, no matter how hopeless their situation and regardless or whether their problems were caused by imprudent credit decisions or unavoidable financial catastrophes; attorneys must complete numerous additional forms, including a six-page means test form that requires arcane calculations about which there are many different legal interpretations. According to the United States Trustee program, attorneys must also provide clients with pages and pages of so called “disclosures”, many of which are either irrelevant to the client’s case or inaccurate, which then requires much additional time spent explaining why they are irrelevant or inaccurate. U.S. Trustee policy sees no problem denying a debtor bankruptcy because their income calculated on the statutory method as the average over the last six months is too high when, in fact, the Debtor lost their job and their income is zero. But if an expenses element on the mean test is higher than the actual number, the U.S. Trustee’s policy has the chutzpah to ignore the statutory calculation and wants to use the actual number.

The recent GAO report states that the credit counseling requirement is not serving its supposed purpose. Even the credit counselors report that only 2-3% of the prospective debtors they serve could even contemplate a debt management plan. The counseling requirement serves primarily as yet another barrier to bankruptcy, especially in those districts where judges have ruled that debtors, even those facing emergencies, cannot file their bankruptcy cases until the day after they receive the credit counseling briefing. Why not the same day?

If a debtor’s papers contain minor discrepancies in the numbers, discrepancies that would have had no effect on the results of the case, the debtor should not be publicly accused, as they are now, of making material misstatements.” Such serious accusation should be reserved for cases in which the debtor’s misstatement had a significant impact on how the case was administered. There is no valid reason for the U.S. Trustee to persecute debtors.

The new law makes it harder for consumers to save a home from foreclosure or a car from repossession and the U.S. Trustee policy seeks the harshest implementation of these provisions. Result: honest people become homeless. Families are broken up. The victims lose their jobs because they have no car to drive to work.

The problems of consumer debtors are only exacerbated by the aggressive anti-consumer stance of the United States Trustee program. The independent decisions of career personnel and local offices have been subordinated to central directives from a politicized central office dedicated to serving the political interests of the administration - in this case by effectively becoming an arm of the administration’s corporate backers in the financial services industry and trying to make bankruptcy as difficult and unattractive as possible. Spending enormous resources in going after minor document defects in papers filed by consumer debtors has done nothing to address the widespread fraudulent claims and charges of mortgage companies in bankruptcy and other creditor abuses. Most documents filed by debtors’ attorneys are not as poorly and inaccurately prepared as the unsupportable documents filed in great profusion by creditors – yet the U.S. Trustee spends little or no time on creditor wrongdoing.

The U.S. Trustee was supposed to be a neutral monitor of the system and, for many years, it was. More recently, it seems to devote almost all resources to going after consumer debtors. They give great scrutiny to consumers’ filings, but almost none to creditors’ activities. The neutrality has been maintained in North Carolina and Alabama under the Bankruptcy Administration System under judicial control.

It appears that the U.S. Trustee sees its mission to deny people relief through bankruptcy. They file dismissal motions for minor defects, which makes things especially difficult for pro se debtors. The U.S. Trustee should be helping not hindering these people. Dismissal motions filed for things like credit counseling a few days early, or one or two missing pay stubs, when it is obvious that such omissions are of no significance.

A final sad example is my case In re Jean Raul Petit-Louis, a pauper. He did not own real estate. He did not own a car. He had no money and little more than the clothes on his back. He lost his job and could not pay his rent in public housing where he lived in a tiny apartment. Upon getting back to work he was in danger of eviction because of the few dollars of unpaid rent. He could only keep a roof over his head if the debt was paid, which he could not do, or if it was discharged. Petit-Louis (“Little Louie”) could not speak English and could not obtain credit counseling in Creole, the language he understood. Of ten U.S. Trustee approved credit counselors in southern Florida not one had a Creole speaking counselor. The U.S. Trustee had not carried out its statutory obligation to provide credit counseling in a meaningful way. Instead of agreeing to a waiver of the requirement as allowed by the statute, the U.S. Trustee sought to bar Little Louie from bankruptcy relief and when I granted a waiver the U.S. Trustee filed a lengthy motion to reconsider followed by an appeal and a threat to Little Louie that they would appeal all the way to the Supreme Court. Eventually, Little Louie voluntarily dismissed his case. Although he maintained the Court had jurisdiction to grant relief, it became clear to him and his pro bono counsel that the U.S. Trustee would use its unlimited resources to continue litigating the dispute, even if it required litigating the issues all the way to the Supreme Court.

I have submitted a number of cases of similar actions by the U.S. Trustee against other Little Louies.

I will close by warning Little Louie and other poor but honest debtors with the words of Cicero: Fear not those who do evil in the name of evil but heaven protect us from those who do evil in the name of good.

Chief Judge Emeritus
United States Bankruptcy Court
Southern District of Florida
Hearing on the United States Trustee Program:
“Watch Dog or Attack Dog?”
before the
Subcommittee on Administrative and Commercial Law
House of Representatives Judiciary Committee
October 2, 2007

Appendix to A. Jay Cristol Testimony

1. A. Jay Cristol cases:
In re Petit-Louis, 344 B.R. 696 (Bankr. S.D.Fla. 2005)
In re Petit-Louis, 338 B.R. 132 (Bankr. S.D.Fla. 2005)

Debtor spoke only Creole and no credit counseling was available at the time in Creole. UST filed motion to dismiss, arguing that debtor must obtain counseling in language he did not understand. Court denied dismissal and UST moved for reconsideration. Court again denied dismissal. Court stated: “The U.S. Trustee's disregard for non-English speaking residents seeking counseling in the Southern District of Florida, a district which the U.S. Trustee admits ‘presents its own unique set of language issues’, evidenced the failure of the Office of the U.S. Trustee to comply with its duties in determining whether counseling services are adequate in this district. If the U.S. Trustee fails to manage the bankruptcy counseling system in a non-discriminatory fashion, the Court has the authority and indeed the responsibility to allow a debtor access to the bankruptcy system by waiving a requirement which, in practice, is inappropriately excluding him on the basis of his lack of English language ability.”

In re Morgan, 2007 WL 2298010 (Bankr. S.D.Fla. 2007)

The debtor performed “means test” calculation, taking the housing ownership expense deduction for his residence which was free and clear of all liens and encumbrances. Chapter 13 trustee objected to above-median-income debtor's proposed plan, as failing to satisfy “projected disposable income” test. The Court held the debtor is allowed a deduction for the mortgage/rental expense. “The plain meaning of the statute and its use of the term “applicable” instead of “actual” evidences Congress' intent to set the Local Standards as a fixed allowance rather than a cap. The Court must assume that Congress said what it meant and meant what it said. Had Congress wished the Standards to act as a cap rather than an allowance, it knew what language to use.”

In re Benedetti, 2007 WL 2083576 (Bankr. S.D.Fla. 2007)

UST moved to dismiss debtor's Chapter 7 case, as presumptively abusive under a properly performed “means test” calculation. Specifically, the UST objected to the “means test” calculation performed by debtor on the grounds that debtor had improperly deducted vehicle lease payments on motor vehicle that she intended to, and actually did, surrender. The court held that debtor who, on date bankruptcy petition was filed, was contractually obligated to make automobile lease payments to creditor asserting an interest in one of her two motor vehicles was entitled to deduct her obligations on this motor vehicle lease in performing “means test” calculation, even though she intended to surrender vehicle and would not actually be making these lease payments. “Using a ‘snapshot’ view of the Debtor's expenses on the date of filing makes sense in the context of a Chapter 7 case. The application of the provisions of sec. 707(b)(2) involves an evaluation of the Debtor's financial condition on the petition date such that a post-petition surrender of collateral is irrelevant and inconsequential. The means test is statutorily defined as a mechanism for determining whether a presumption of abuse arises in a Chapter 7 case, with reference to expenses ‘as in effect on the date of the order for relief.’
11 U.S.C. § 707(b)(2)(A)(i) and (ii). The test has been described as a "snapshot” on the petition date rather than an evolving progress report on the Debtor's finances. See In re Nockerts, 357 B.R. 497 (Bankr. E.D.Wis. 2006).”

2. In re Meza, 2007 WL 1821416 (E.D. Calif. 2007)
UST moved to dismiss the case because the debtor’s certificate of counseling was from an unapproved agency. The bankruptcy court found the debtor substantially complied with counseling requirements and denied the motion. (Debtor had been in a credit counseling plan with a debt consolidation service pre-petition.) UST appealed and the District Court affirmed.
3. In re Jones, 352 B.R. 813 (Bankr. S.D.Tex. 2006)

Debtors obtained credit counseling about 190 days before case was filed. UST moved to dismiss because counseling was not obtained within 180 days before petition. Court found that it had to dismiss case but stated, “if the US Trustee has any discretion (akin to "prosecutorial discretion" in other functions of the Justice Department), the Court would hope that the US Trustee would decline to prosecute a motion to dismiss under the circumstances presented in this case. A debtor who obtains credit counseling only 190 days prior to filing a bankruptcy petition and who delays filing a bankruptcy petition to try to implement the lessons learned in counseling certainly seems to meet the objective of the statute, if not the literal requirement. And unless the US Trustee has unlimited resources, it would seem that limited resources would be better put to other litigation.”

4. In re Romero, 349 B.R. 616 (Bankr. N.D.Calif. 2006)

Debtors filed bankruptcy to stop a wage garnishment of their only income and asked for deferral of credit counseling due to exigent circumstances. They obtained counseling within time permitted by court. UST filed a motion to dismiss arguing the wage garnishment was not an exigent circumstance. The court denied the motion, stating: “In this case, Debtors faced imminent garnishment of their only income. The only way to stop
the wage garnishment from taking effect was for Debtors to file bankruptcy by July 10. Debtors requested credit counseling from an approved agency on July 7, but were unable to obtain the requested services until seven days later. I determine that the looming wage
garnishment constitutes exigent circumstances permitting a temporary waiver of the credit counseling requirement.”

5. In re Bricksin, 346 B.R. 497 (Bankr. N.D.Calif. 2006)

The debtors obtained counseling more than 180 days before the case was filed. The court denied the UST motion to dismiss, stating: “The Court finds that application of the statutory scheme to dismiss this case, as the Trustee urges, would produce a result at odds with Congressional intent. The intent behind these statutory amendments is to encourage debtors to seek alternatives to the bankruptcy process and to promote debtor awareness of the effects of a bankruptcy filing by requiring pre-petition credit counseling. Debtors had received extensive pre-petition credit counseling and then -- during the 180-day period prior to filing for bankruptcy -- were proceeding with their repayment plan, and making very substantial payments to creditors. While failing to comply with the law's technical letter, the Debtors were clearly in compliance with its spirit. The Court finds that the Debtors' need for a bankruptcy filing was not and could not have been obviated by additional credit counseling. Debtors were keenly aware of the implications of the bankruptcy filing. Indeed, CCCS had advised the Debtors that their only viable option was to file for bankruptcy. . . . Debtors have already paid for and completed two credit
counseling sessions. It would be inequitable for this Court to hold that these Debtors' technical non-compliance with the law, despite their very best efforts, warrants dismissal of this case, which would require these Debtors to start all over, to pay another $ 299.00 filing fee, and potentially deprive them of the protection of the automatic stay.”

6. In re Koliba, 338 B.R. 39 (Bankr. N.D.Ohio 2006)

Debtors and attorney failed to sign bankruptcy petition before it was filed electronically. UST moved to dismiss case. The court stated, “in this case, absolutely nothing has been put forth or even alleged which would tend to show that the Debtors are not honest, and thus not deserving of the protections of the Bankruptcy Code. On the other side of the coin, the UST did not offer any satisfactory explanation as to how an objective of bankruptcy law would be furthered by dismissal. For example, it did not allege that the dismissal of the Debtors' case would be in the best interest of the Debtors' estate or their creditors.” The motion was denied.

Question for Judge Cristol:
What is the policy of the U.S. Trustee regarding the means test?

Complete Oversight Testimony of Mary Powers, Esq.


My name is Mary Powers and I am an attorney who for the majority of my twenty year legal career practiced bankruptcy law. I was fortunate to begin my career as confidential law clerk to the Honorable Beryl E. McGuire, Chief Judge for the United States Bankruptcy Court for the Western District of New York. After that I worked for two well respected Buffalo law firms, representing debtors, creditors and creditor committees in a variety of bankruptcy matters. In 2002, I applied for the position of Trial Attorney in the Buffalo office of the United States Trustee (“UST”). At that time, I was very happy at my law firm, received challenging work, was well compensated and, above all, was respected by my colleagues just as I respected them for their integrity and dedication to their clients. There was only one legal position which would have prompted me to leave this wonderful working environment and that was a position with the Department of Justice’s United States Trustee’s Office. I felt my background was ideal, but more importantly, I felt that it would be an honor and a privilege to serve the Department of Justice in its mission to promote the integrity and efficiency of the bankruptcy system. It was a chance, for the lack of a better phrase to “wear the white hat”. I felt very fortunate to have been offered the position. Over time, it became clear to me however, that what I was doing had very little to do with “justice” and, as such, my personal passion and enthusiasm slowly eroded. In February 2007, not wanting to spend the remainder of my career doing something that I had trouble believing in, I resigned. I have never once regretted that decision.

Upon my arrival, I came to understand more clearly what was meant by “civil enforcement “and that the UST was now considered a litigating component of the Department of Justice. I had enough experience at that time to realize that the Buffalo office did not have the resources to be a true “litigating force”, but I was optimistic that I could still make a difference, elevating the level of practice and protecting both debtors and creditors. During my years, little focus or training emphasized creditor abuse. I quickly came to understand that ferreting out abuse by debtors was of primary importance. I screened numerous filings. Through inquiries of debtors and their attorneys, I confirmed what I could have intuitively guessed from being a Buffalo and Western New York native. The majority of filings were not abusive. Buffalo’s poor economy caused loss of jobs, loss of medical benefits and often marital dissolution, due in large part to financial setbacks. These factors were at the heart of the vast majority of filings. This became very apparent when the UST implemented a reporting system (one of many) known as SARS (“Significant Accomplishments Reporting System”). Every action taken by staff was to be documented in this system. Every entry where no action was taken referred to a “mitigating factor” which obviated the need for any action. “Cancer”, “job loss”, “divorce” were noted frequently, demonstrating what I knew to be the case: that Western New Yorkers were down on their luck. When an abusive filing was found, dismissal or conversion to Chapter 13, was pursued with vigor, but always understanding that the judges in the Buffalo Bankruptcy Court were very aware of the harsh economic realities in Western New York and gave debtors every consideration. Initially it never occurred to me that those in Washington and New York would not trust the assessments of seasoned lawyers, those hired by them for their expertise and experience. I thought it was common sense and easily understood that regions and individual districts differed significantly in their bankruptcy demographics. I learned later that I was quite naïve in that belief.

I became aware that the debtor abuse “numbers” for the Buffalo office were low and that offices that had low numbers were perceived as not looking hard enough to find abuse. This became very apparent when then Director Lawrence Friedman on a visit to the Buffalo office pulled one of our “inquiry” files and concluded on its face that a debtor examination should take place and he would “show us how it was done”. He told us that as the debtor was a retired teacher it was likely he had a boat, although none was listed. I was not familiar with the link between retiring teachers and boats, but I assured him I would investigate and do a detailed document request for his review prior to his return to conduct the examination of the debtors. Our independent investigation revealed no intentional omission of assets on the debtors’ schedules. The examination done by Mr. Friedman also revealed nothing. The debtors were sincere and honest and nothing warranted the dismissal of their case. The case was flagged by our office for one more appropriately in Chapter 13 which is my recollection of what ultimately happened in the case. I feel certain that this result, as had occurred with other similar cases, would have occurred without the burdensome document requests and a lengthy examination of the debtors. Buffalo is a small community of bankruptcy practitioners and my experience led me to know that for many cases aggressive pursuit was unnecessary to achieve the same result. Unfortunately, as we did not conduct as many unnecessary examinations as other districts , we appeared less aggressive. Again, I felt that we understood the practice in our district best and there was no need to put the debtors and their attorneys through unnecessarily burdensome “hoops” if the same result could be achieved in a more timely and cost efficient manner for all involved. I felt that treatment of attorneys and debtors in that manner raised our credibility with the bench and bar, fostered cooperation and promoted a much more efficacious system. Unfortunately, the opinions of those in the “trenches” in the individual offices seemed to matter very little. Although, the same information could be easily obtained at a meeting of creditors, we would have gotten more “credit” from the powers that be had we engaged in costly examinations and document requests. Our “SARS” report, a seeming “report card”, certainly wasn’t impressive to those who measured success in terms of dismissals and conversions only. Unfortunately, we could not manufacture “abuse” where little existed. Even when we did obtain a conversion to Chapter 13 and the total amount of unsecured debt deemed nondischargeable was entered as the result, in truth, most of that debt would be ultimately discharged because the majority of Chapter 13 payment plans were of a very low percentage. If the case was dismissed, it was likely very little of that debt was collectible either. We understood however, that it was partially these numbers that the Office of the United States Trustee relied upon to justify its existence and demonstrate success. Feeding the SARs machine at times seemed as important as practicing meaningful law.

The lack of autonomy and inability to exercise discretion as well as the pressures to produce “numbers” was exacerbated after the passage of BAPCPA in October of 2005. Admittedly, the UST was forced to comply with a new law everyone was struggling to understand and certainly there would and should be uniformity in policies regarding application, but again the same pressures to produce presumed abuse under the “means test” was paramount. I remember one pivotal moment for me after the passage of the new bill. I, through the Assistant UST in the office, learned that the US Trustee in the region asked about a specific case. My first thought was that despite a multi-level screening process, something big must have been missed. When I reviewed the filing, I realized that the case wasn’t flagged because the debtor was only slightly over the median and had a blended family with six children and all the legitimate expenses that accompany a family of that size. You didn’t need the means test to figure that out. Common sense and living in the real world would have sufficed. More importantly, I was incredulous that someone at the level of a UST would not have something more important on her plate than this insignificant case from Buffalo. It was clear that “babysitting” was the order of the day and that the most important focus of the UST was accounting for “debtor abuse” and raising the numbers for statistical purposes. It was that day when I knew I could not spend the rest of my career in a micromanaging bureaucracy. I also knew that the satisfaction that would arise from pouring over cell phone bills and determining if “grandma” was part of the household would be nonexistent, especially when ultimately it would make very little monetary difference to creditors. As one well respected Buffalo attorney told me, the UST had come to be known as the “useless Trustee’s office”, not a flattering nickname, but one I sadly understood.

The most unfortunate aspect of this to me was that the Office of the United States Trustee employed many intelligent, hard working individuals all over the country, many of whom I was fortunate to work with and to meet. Those individuals produced many wonderful initiatives over the years. Many of them expressed frustrations similar to those I have expressed, but obviously only one who left government employment would feel free to speak. In closing, it is my belief that the mission of the Office of the United States Trustee is admirable however, the current execution of the mission is flawed, an impediment to the functioning of the system and does very little to promote the integrity of the system.