```

[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

           BANKRUPTCY ADMINISTRATION IMPROVEMENT ACT OF 2017

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 of the

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 26, 2018

                               __________

                           Serial No. 115-66

                               __________

         Printed for the use of the Committee on the Judiciary

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Available via the World Wide Web: http://www.govinfo.gov

                                   ______
		 
                     U.S. GOVERNMENT PUBLISHING OFFICE 
		 
32-979                    WASHINGTON : 2018                 

                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JERROLD NADLER, New York
    Wisconsin                        ZOE LOFGREN, California
LAMAR SMITH, Texas                   SHEILA JACKSON LEE, Texas
STEVE CHABOT, Ohio                   STEVE COHEN, Tennessee
DARRELL E. ISSA, California          HENRY C. ``HANK'' JOHNSON, Jr., 
STEVE KING, Iowa                         Georgia
LOUIE GOHMERT, Texas                 THEODORE E. DEUTCH, Florida
JIM JORDAN, Ohio                     LUIS V. GUTIERREZ, Illinois
TED POE, Texas                       KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC L. RICHMOND, Louisiana
TREY GOWDY, South Carolina           HAKEEM S. JEFFRIES, New York
RAUL LABRADOR, Idaho                 DAVID CICILLINE, Rhode Island
BLAKE FARENTHOLD, Texas              ERIC SWALWELL, California
DOUG COLLINS, Georgia                TED LIEU, California
RON DeSANTIS, Florida                JAMIE RASKIN, Maryland
KEN BUCK, Colorado                   PRAMILA JAYAPAL, Washington
JOHN RATCLIFFE, Texas                BRAD SCHNEIDER, Illinois
MARTHA ROBY, Alabama                 VALDEZ VENITA ``VAL'' DEMINGS, 
MATT GAETZ, Florida                      Florida
MIKE JOHNSON, Louisiana
ANDY BIGGS, Arizona
JOHN RUTHERFORD, Florida
KAREN HANDEL, Georgia
KEITH ROTHFUS, Pennsylvania
          Shelley Husband, Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel

                                 ------                                

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                   TOM MARINO, Pennsylvania, Chairman
                 BLAKE FARENTHOLD, Texas Vice-Chairman
DARRELL E. ISSA, California          DAVID CICILLINE, Rhode Island
DOUG COLLINS, Georgia                HENRY C. ``HANK'' JOHNSON, Jr., 
KEN BUCK, Colorado                       Georgia
JOHN RATCLIFFE, Texas                ERIC SWALWELL, California
MATT GAETZ, Florida                  BRAD SCHNEIDER, Illinois
KAREN HANDEL, Florida                VALDEZ VENITA ``VAL'' DEMINGS, 
                                         Florida

                            C O N T E N T S

                              ----------                              

                           SEPTEMBER 26, 2018
                           OPENING STATEMENTS

                                                                   Page
The Honorable Bob Goodlatte, Virginia, Chairman, Committee on the 
  Judiciary......................................................    26
The Honorable Tom Marino, Pennsylvania, Chairman, Subcommittee on 
  Regulatory Reform, Commercial and Antitrust Law, Committee on 
  the Judiciary..................................................     1
The Honorable David Cicilline, Rhode Island, Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust 
  Law, Committee on the Judiciary................................     2

                               WITNESSES

The Honorable Alan C. Stout, Bankruptcy Court Judge, U.S. 
  District Court for the Western District of Kentucky
    Oral Statement...............................................     6
Mr. Clifford J. White III, Director, U.S. Trustee Program
    Oral Statement...............................................     7
Mr. N. Neville Reid, Capital Partner, Fox Swibel Levin & Carroll 
  LLP, Co-Chair of the Bankruptcy, Restructuring and Creditors' 
  Rights Group
    Oral Statement...............................................     9
Ms. Ariane Holtschlag, Attorney, Law Office of William J. Factor, 
  Ltd.
    Oral Statement...............................................    11
Mr. John Rao, Attorney, National Consumer Law Center
    Oral Statement...............................................    12

              Additional Material Submitted for the Record

Letter submitted by the Honorable Tom Marino, Pennsylvania, 
  Chairman, Subcommittee on Regulatory Reform, Commercial and 
  Antitrust Law, Committee on the Judiciary. These materials are 
  available at the Committee and can be accessed on the Committee 
  Repository at:

  https://docs.house.gov/meetings/JU/JU05/20180926/108455/HHRG-
    115-JU05-20180926-SD003.pdf

Opening Statement submitted by the Honorable Jerrold Nadler, New 
  York, Ranking Member, Subcommittee on Regulatory Reform, 
  Commercial and Antitrust Law, Committee on the Judiciary. This 
  material is available at the Committee and can be accessed on 
  the Committee Repository at:

  https://docs.house.gov/meetings/JU/JU05/20180926/108455/HHRG-
    115-JU05-20180926-SD002.pdf

Letter submitted by the Honorable Hank Johnson, Georgia, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust 
  Law, Committee on the Judiciary. These materials are available 
  at the Committee and can be accessed on the Committee 
  Repository at:

  https://docs.house.gov/meetings/JU/JU05/20180926/108455/HHRG-
    115-JU05-20180926-SD004.pdf

 
           BANKRUPTCY ADMINISTRATION IMPROVEMENT ACT OF 2017

                              ----------                              

                     WEDNESDAY, SEPTEMBER 26, 2018

                        House of Representatives

                   Subcommittee on Regulatory Reform

                      Commercial and Antitrust Law

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2237, Rayburn House Office Building, Hon. Tom Marino 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Marino, Goodlatte, Buck, Handel, 
Cicilline, Johnson, Schneider, and Demings.
    Staff Present: Daniel Flores, Counsel; Andrea Woodard, 
Clerk; Susan Jensen, Minority Counsel; and Slade Bond, Minority 
Counsel.
    Mr. Marino. Good morning. The Subcommittee on Regulatory 
Reform, Commercial and Antitrust Law will now come to order. 
Without objection, the Chair is authorized to declare recesses 
of the Committee at any time. We don't expect to be interrupted 
by votes at this point.
    We welcome everyone here to today's hearing on H.R. 3553, 
the ``Bankruptcy Administration Improvement Act of 2017''. I 
now recognize myself for an opening statement.
    Bankruptcy trustees are the backbone of the United States 
bankruptcy system. Chapter 7 cases are bankruptcy proceedings 
for the liquidation of assets by an individual debtor.
    There are approximately 1,000 chapter 7 trustees who 
receive cases and collectively administer over one million 
cases annually. The trustees are private citizens appointed and 
supervised by the Office of the U.S. Trustee to administer 
bankruptcy cases under chapter 7 of the U.S. Bankruptcy Code.
    These men and women are vitally important to the operation 
of our bankruptcy system. However, they have not received a 
raise in over 20 years. This is especially concerning because 
chapter 7 is the most popular form of bankruptcy.
    There has not been a fee increase to file chapter 7 cases 
or a raise in the trustees' compensations since 1995. In 2016, 
chapter 7 trustees collected and distributed over $300 billion 
in assets. We must pay our trustees a better wage to ensure 
that cases are efficiently handled and quality trustees 
continue to handle chapter 7 cases.
    My bipartisan legislation, H.R. 3553, the Bankruptcy 
Administration Improvement Act, introduced with Congressman Ed 
Perlmutter from Colorado, would remedy this by raising the 
compensation for trustees from $60 to $120. This raise would be 
accomplished by increasing the filing fee for a debtor by $60. 
This raise is proportional to 2018 dollars. H.R. 3553 also 
indexes the cost of filing, as well as the trustees' 
compensation per case, to inflation.
    I know there are some concerns with this legislation in 
regards to the debtor having to pay a larger filing fee. 
However, this bill does not disturb the court's existing 
authority under the Bankruptcy Code to waive a filing fee for 
an indigent filer.
    I am open to any ideas for different funding possibilities 
to increase compensation for chapter 7 trustees, but we must 
find a way to increase the amount of money that trustees 
receive for handling the case, otherwise we risk losing a 
critical mass of trustees willing to do the work required by 
chapter 7 cases.
    I am looking forward to hearing from our distinguished 
panel on ways to improve this legislation and what their 
thoughts are on a raise for chapter 7 trustees. Sixty dollars 
to handle a bankruptcy case is not adequate compensation; 23 
years without a raise is too long. I hope that we are able to 
come together and give the chapter 7 trustees a much-deserved 
raise.
    The Chair now recognizes the Ranking Member of the 
Regulatory Reform Committee, Congressman Cicilline.
    Mr. Cicilline. Thank you, Mr. Chairman.
    Welcome to our witnesses.
    Today's hearing concerns the compensation of bankruptcy 
trustees in cases under chapter 7 of the Bankruptcy Code, which 
provides debtors with a fresh start through the complete 
resolution of their debt. In chapter 7 bankruptcies, trustees 
act as a fiduciary appointed by the Justice Department to 
ensure that debtors comply with various requirements, including 
filing documents with the court and surrendering their 
nonexempt assets for liquidation along with other essential 
responsibilities.
    There are two sources of trustee compensation today. The 
first comes from filing fees paid by debtors. In addition to 
paying for legal representation and compulsory debt counseling, 
debtors must also pay a $335 fee to file for a chapter 7 
bankruptcy. Chapter 7 trustees receive $60 of this filing fee, 
a compensation level that has not been adjusted since 1994.
    The second source of trustee compensation is a commission 
on any assets that can be liquidated and distributed to 
creditors. In these cases, the trustee may receive a percentage 
of this distribution on a scale outlined by Section 326 of the 
Bankruptcy Code.
    Because more than 90 percent of chapter 7 bankruptcies are 
no-asset cases, where the debtor does not own assets that can 
be liquidated, there is wide agreement that chapter 7 trustees 
are long overdue for an increase in compensation. But I firmly 
believe that the solution to increasing trustees' compensation 
is not saddling consumer debtors with higher filing fees, which 
have already increased significantly since 2005, particularly 
at a time when wages are flat and too many hardworking 
Americans are living paycheck to paycheck.
    John Rao, a leading consumer bankruptcy expert and one of 
our witnesses today, notes that, and I quote, ``Consumers in 
financial distress typically live hand-to-mouth and have no 
savings they can rely upon, and it is already an enormous 
struggle for consumers to come up with the costs needed to file 
bankruptcy relief,'' end quote.
    There are, however, potential win-win solutions that would 
increase chapter 7 trustee compensation without adding to the 
financial hardship of consumer debtors.
    The first of these would be revising the statutory formula 
for payments to trustees in asset cases. This formula has also 
not changed since 1994 and could be modified to benefit the 
trustee system without imposing additional financial hardship 
on consumer debtors. Moreover, as Mr. Rao argues, a fund could 
be established to ensure an equitable distribution of payments 
among trustees.
    Secondly, there's nothing preventing Congress from reducing 
other fees paid by consumer debtors as a trade-off for higher 
trustee compensation. In many ways the amendments to the 
Bankruptcy Code in 2005 stacked the deck against consumer 
debtors with mountains of paperwork and other wasteful 
requirements that have done little to improve the bankruptcy 
system.
    The Government Accountability Office has reported that this 
requirement may often serve more as an administrative obstacle 
than as a timely presentation of meaningful options for 
consumers in dire financial situations without alternatives to 
bankruptcy. As a result, these burdensome requirements have 
deterred honest, hardworking families from obtaining bankruptcy 
relief.
    That's why there's ample support among consumer advocates 
for finding a compromise that eliminates these administrative 
burdens for consumer debtors, if only in limited cases such as 
those involving exigent circumstances. Is there any reason why 
a family facing a home foreclosure or catastrophic medical debt 
should go through credit counseling before even filing for 
bankruptcy?
    I believe there is room for agreement on this issue, and 
I'm encouraged by the majority's openness to finding the right 
solution to this issue. And with that in mind, I thank our 
panel of esteemed witnesses. I look forward to working together 
on finding ways to improve the bankruptcy system.
    Again, welcome to our witnesses. And I yield the balance of 
my time.
    Mr. Marino. Okay. Without objection, the other members' 
opening statements may be made part of the record.
    I will begin by swearing in our witnesses before I 
introduce them.
    I ask if you would all please rise, raise your right hand.
    Do you swear that the testimony you are about to give 
before this Committee is the whole truth and nothing but the 
truth, so help you God?
    Let the record reflect that every witness has answered in 
the affirmative.
    Please be seated.
    I'm going to introduce, go through everyone's vitae 
completely, and then we'll come back and start with questions. 
My colleague and I have to be in two different hearings at the 
same time, so he is heading out to cover for both of us.
    Clifford White III has served as Director of the U.S. 
Trustee Program since 2006. Mr. White has more than 30 years in 
Federal service, and most of his tenure has been with the 
United States Trustee Program, including formerly as the Deputy 
Director and as an Assistant United States trustee.
    Prior to joining the Program Mr. White served as a Deputy 
Assistant Attorney General within the Department of Justice--
there we have something in common, sir--and as an official at 
two other Federal agencies. He has been recognized with an 
Attorney General's Award for Distinguished Service and was 
conferred the Presidential Rank Award of Meritorious Executive 
in 2006 and Distinguished Executive in 2009.
    Mr. White earned his bachelor's degree and his JD with 
honors from the George Washington University and George 
Washington University Law School.
    Welcome, sir.
    Judge Alan Stout was appointed U.S. bankruptcy judge for 
the Western District of Kentucky on October 25, 2011. Judge 
Stout is a member of the National Conference of Bankruptcy 
Judges and currently serves as co-chair of the Legislative 
Committee.
    Judge Stout was a participating bankruptcy attorney in both 
Paducah and Marion, Kentucky, for 30 years. He also served as a 
chapter 7 panel trustee for 25 years. Before assuming the 
bench, he served as the Crittenden County attorney for 21 years 
and master commissioner of the Crittenden Circuit Courts for 5 
years. Judge Stout has previously served as president and on 
the board of directors of the National Association of 
Bankruptcy Trustees.
    Judge Stout earned his bachelor's degree from Murray State 
University and his JD from the Salmon P. Chase College of Law 
at Northern Kentucky University.
    And welcome to you, sir.
    Neville Reid is a capital partner and co-chair of the 
Bankruptcy, Restructuring and Creditors' Rights Group at Fox 
Swibel in Chicago. He has represented a wide array of clients 
in all aspects of bankruptcy, restructuring, insolvency, and 
creditors' rights cases and transactions for over 25 years. Mr. 
Reid's clients include receivers and bankruptcy trustees, 
distressed businesses seeking to restructure their debt and 
financial affairs, corporate unsecured creditors, secured 
lenders, and investors seeking to acquire assets from 
distressed entities.
    Additionally, Mr. Reid has been a bankruptcy panel trustee 
for chapter 7 and chapter 11 bankruptcy cases for over 23 
years. In that capacity he frequently investigates and recovers 
fraudulent transfers and various assets for the benefit of 
creditors of corporate entities and individual debtors.
    In 2011, Mr. Reid led his firm's representation of the U.S. 
Treasury Department in closing $1.7 billion of small business 
lending fund transactions designed to inject capital into 
middle market financial institutions and stimulate middle 
market lending as part of the Federal Government's economic 
recovery strategy.
    Mr. Reid has served as one of a select group of bankruptcy 
trustees in Chicago for over 22 years. He is regularly 
appointed by bankruptcy judges in Chicago to oversee the 
liquidation of Chicago area companies for the benefit of 
secured and unsecured creditors.
    Mr. Reid earned his bachelor's degree from Harvard College 
magna cum laude and his JD from Harvard Law School.
    And welcome to you, sir.
    Ariane Holtschlag is a partner with Factor Law in Chicago, 
Illinois. Her practice is focused primarily in the field of 
consumer bankruptcy and is equally divided among representing 
trustees, debtors, and creditors in chapter 7 and 13. Ms. 
Holtschlag also represents individuals and small businesses in 
chapter 11.
    She is testifying as a member of and on behalf of the 
American Bankruptcy Institute's Commission on Consumer 
Bankruptcy. She earned her bachelor's degree from Illinois 
Wesleyan University, and her JD from the University of Iowa 
College of Law.
    Good morning to you.
    Attorney John Rao is an attorney with the National Consumer 
Law Center where he focuses on consumer credit, mortgage 
servicing, and bankruptcy issues. He is a contributing author 
and editor of NCLC's ``Consumer Bankruptcy Law and Practice,'' 
a co-author of NCLC's ``Foreclosures and Mortgage Servicing and 
Bankruptcy Basics,'' and a contributing author to ``Collier on 
Bankruptcy'' and the ``Collier Bankruptcy Practice Guide.''
    Mr. Rao served as a member of the Federal Judicial 
Conference Advisory Committee on Bankruptcy Rules from 2006 to 
2012, to which he was appointed by Chief Justice John Roberts. 
He is a conferee on the National Bankruptcy Conference, fellow 
of the American College of Bankruptcy, member of the editorial 
board of ``Collier on Bankruptcy,'' board member of the 
National Consumer Bankruptcy Rights Center, commissioner on the 
American Bankruptcy Institute's Commission on Consumer 
Bankruptcy, and former board member of the National Association 
of Consumer Bankruptcy Attorneys and the American Bankruptcy 
Institute.
    He earned his bachelor's degree from Boston University and 
his JD from the University of California Hastings College of 
Law.
    Thank you, sir, for being here.
    Each of the witnesses' written statements will be entered 
into the record in its entirety. I ask that each witness 
summarize his or her testimony in 5 minutes or less.
    You see these little boxes in front of you. And to help you 
with them, there are timing lights on it, and I think you get 
the gist of that. But sometimes, like I do, I get so involved 
in our conversations that I don't even look at the box or look 
at things.
    So I will diplomatically raise the little gavel here, and 
when you see me twirling that in my fingers would you please 
wrap up your statement and then we can get further into your 
comments during the questioning phase.
    So with that, Mr. Stout, would you please like to make your 
opening statement?

  TESTIMONY OF THE HONORABLE ALAN C. STOUT, BANKRUPTCY COURT 
    JUDGE, U.S. DISTRICT COURT FOR THE WESTERN DISTRICT OF 
  KENTUCKY; MR. CLIFFORD J. WHITE III, DIRECTOR, U.S. TRUSTEE 
PROGRAM; MR. N. NEVILLE REID, CAPITAL PARTNER, CO-CHAIR OF THE 
  BANKRUPTCY, RESTRUCTURING AND CREDITORS' RIGHTS GROUP, FOX 
SWIBEL LEVIN & CARROLL LLP; MS. ARIANE HOLTSCHLAG, PARTNER, LAW 
OFFICE OF WILLIAM J. FACTOR, LTD.; AND MR. JOHN RAO, ATTORNEY, 
                  NATIONAL CONSUMER LAW CENTER

                   STATEMENT OF ALAN C. STOUT

    Judge Stout. Thank you, Mr. Chairman, members of the 
Subcommittee. As the Chairman said, my name is Alan Stout. I'm 
the United States bankruptcy judge for the Western District of 
Kentucky.
    Let me preface my remarks here today by saying that I am 
testifying on my own behalf as an individual bankruptcy judge. 
I do not represent other members of the judiciary, however, 
some judges have expressed their support for this to me. I do 
not represent the National Conference of Bankruptcy Judges here 
today, nor do I represent the Judicial Council or the 
Administrative Office of the Courts, except for one caveat that 
I will mention briefly shortly.
    Prior to being appointed to the bench in 2011 I was a 
bankruptcy lawyer. I served as a bankruptcy lawyer for 30 
years. I represented debtors in bankruptcy, I represented 
creditors, I represented banks, I represented credit unions, in 
all forms of bankruptcy, chapter 7, chapter 11, chapter 13, and 
even did some chapter 12 farm bankruptcy work. I think all this 
brings some practical experience that I bring to this issue.
    In addition to serving as a bankruptcy lawyer, I was a 
chapter 7 panel trustee for 25 years. During that time, I 
administered over 11,000 cases as a bankruptcy trustee, and 
during the time I was a practicing lawyer I was involved with 
over 3,000 cases, as I said, representing debtors and 
creditors, primarily representing consumer debtors in chapter 7 
cases. So I think I do have a unique perspective in addition to 
my 7 years of being on the bench that I bring to this issue.
    I support the bill as proposed to provide a $60 increase to 
the no-asset fees paid to chapter 7 trustees, keeping in mind 
that over 90 percent of the cases are no-asset cases. The 
trustees have not had a raise in many years, as the Chair 
alluded to.
    I support passage of H.R. 3553 with one exception. 
Yesterday, James Duff, in his capacity as secretary of the 
Judicial Council, sent a letter to the Chair and to the Ranking 
Member setting forth that the judiciary did regard one aspect 
of the bill as very problematic in providing for indexing an 
increase tied to inflation every 3 years.
    To the extent that the judiciary has expressed concerns 
with that, I echo those concerns and do not want to take a 
position contrary to the Judicial Council or the Administrative 
Office of the Courts relative to that issue. And so that letter 
is dated September 25, and I think it is in the record, and 
would direct attention to that for more specificity.
    The whole purpose of filing chapter 7 bankruptcy in a 
consumer setting is to give debtors, unfortunate debtors many 
times due to circumstances beyond their control, a fresh start. 
Some of the most common reasons for consumer bankruptcies are 
medical bills, uninsured medical bills, or underinsured medical 
situations, unemployment or underemployment, credit card debt, 
and small business situations where debtors have failed in 
small businesses and many times have guaranteed a lot of debt 
and they have to file chapter 7 to discharge or wipe out that 
debt.
    Another phenomenon we have seen recently is an increase in 
elderly debtors seeking bankruptcy relief, as well.
    And let me point out one thing, that it is critical to note 
that in regard to this bill there's one component that remains 
in place. Currently, whenever a debtor files bankruptcy, if 
their income is below 150 percent of the poverty level they're 
able to file a fee waiver request, and courts routinely deal 
with these in what's called in forma pauperis requests where we 
routinely grant waivers of the filing fee in total. And 
sometimes, if a debtor seeks a waiver of the filing fee, if we 
don't grant the full waiver we will allow the debtor to make 
payments in installments over a period of time to lessen the 
burden on debtors.
    So the fee waiver provision of the code remains in effect, 
and according to statistics provided by Director White's 
office, these are granted in about 4--between 4 and 5 percent 
of the cases fee waivers are granted.
    It is no secret that attorneys' fees and other fees and 
costs have gone up since 1994 when the last fee increase was 
put in place for the chapter 7 trustees. Debtors' counsel fees 
have gone up, court-appointed lawyers' fees have gone up, and 
even compensation for judges has raised. So the trustee fee of 
$60 has been frozen for 24 years. It needs to be increased for 
the good and integrity of the bankruptcy system.
    Thank you.
    Judge Stout's written statement is available at the 
Committee or on the Committee Repository at:https://
docs.house.gov/meetings/JU/JU05/20180926/108455/HHRG-115-JU05-
Wstate-StoutA-20180926.pdf
    Mr. Marino. Thank you, sir.
    Director White.

               STATEMENT OF CLIFFORD J. WHITE III

    Mr. White. Thank you. Good morning, Mr. Chairman and 
members of the Subcommittee. I thank you for the opportunity to 
appear before you today in support of an increase in 
compensation for chapter 7 trustees.
    The U.S. Trustee Program appoints and oversees about 1,100 
chapter 7 trustees who serve as fiduciaries for bankruptcy 
estates. These trustees liquidate available assets and return 
approximately $3 billion annually to creditors. As the watchdog 
of the bankruptcy system, the USTP can attest to the essential 
role played by chapter 7 trustees in ensuring that debtors 
receive a fresh start and that creditors receive repayment as 
entitled by law.
    The trustee compensation provisions of the law, as has been 
noted, have not been changed in 24 years, but over that time 
there has been inflation and Congress has added to the 
trustees' duties. So I respectfully ask Congress to increase 
compensation so that the bankruptcy system can continue to 
benefit from the skilled and competent core of chapter 7 
trustees.
    The basic duties of a chapter 7 trustee are set forth in 
Section 704 of the Bankruptcy Code, and these include 
responsibilities that were added by the Congress in amendments 
passed in 2005. Chapter 7 trustees also support the United 
States Trustee Program in fulfilling our civil and criminal 
enforcement responsibilities in the system.
    Through their day-to-day administration of cases, trustees 
often identify cases that warrant U.S. Trustee enforcement 
actions, including cases of concealment of assets or other 
fraudulent activities. In my testimony I provide a recent 
example of a successful criminal prosecution in which a chapter 
7 trustee worked closely with our office to investigate the 
conduct of the debtor's attorney.
    It is important to note, as well, that trustees commit a 
significant amount of time to investigating the financial 
affairs of all debtors to determine if there are assets 
available for distribution. Now, in the end, as has been noted, 
more than 90 percent of cases have no assets to administer, but 
in some cases that appear to be no-asset cases, the trustee's 
investigation identifies property that can be liquidated for 
the benefit of creditors.
    For carrying out these critical responsibilities chapter 7 
trustees receive compensation from two sources. First, they 
receive $60 for every case assigned. That no-asset fee is paid 
from part of the filing fee paid by chapter 7 debtors. And 
second, the trustees receive a percentage fee based on 
distributions in asset cases.
    The no-asset fee, again, was set in 1994, and if adjusted 
for inflation alone that fee would be $100. If also adjusted 
for additional duties of the trustee, then the $120 level 
contained in H.R. 3553 would be entirely reasonable.
    The percentage fee calculation also has not changed in the 
last 24 years, but in 2005 Congress did attempt to strengthen 
the percentage fee for asset cases by providing that the 
bankruptcy courts should award the percentage fee as a 
commission.
    The U.S. Trustee Program has taken the position in court 
that absent extraordinary circumstances trustees are entitled 
by law to the full percentage fee. Our legal position has been 
adopted by two circuit courts of appeals, but some bankruptcy 
courts have adopted other interpretations that result in lower 
fees paid to the trustees under the commission system.
    There are two important trends in chapter 7 administration 
that pertain to trustee compensation. First, total compensation 
paid to chapter 7 trustees, including for legal and accounting 
services for which they can separately charge a fee in a case, 
has been declining, and last year total compensation paid to 
chapter 7 trustees plummeted by 18 percent. And second, the 
number of applicants who apply for vacant trustee positions has 
declined significantly, from an average of 58 candidates in 
2010 to 20 applicants in 2017.
    So although it's difficult to measure the precise impact of 
diminished compensation, it stands to reason that continued 
decreases in compensation may threaten the financial viability 
of trustee operations and the ability to retain and recruit the 
highest caliber of trustees.
    Now, the cost of raising the no-asset fee would be about 
$27 million per year at current filing levels. In my testimony 
I discuss some possible sources that could be considered. As a 
technical matter, if the no-asset fee is indexed as provided in 
the bill, the revenue source also should be indexed to avoid a 
shortfall for trustees or any other recipients from that 
funding source.
    Chapter 7 trustees do an outstanding job administering 
cases fairly and efficiently, and after 24 years without a 
raise, chapter 7 trustees deserve an increase in compensation. 
And I would be happy to respond to any questions from the 
Subcommittee.
    Director White's written statement is available at the 
Committee or on the Committee Repository at: https://
docs.house.gov/meetings/JU/JU05/20180926/108455/HHRG-115-JU05-
Wstate-WhiteC-20180926.pdf
    Mr. Marino. Thank you.

                     STATEMENT OF MR. REID

    Mr. Reid. Thank you, Mr. Chairman.
    During my 24 years as a bankruptcy trustee I have 
administered over 8,000 cases. I'm testifying here today in 
support of H.R. 3553 on behalf of the National Association of 
Bankruptcy Trustees and its 887 members.
    The NABT, as to which I am currently the vice president, is 
the leading national association representing bankruptcy 
trustees. Trustees in turn are the front line of the chapter 7 
bankruptcy system. We investigate the truth of a debtor's 
bankruptcy petition disclosures, pursue and liquidate assets 
for the benefit of a debtor's creditors, make criminal 
referrals where we find debtor misconduct that may otherwise go 
undetected, and perform numerous other responsibilities that 
enable the bankruptcy system to function.
    The NABT strongly urges the passage of this bill in order 
to reduce the economic burden that trustees have been carrying 
for the benefit of the bankruptcy system for at least the past 
23 years, during which time their responsibilities under the 
Bankruptcy Code have increased but their compensation in real 
terms has decreased.
    Trustees routinely incur substantial nonpayment risk when 
they investigate potential assets for creditors, but don't 
always recover the value of their time when those assets don't 
materialize or when they collect information supporting 
criminal referrals for government attorneys.
    When Congress enacted BAPCPA in 2005 it effectively put in 
place an unfunded mandate by requiring trustees to perform even 
more responsibilities in bankruptcy cases without increasing 
their compensation in no-asset cases, thus further deepening 
trustees' inherent nonpayment risk. Since approximately 90 
percent of all chapter 7 cases are no-asset cases the only 
source of recovery for trustees in most cases is the no-asset 
fee, and even that fee is not available in cases where the 
debtor's filing fee is waived.
    Since the no-asset fee has remained constant since 1995, 
during which time inflation has increased by 64 percent, in 
real terms trustees have been required to do more for less.
    Despite the real decline in their compensation, trustees 
have faithfully created enormous value for creditors, including 
tax authorities, and for debtors at costs substantially below 
what the market would normally require. Some of the main 
creditors benefiting from the collections by trustees are 
Federal and State taxing authorities. In 2016 trustees 
distributed roughly $170 million to taxing authorities from 
their asset cases.
    Payments to tax creditors also benefit debtors because 
debtors' tax debt would normally be nondischargeable and would 
survive their bankruptcy. Yet few debtors have the ability of a 
trustee to carry nonpayment risk and collect assets in order to 
reduce tax debt. Without the trustee, neither the taxing 
authorities nor the debtor would likely be able to reduce the 
unpaid tax liability.
    Yet again, the trustee does this at a cost to herself since 
ordinarily a creditor's private collection agent would charge a 
33 percent contingency fee to collect an asset, but trustees 
typically receive in compensation in their asset cases less 
than 10 percent of the value of the total assets they collect.
    The increase in the no-asset fee, while certainly not 
eliminating these economic burdens on trustees, will 
undoubtedly help to alleviate them.
    In addition, the fee increase will lower the growing risk 
that experienced trustees will begin to leave the trustee 
practice altogether given its deepening unprofitability. The 
total number of trustees declined by 30 percent since 2002. The 
loss of even more experienced trustees will limit the valuable 
mentoring that veteran trustees provide to new trustees and 
will hurt communities who substantially benefit from the 
dollars that trustee collections inject into their local 
economy.
    Some have argued that debtors who don't receive a fee 
waiver still cannot afford the proposed filing fee increase and 
that other ways must therefore be found to fund the trustee fee 
increase. These arguments overlook the effect of the debtor's 
discharge. For those debtors who pay the filing fee and receive 
their discharge the elimination of many thousands of dollars of 
discharged debt, frequently hundreds of thousands of dollars of 
debt, will in nearly all instances create at least $60 of 
additional cash flow for the debtor to cover the incremental 
filing fee, thus still making bankruptcy a tremendous bargain 
for debtors.
    Ultimately the increase in the filing fee is the only 
feasible way to ensure long-term funding for the badly needed 
trustee fee increase. The NABT has addressed other alternative 
proposals in the 20 years it has been working on this issue 
only to find that such proposals put more burdens on taxpayers, 
Federal agencies, or creditors that those entities should not 
or apparently will not bear.
    For all of these reasons, the NABT requests that Congress 
pass H.R. 3553. Thank you, Mr. Chairman.
    Mr. Reid's written statement is available at the Committee 
or on the Committee Repository at: https://docs.house.gov/
meetings/JU/JU05/20180926/108455/HHRG-115-JU05-Wstate-ReidN-
20180926.pdf
    Mr. Marino. Thank you.
    Attorney Holtschlag.

                 STATEMENT OF ARIANE HOLTSCHLAG

    Ms. Holtschlag. Chairman Marino and members of the 
subcommittee, thank you for the opportunity to appear here 
today. I'm a partner at the law firm of the Law Offices of 
William J. Factor with offices in Chicago and Northbrook, which 
I believe is Representative Schneider's stomping grounds. I am 
admitted to practice in the State of Illinois, and I have 
practiced in the field of consumer bankruptcy for over 10 
years.
    I am testifying here today as a member of and on behalf of 
the American Bankruptcy Institute's Commission on Consumer 
Bankruptcy. The American Bankruptcy Institute, the ABI, is the 
world's largest association of insolvency professionals, made 
up of over 11,000 members in multidisciplinary roles, including 
attorneys, bankers, judges, lenders, professors, turnaround 
specialists, accountants, and others. These members represent 
debtor, creditor, and other stakeholder interests. Founded in 
1982, ABI is a nonprofit and nonpartisan organization and is 
organized under the Internal Revenue Code Section 501(c)(3).
    ABI also plays a leading role in providing congressional 
leaders and the general public with an unbiased reporting and 
analysis of bankruptcy regulations, laws, and trends. Although 
ABI is not an advocacy group, it is often called on to testify 
before Congress, analyze proposed bills, and conduct periodic 
briefings for congressional committees, legislative staff, and 
other government regulators and the media.
    In December of 2016, the ABI's board of directors passed a 
resolution creating the Commission on Consumer Bankruptcy and 
charging that commission with researching and recommending 
improvements to the consumer bankruptcy system that can be 
implemented within the existing structure.
    The 17-person commission is chaired by retired U.S. 
Bankruptcy Judges William Brown and Elizabeth Perris, with more 
than 50 years of combined judicial experience. The commission 
reporter is Robert Lawless, the Max L. Rowe Professor of Law 
and co-director of the Program on Law, Behavior & Social 
Science at the University of Illinois College of Law.
    Commission members serve without compensation. The 
commission is funded by grants from the ABI Anthony H.N. 
Schnelling Endowment and the Endowment for Education of the 
National Conference of Bankruptcy Judges.
    After soliciting public feedback, commission members 
identified more than 50 discrete issues for study and divided 
these issues among three advisory committees composed of 52 
bankruptcy professionals. The commissioners and the committee 
members represent diverse stakeholder interests in the 
bankruptcy system, including attorneys who represent primarily 
debtors and attorneys who primarily represent creditors, as 
well as chapter 7 trustees, chapter 13 trustees, retired 
bankruptcy judges, government officials, and academics.
    Compensation for chapter 7 trustees was one of the issues 
identified for study. The commission and its committees began 
their formal study in April of 2017. The commission conducted 
seven public meetings in which we have heard from nearly 80 
expert witnesses and received more than 130 written statements. 
In the comments and written statements to the commission the 
need to raise trustee compensation enjoyed almost unanimous 
support.
    The commission plans to release its final report in the 
spring of 2019. The work will be the product of an open and 
collaborative process aimed at achieving consensus among these 
diverse stakeholders. Indeed, only recommendations that are 
approved by a two-thirds majority of the commission will become 
part of the commission's final report.
    The commission did not intend to make public any 
recommendations before issuance of its final report, however, 
because it completed its deliberations on the issue of chapter 
7 trustee compensation and because of the importance of the 
topic to the operation of the bankruptcy system we are 
releasing this statement at the invitation of the Subcommittee.
    The recommendations from the commission are as follows. 
With respect to chapter 7 trustee compensation the commission 
recommends that compensation should be increased for trustees 
to $120 per case with the increase in the fee coming from 
bankruptcy filing and other court fees already paid into the 
general treasury. These bankruptcy filing and other court fees 
should be placed into a special fund earmarked for trustee 
compensation.
    And secondly, that the breakpoints for trustee compensation 
in asset cases should also be adjusted to allow for more 
trustee compensation. Specifically, a 25 percent commission is 
currently applicable to the first $5,000 in distributions in a 
case. The commission recommends that this breakpoint be 
increased to $10,000. A 10 percent fee is currently in effect 
for distributions between $5,000 and $50,000. The commission 
recommends that this be changed to distributions between 
$10,000 and $100,000.
    Finally, the commission recommends that the percentage fee 
on distributions exceeding $1 million be increased from 3 
percent to 4 percent. The 5 percent applicable commission on 
distributions between $100,000 and $1 million would not change.
    These are the recommendations of ABI's Consumer Commission. 
Thank you.
    Ms. Holtschlag's written statement is available at the 
Committee or on the Committee Repository at: https://
docs.house.gov/meetings/JU/JU05/20180926/108455/HHRG-115-JU05-
Wstate-HoltschlagA-20180926.pdf
    Mr. Marino. Thank you.
    Mr. Rao.

                     STATEMENT OF JOHN RAO

    Mr. Rao. Mr. Chairman, members of the Subcommittee, thank 
you for inviting me to testify today on H.R. 3553. I am here 
today testifying on behalf of the low-income clients of the 
National Consumer Law Center and also on behalf of the National 
Association of Consumer Bankruptcy Attorneys.
    The organizations and their clients that I represent fully 
support the goal of this bill. Chapter 7 trustees should 
receive an increase in compensation. The proposed increase, an 
initial $60 per case, is fair and appropriate.
    The real challenge, however, is coming up with the means to 
pay for this increase that is spread equitably among those in 
the bankruptcy system and not taxpayers. Our opposition to H.R. 
3553 is that it looks only to debtors and their families who 
are already experiencing financial hardship to fund the 
increased filing fees and does not consider alternative methods 
of funding.
    In addition to raising the current filing fee to $395, it 
provides that the trustee portion of the statutory filing fee 
will be subject to an inflation adjustor every 3 years. While 
we don't oppose that, the bill does not address how that will 
be funded. The Judicial Conference, in our view, will be forced 
to increase filing fees every time there's an upward adjustment 
based on the inflation. The next inflation adjustment will 
likely bring the filing fee over $400, which is more than what 
civil litigants pay currently to file a civil case in Federal 
District Court.
    Since 2005 we have seen that there are many consumers who 
need bankruptcy relief but are simply too broke to file. This 
is because the costs of bankruptcy have increased significantly 
since the 2005 Bankruptcy Act. As Ranking Member Cicilline 
mentioned, there's been increases in filing fees, in paying for 
credit counseling and debtor education, there are a lot of 
additional filing requirements, which has increased legal fees, 
all of which has been documented by the GAO study that was done 
about the BAPCPA costs.
    As a result, the total cost of filing bankruptcy of chapter 
7 cases has doubled since 2005 from under $1,000 in most cases 
to over $2,000 or more, which is really beyond the reach of 
many.
    Some may say that the $60 filing fee increase is modest and 
would not be a barrier to access to bankruptcy relief. This 
does not consider that so many consumers just do not have the 
savings, again, as Ranking Member Cicilline mentioned. Even in 
these good economic times a recent Federal Reserve Board survey 
showed that 41 percent of consumers could not or are not able 
to come up with $400 for an emergency. It is an enormous 
struggle for consumers to come up with the $2,000 or more to 
file a case. An additional $60 only makes this more difficult.
    Several witnesses said that there's little impact on court 
access because there's filing fee waivers. Well, there's only 
in most cases, even since 2005 in the 13 years, there's only 
less than 5 percent of consumers who actually get fee waivers, 
and the increase has been from about 2 percent to 5 percent. So 
very few consumers actually get those.
    So what are the alternatives? One way to raise funds would 
be to adjust the breakpoints, as the ABI commission report has 
suggested. My written testimony provides slightly different 
breakpoint adjustments, but it could help to fund, easily help 
fund the $60 increase.
    And some have suggested that this would not be helpful to 
trustees who are in States where there are not a lot of asset 
cases. My recommendation is that a portion of the trustee 
commissions be put into a fund and redistributed to all 
trustees. I think that would be a way to ensure that everyone 
would get the increase under this bill.
    Another alternative method would be to require creditors to 
pay a small filing fee of less than $5, and small creditors 
could be exempted from it when they file a proof of claim in a 
case. Mr. Reid has mentioned that trustees do a great job of 
collecting debts for creditors and they do it at a lower cost 
than what those creditors would pay outside of bankruptcy. Why 
not have them pay a small $5 for when they file a proof of 
claim to help fund this?
    And finally there are other methods of reducing the costs 
by reducing the cost of filing bankruptcy and, again, Ranking 
Member Cicilline mentioned those some of those in his opening 
statements.
    In conclusion, NACBA and NCLC value the role of chapter 7 
trustees, however, it is critical that financially distressed 
consumers not be asked to bear this increase alone.
    Thank you.
    Mr. Rao's written statement is available at the Committee 
or on the Committee Repository at:
https://docs.house.gov/meetings/JU/JU05/20180926/108455/HHRG-
115-JU05-Wstate-RaoJ-20180926.pdf
    Mr. Marino. Thank you.
    We will now move into the questioning phase of our hearing, 
and I will recognize myself to begin the questioning.
    Director White, in your written testimony you stated that a 
$60 raise in the chapter 7 debtor filing fee would mostly 
represent an inflation adjustment plus a fair adjustment to 
account for trustees' added workload in cases today. Do you, 
therefore, think that the approach in the bill is sound, simply 
to adjust one time now for those reasons than adjust for 
inflation going forward?
    Mr. White. I think that either alternative is better than 
the status quo. There is certainly a logic to the indexing.
    The point I made in the oral statement was simply I think 
there's a technical change that should be made in the bill so 
that whatever the increase is for the no-asset fee that the 
source of revenue to fund that fee also be adjusted similarly 
so that it is indexed as well. I think that's a technical, 
that's a technical fix.
    Mr. Marino. Yes, you are right.
    Mr. White. But the bill makes perfect sense.
    Mr. Marino. If we were to amend the bill to rely partially 
on other sources or funds for a raise for chapter 7 trustees 
are you aware of other sources of funding that the Department 
of Justice or elsewhere in the Federal Government that could 
help to supply the needed funds?
    Mr. White. Well, in the written statement I identify that 
what is in the bill now is perfectly reasonable with regard to 
the filing fee, but it does fall disproportionately, [rather] 
entirely, on the debtors. There is the compensation, which has 
the commission fee, which has the downsides that Mr. Rao 
pointed out, plus the fact it does not incentivize the 
investigation in no-asset cases, which is so critical. It would 
only affect the asset cases, and we need the trustees to be 
paying attention to the no-asset cases.
    But there are scores of fees that are charged by the court 
system for those participants in the bankruptcy system, and all 
are probably worthy of some consideration to reach the right 
balance. Everyone individually that has been suggested, 
including what is in the bill now, makes perfect sense.
    I would like to perhaps go beyond and just make one point, 
because it has been in at least one of the witness' testimony, 
and that is why not offset the amount of money through 
eliminating the credit counseling requirement that was imposed 
in 2005. I think that would be unwise.
    Mr. Marino. Thank you.
    Attorney Rao, asset cases tend to be concentrated in the 
more prosperous and urban districts. Doesn't that mean that 
your proposal to fund a chapter 7 trustee raise out of funds 
raised in asset cases would discriminate against trustees and 
ultimately debtors in poor and rural districts? How could that 
be fair?
    Mr. Rao. Yes, Chairman Marino, I agree that the asset cases 
and how they're recovered do vary from State to State. It is 
not only in large urban areas, but it also depends upon the 
exemption scheme in particular States. And, in fact, a lot of 
the small asset cases are trustees recovering earned income tax 
credits and tax refunds that low-income debtors have.
    So my proposal, as I see it, is that we can increase the 
breakpoints and then have, as I have mentioned in my testimony, 
a fund that would IN a very small portion of the trustee 
commissions, I would say even less than 5 percent of all 
commissions could be paid into a fund and that could be 
distributed to all trustees to pay the $120 increase.
    And I disagree that it would change the incentives for 
trustees. That small adjustment would hardly make a difference 
for trustees and they would continue to be incentivized to 
pursue asset cases.
    Mr. Marino. But do you think that the court is not adequate 
in determining who is indigent and who would ask for their fees 
to be reduced or completely eliminated?
    Mr. Rao. Well, I'm sorry, you're asking about the----
    Mr. Marino. If a person can request in forma pauperis if 
they can't afford this.
    Mr. Rao. Yes, I mean, the issue with the fee waivers is a 
different one. In that situation, as I said, very few debtors 
actually seek it, and for those who do seek it I have looked 
at, unfortunately, a lot of the statistics on this, and it 
really varies. In some districts debtors do receive in forma 
pauperis relief. In other districts, even though there may be a 
very high poverty level in that district, they do not receive 
them, and it is because it is up to the discretion of the 
judge.
    And it's not just the income guidelines, but there's also a 
test that the judge would review as to whether or not the 
debtor has the ability to pay the filing fee in installments. 
And so in some districts they're denied frequently and some 
debtors don't even ask for the fee waivers because they know 
that they're probably not going to get them.
    Mr. Marino. It seems like we all agree on the raises are 
needed, much needed. The path to get there, there seem to be 
various paths. That's one of the reasons why we're having this 
hearing today, because as the director pointed out some of this 
can be done from the technical aspect of revising laws as we 
move forward.
    My time has more than expired. I now recognize the 
gentleman from Georgia, Congressman Johnson.
    Mr. Johnson. Thank you, Mr. Chairman.
    Mr. Chairman, I would like to submit for the record a 
letter dated September 25, 2018, from the Judicial Conference 
of the United States entering its opinion on H.R. 3553.
    Mr. Marino. Without objection.
    This material is available at the Committee or on the 
Committee Repository at: https://docs.house.gov/meetings/JU/
JU05/20180926/108455/HHRG-115-JU05-20180926-SD004.pdf
    Mr. Johnson. And thank you. I thank the witnesses for 
appearing.
    In 2005, prior to the passage of the Bankruptcy Abuse 
Prevention and Consumer Protection Act, the chapter 7 filing 
fee was $155. There have been three statutorily mandated filing 
fee increases since 2005. The filing fee has more than doubled 
and now stands at $335.
    The Bankruptcy Abuse Prevention and Consumer Protection Act 
has imposed various other expenses that debtors must pay in a 
chapter 7 case, $25 to $40 extra for mandatory prebankruptcy 
credit counseling that has been found to be ineffective and a 
waste of taxpayer money basically, a waste of debtor money. 
Another $20 to $25 for postbankruptcy financial management 
training, that has dubious results, as well.
    And also the passage of the Bankruptcy Abuse Prevention and 
Consumer Protection Act has resulted in an increase in 
attorneys' fees to debtors due to the additional 
responsibilities and documentation requirements that have been 
imposed on debtors' attorneys.
    So this is a substantial increase in costs to debtors. And 
I think most of us here today believe increasing the fee for 
the chapter 7 trustee is definitely reasonable and appropriate, 
but we disagree on how that increase should be paid or, in 
other words, who should pay it. Should it be the debtors or 
should it be an across-the-board situation.
    We are really talking about how we treat some of the most 
disadvantaged people in our society at a key and difficult time 
in their lives. That's really what we're talking about.
    Mr. White, trustees are appointed as fiduciaries for 
creditors in bankruptcy proceedings. Isn't that correct?
    Mr. White. Yes, although I would go beyond appointed as 
fiduciaries for creditors. It is for the whole estate, so 
whoever may be a stakeholder.
    So we view the role of the trustee to also be looking out 
for the integrity of the whole system, which is why they will 
report to us when they identify cases of fraud or abuse, 
whether that be fraud or abuse or improper actions by debtors, 
creditors, or others.
    Mr. Johnson. It's basically fraud and abuse on the part of 
the debtor you're looking for?
    Mr. White. I don't agree with that, respectfully, sir.
    Mr. Johnson. You're not looking for fraud and abuse by 
creditors. You're looking for it on behalf of or on the part of 
or at the instance of debtors, and I mean, that's just a fact.
    Mr. White. May I respectfully----
    Mr. Johnson. They have other responsibilities, but you must 
admit that trustees are appointed as fiduciaries for creditors 
among their other responsibilities, and your due diligence 
efforts benefit creditors. Isn't that correct?
    Mr. White. In part, but may I just have a complete--I think 
it's very important to note the U.S. Trustee Program, in 
partnership with the chapter 7 trustees, in looking out for the 
integrity of the system, we have brought, in part because of 
information provided by chapter 7 trustees, actions that have 
resulted in tens, hundreds of millions of dollars of 
settlements with financial [institutions], including one that 
we announced 2 days ago.
    Mr. Johnson. Those come out of the hides of the debtors, 
not the creditors. It's the debtors who have been found to be 
hiding assets or that kind of thing.
    Mr. White. In some cases, but the settlement this week, for 
example, on robo-signing of claims, was where $[5] million is 
going to be returned to debtors.
    Mr. Johnson. And is that a chapter 7 or is that a----
    Mr. White. They were 7 and 13, but was primarily 13. But if 
you look at the history of the Program it has been, I think, 
very much balanced with regard to looking out for the integrity 
whoever the wrongdoer may be, including cases----
    Mr. Johnson. Well, I guess that's my point, and I only have 
5 minutes, and I'm trying to have a discussion.
    But I guess my point is to show that debtors have borne an 
inordinate share of administrative costs that are associated 
with these filing fee increases. Those are paid by the debtor. 
And we need to find a way to shield the debtor from further 
exposure to unilateral cost increases.
    And with that, I will yield back.
    Mr. Marino. Director White, would you like to respond in 
any way?
    Mr. White. Just to reinforce the importance of looking out, 
as trustees do, for wrongdoing on the part of any of the actors 
in this system.
    If I could also respond further, respectfully, Mr. Johnson, 
I don't think it is established by studies that credit 
counseling is ineffective. We administer that program, and 
there were a lot of concerns about it when it was enacted in 
2005, and we have addressed some of the major concerns. There's 
universal access. The cost of credit counseling averages about 
$25.
    And what we do know, to the extent the data are not 
dispositive, but what the impact may be is 10 to 15 percent of 
certificates that are issued are not used in bankruptcy, at 
least not immediately. So that's not dispositive, but it is 
some indication maybe the counseling has some positive impact.
    One of the concerns I have, because I think probably our 
Program needs to look at ways we can enrich the quality of 
counseling because it was a consumer protection measure, that's 
what it was designed to be, so debtors were not going to be 
misled by non-attorney petition preparers or others.
    But we have, by the criticisms that have been made by the 
consumer bar sometimes, I think a chilling effect on the 
receptivity of debtors to get benefit from the credit 
counseling. And furthermore, just last month we successfully 
brought a case in bankruptcy court where a bankruptcy mill, a 
firm doing a lot of cases, was directing their staff to take 
the credit counseling and filing false certificates, and those 
were the findings of the bankruptcy court.
    So I think that for credit counseling to have its full 
positive impact we in the Program need to reevaluate how could 
we make it better. But I don't share the view, respectfully, 
sir, that studies show that it is not and cannot be more 
effective.
    Mr. Johnson. And you do not share the view----
    Mr. Marino. The gentleman's time has expired. We're going 
to have a second round of questioning.
    Mr. Johnson. If I could just follow up on that one point, 
Mr. Chairman.
    Mr. Marino. Briefly.
    Mr. Johnson. Yes. So you disagree with the GAO study that 
found that this requirement for credit counseling presents more 
of an administrative obstacle then as a timely presentation of 
meaningful options to debtors, you disagree with that 
conclusion?
    Mr. White. I think that the conclusions of the GAO were not 
just left there. I would have to go back to the study. But I 
don't believe that it is finding that the credit counseling can 
be of no utility.
    I totally agree with you, Mr. Johnson, and our practice in 
the U.S. Trustee Program shows a great sensitivity to the fact 
that debtors are in dire financial distress overwhelmingly, and 
any burdens on them ought to be carefully considered. I totally 
agree.
    I'm trying to present the view, however, that credit 
counseling is designed to be of assistance, and in part through 
the way we have administered the program, its cost is only $25, 
not nearly on average, not nearly what was anticipated when 
that law was passed in 2005.
    Mr. Johnson. Thank you.
    Mr. Marino. All right. Thank you.
    The Chair recognizes Congresswoman Handel from Georgia.
    Mrs. Handel. Thank you, Mr. Chairman. And thank you to all 
the witnesses.
    Let me first apologize for not hearing your testimony but 
know that I have read it, so I appreciate that, and your 
willingness to share it ahead of time.
    I am going to continue on the line of the credit counseling 
for just a minute, Director White. It seems to me that credit 
counseling is an important component of helping anyone who is 
faced and is experiencing dire financial circumstances sort of 
better understand how they can, one, move out of that and, 
secondly, better protect themselves going forward to ever 
facing that type of stress and strain ever again.
    So, as you talk about enriching the quality of the 
counseling, can you just expand on that a little bit more of 
things that you are doing and ways that we can do that?
    Mr. White. Well, you are correct that the purpose of credit 
counseling is to see if there are alternatives to bankruptcy. 
So we do have some indications that, when that course is taken, 
there are statutory standards and that it does have that effect 
without there being strong data. That would take a longer, more 
extensive study.
    I think, though, after more than 10 years, it probably 
would be a good idea if the U.S. Trustee Program could look for 
ways to see if the curriculum could be enriched, and the way 
that we--the way that we regulate, if you will, the credit 
counselors to ensure that kind of consistency.
    But it is of concern that if you have the debtor bar 
telling the client that this is a useless exercise, it becomes 
a self-fulfilling prophesy. So we also need to be careful, we 
do in the U.S. Trustee Program, on the enforcement side, that 
if we see that attorneys are overreaching, as they did in the 
case we brought last month--or successfully concluded last 
month--we are taking enforcement action to have a deterrent 
effect, because credit counseling is designed to be for the 
benefit of the debtor. It is not designed to be a penalty.
    Mrs. Handel. What is the penalty----
    Mr. White. The penalty that is----
    Mrs. Handel [continuing]. For a lawyer who would be----
    Mr. White. In that case, there was injunctive relief that 
was imposed and monetary penalties on that law firm.
    Mrs. Handel. Okay. Might we be able to expect some 
recommendations from you on specifically how to revamp a credit 
counseling program?
    Mr. White. If we have any specific suggestions that are 
ripe, I would be happy to share them with the Subcommittee.
    Mrs. Handel. Okay. Great.
    And one more question for you.
    The Department of Justice recently filed a statement of 
interest in an asbestos-related bankruptcy case. As you know, 
this Committee has spent some considerable time and effort 
trying to understand fraud in the asbestos trustee created 
during the bankruptcy.
    How concerned is your office about the fraud in these types 
of trusts?
    Mr. White. We have been concerned. I have testified before 
this Subcommittee before that the risk of fraud and abuse is 
greater because there is essentially not a policeman for the 
trust--, because they are created and operate postbankruptcy--
neither by the court nor by the U.S. Trustee.
    Two weeks ago, for the first time, the Department did file 
a statement of interest in a case looking at the front end, 
when the bankruptcy court still has greater authority over the 
case, to say that no plan establishing a trust should be 
approved unless there are greater transparency and antifraud 
provisions, unless there is a greater disclosure of attorneys' 
fees and administrative costs so that victims are not gouged 
through unnecessary costs, and standards to prevent conflicts 
of interest.
    And I can tell you that just today, we filed, for the first 
time, in a bankruptcy case in the District of New Jersey, an 
objection to the appointment of a future claims representative 
in a case. A future claims representative has the duty in 
working with the debtor and the claimants to design a plan of 
organization, a trust plan, that will prevent fraud and abuse 
so that that fund is not depleted by wrongful filings and, 
therefore, allow there to be less money available for 
distribution to claimants who become sick later. So, in that 
case that we have filed that objection, we assert that there 
are conflicts of interest because of connections of the future 
claims representative candidate with the plaintiffs' bar. 
Independence is key. Independence and transparency are key.
    Mrs. Handel. Thank you very much.
    Mr. Chairman, I yield.
    Mr. Marino. Thank you.
    The Chair now recognizes the Ranking Member, the 
Congressman from Rhode Island, Mr. Cicilline.
    Mr. Cicilline. Thank you, Mr. Chairman.
    And I want to begin with you, Mr. Rao. If you would, 
respond to the Director's statements just a few moments ago 
that the credit counseling benefits--that credit counseling 
benefits the bankruptcy system. And I would just like to know 
your thoughts if you could respond to that. I know you have 
written and thought about that a lot.
    Mr. Rao. Yes, Ranking Member. Thank you.
    Yes, I respectfully disagree with Director White. I think 
particularly when you are talking about the credit counseling 
that is required before filing bankruptcy, I think most studies 
have shown that the consumers usually delay their decision to 
file bankruptcy for a very long time, and it is usually at the 
very--when they have explored all options, and it is just at 
that point they have no other way of getting out of their debt 
problems, and then they decide that they are going to consider 
filing bankruptcy.
    And I think all the studies show that requiring credit 
counseling at that point is just too late. There are no viable 
alternatives for them other than filing bankruptcy. People do 
not do this lightly. And they have considered options before 
that.
    Director White mentions that--I think it was about 15 
percent of consumers get certificates but then don't file. 
There's lots of reasons why that could happen. Most likely 
because of all of the costs of filing bankruptcy--they may not 
have been able to come up with all the money that they need to 
file bankruptcy--or that the filing requirements themselves are 
so difficult that they just do not go that route or delay it 
again for the future. So I think looking at that statistic 
proves nothing really at all.
    I do think there is some value to the debtor education 
course which comes after the debtor files bankruptcy. And I 
think studies have shown, and clearly in the clients that we 
interact with, do find the value in that. It helps them to look 
at how to stay out of financial trouble after they go through 
the bankruptcy system. But the pre-filing credit counseling is 
just not helpful.
    Mr. Cicilline. Thank you.
    And you have also said, Mr. Rao, that the 2005 amendments 
to the Bankruptcy Code substantially increase the demands on 
debtors and their attorneys. Could you speak a little bit about 
what that means and what the implications are and what some of 
those burdensome requirements are and what we might do to fix 
that?
    Mr. Rao. Yeah. There is really quite a few of them, but I 
think the most prominent one to discuss is really the 
requirement that debtors and their attorneys need to calculate. 
So, in most cases, debtors who file bankruptcy are below the 
median income in their State, and, therefore, they are not 
really subject to the means test. But even to get to that safe 
harbor, they have to prove what is referred to as their current 
monthly income is below that level. And to do that, they have 
to collect 6 months of pay stubs and collect a lot of 
information. And the other problem with this is that it is 
constantly changing. And they have to be very precise on the 
day of filing that that look-back period of 6 months, that 
income is calculated perfectly, or they run the risk of a 
challenge and so forth.
    So, if they are struggling to collect the money to file and 
things are changing in their life and they give the documents 
to the attorney, but then they can't file, there is a delay, 
they have got to go back now and collect more paperwork, it is 
just--the whole process is very burdensome and costs money. I 
mean, there's just quite a few other things as well, but that 
is one of the more difficult ones.
    Mr. Cicilline. And just to return back to your first point. 
The GAO back in 2007 found that the pre-petition credit 
counseling required as a result of the 2005 amendments to the 
Bankruptcy Code was not very useful, particularly when debtors 
are in dire financial distress, which I think is exactly the 
point you made. So that is confirmed by the GAO report.
    Mr. Rao. Yes.
    Mr. Cicilline. Thank you.
    And, with that, I yield back, Mr. Chairman.
    Mr. Marino. The Chair recognizes now the Congresswoman from 
Florida, Congresswoman Demings.
    Mrs. Demings. Thank you so much, Mr. Chairman. And thank 
you to all of our witnesses for being with us today.
    We have heard it said, a few times now, I think we are all 
in agreement that there does need to be an increase in the 
compensation to keep good qualified trustees interested in 
doing this job. Judge Stout, you talked about how you worked in 
all forms of bankruptcy, I think for over 25 years. So 
certainly I am going to lean on your expertise as we discuss 
these issues.
    Do you believe that passing the cost on, of the increase, 
to the debtors is the most viable option? And if not, I would 
like to hear your opinion on some other options.
    Judge Stout. No, I think it is the most viable option. And 
I don't think increasing the filing fee by $60 will deter 
access to the system for debtors.
    There has been a lot of talk here today about the added 
burden Mr. Rao talked about on debtors' counsel as a result of 
the changes put in effect in 2005. Yes, there is a lot more 
documents that are required to be turned over, but there is a 
flip side of that too. Yes, the debtor is required to provide a 
lot more documents to the trustee. But then the trustee has to 
take the time to examine those documents and review them--the 
bank statements, the payment advices and all these things.
    So, as a result of the added time that lawyers are having 
to take to get everything together for a chapter 7 to 
successfully be filed, the attorneys' fees have increased. And 
I think that is accepted here. I think Mr. Rao said that the 
fees have gone up to about $2,000 now. In my area, they are not 
that high, but they are significantly higher than they were in 
2005.
    So the attorneys' fees have gone up, but then the trustee 
is not being compensated for all of the added time they are 
having to put in, between the trustee and their staff, 
reviewing these documents and following up on all the debtors' 
advices.
    Mrs. Demings. And passing some of the costs on to the 
creditors is not a viable option, in your opinion, for what 
reason?
    Judge Stout. Certainly not for asking a creditor to pay a 
fee to file a proof of claim. I don't think that is practical 
at all.
    You know, creditors do pay some fees now whenever they seek 
to modify the automatic stay, to file a motion to modify the 
stay, or terminate the automatic stay. They are required to pay 
a filing fee. And there are other filing fees that creditors 
pay for filing certain types of actions, adversary proceedings 
and so forth, in the cases. And I don't know if those could be 
adjusted.
    Frankly, I don't have enough background as an appropriator 
or as a legislator to really get into some of the minutia of 
some of these fees and how they are generated and how they are 
broken down. But I do believe that the most practical way to 
deal with this is just simply increase the filing fee. And I 
don't think it will affect access to the system.
    Mrs. Demings. Mr. Reid, you talked about a number of 
trustees have declined significantly, I believe you said, by 
about 30 percent.
    Mr. Reid. Since 2002.
    Mrs. Demings. Certainly compensation is, I think, a main 
reason for that. But are you aware of other reasons why you 
have had a significant decrease that may not be related to 
compensation?
    Mr. Reid. Well, I don't know all the reasons why that 
number may have decreased. Based on feedback we have gotten 
from our membership, certainly, the increasing unprofitability 
of the practice is a consideration. There has also been some 
attrition where trustees have aged and retired and the 
trustee's office has decided not to fill those positions. And 
there also has been a decline in filings for a certain period 
of time.
    So I think there are multiple factors. But certainly, one 
of the factors that has contributed to it has been, just 
anecdotally, the increasing unprofitability of the practice. I 
believe Mr. White has also commented on the number of new 
applications for the trustee program. It might be helpful to 
have him comment on whether people are actually showing as 
active interest in the program as they have historically. That 
is also another indicator.
    Mrs. Demings. Mr. White. Director White.
    Mr. White. Yes. Thank you.
    We have found that 7 years ago there were about 58 
applicants for every trustee opening, and that is down to about 
20 now. So that is a very precipitous drop over that period of 
time.
    I had occasion to meet with about 50 of our field office 
heads a couple months ago. And in talking about our trustee 
oversight responsibilities, one of the main concerns they 
raised to me is something that Mr. Reid just suggested, which 
is retirements. If we face a wave of retirements any time in 
the next few years of chapter 7 trustees with the fact that it 
may be seen as a less desirable position as evidenced by the 
smaller queue in line for those for a position, then the system 
is in some peril.
    Mr. Reid. Congresswoman Demings, if I may add to that.
    Mrs. Demings. Please, go ahead.
    Mr. Reid. I have been doing this for 24 years as a trustee. 
And one of the things that was very helpful to me as a new 
trustee was the mentoring that I received from veteran 
trustees. And that is one the intangibles here that is 
extremely important. It takes a while to learn how to do this 
job. It really does.
    Mrs. Demings. Is that a formal program, mentoring program?
    Mr. Reid. It probably varies by district. In Chicago, they 
are superb at having the veteran, older trustees mentor the 
younger trustees. We get together for meetings. And all the 
trustees know that you can call them at any time.
    I can say without a doubt that, over my 24 years, that is 
extremely valuable. And it has also been rewarding, because now 
that I am older, I guess more gray hairs, I can mentor younger 
trustees. That is an extremely valuable part of this system 
that wouldn't necessarily appear in statistics but is very 
real.
    Often in these cases, Congresswoman, we have to deal with a 
lot of very hurt people, a lot of hostility. There is a lot of 
what you may call projection where people, because they are 
hurt, they project that hurt on the trustee. The trustee really 
has to learn how to handle stress. You have to be the calmest 
person in the room. It takes a while to develop that 
equanimity.
    Again, it is intangible. As the Director says, there will 
be loss if we don't make--if we don't keep this an economically 
viable program.
    Mrs. Demings. Thank you.
    Thank you, Mr. Chairman, I yield back.
    Mr. Marino. Attorney Holtschlag, could you give us a day's 
worth of operations in the work that you go through in 
preparing these cases and then getting them before the court?
    Ms. Holtschlag. In representing consumer debtors?
    Mr. Marino. Yes.
    Ms. Holtschlag. So this would be certainly my own 
experience. I am here today testifying on behalf of the 
American Bankruptcy Institute. So, in answering your question, 
I would be relying on my own experience, not speaking on behalf 
of the ABI.
    Mr. Marino. Sure.
    Ms. Holtschlag. It is very difficult to file on behalf of 
debtors. I have been very fortunate in my practice. In my 
experience, the clients that I have had have the money to file 
for bankruptcy, which is nontrivial as so many have discussed 
today. To pay my fees to pay the court's fees, it is expensive. 
And there are certainly those out there that are too broke to 
go broke, I suppose.
    The paperwork is immense. The means test, the changes in 
2005, a lot of practitioners got out of the field in 2005 
because of those new regulations and the increase in the amount 
of work that is required.
    I think the bar is up to the challenge, does the work. And 
I think the consumer debtors that file are very much in need of 
the relief that they seek. And I think that the trustees are 
very much deserving of the raise that is contemplated as 
recommended by the ABI because of their service. And that 
service is provided not only to creditors but to the debtors 
also. In conducting that meeting, the talent and skills that 
they bring to conducting the meeting of creditors, which is the 
one and only time that debtors typically appear before anybody 
in the system in chapter 7, so the trustee is very much the 
face of the proceeding for the average consumer debtor. And so 
having talented individuals that are fairly compensated in that 
role, for me as a consumer debtor's attorney, is essential to 
the process.
    Mr. Marino. So, if I could pin you down, to a certain 
extent, what are you talking about hourwise? How many hours in 
a simple bankruptcy where there are no assets?
    Ms. Holtschlag. I would say at least 10 hours of my time to 
prepare the case for filing. I think that is involving 
certainly calculation of the means test, preparation of the 
schedules, which are extremely intensive, disclosing everything 
in every possible way.
    So I would say my personal average, which is anecdotal and 
no way statistically significant across the board, it is 10 
hours to prepare a case through the point of case filing.
    Mr. Marino. Thank you.
    Director White, something that has come to my attention, 
and I wonder if you could respond to this. I have heard that 
there is a substantial amount of unclaimed funds at DOJ that 
perhaps could help distribute the cost, or defer the cost, to a 
certain extent, for those--not only for the increase in the 
rate for your individuals but deferred cost for the person 
claiming bankruptcy.
    Mr. White. The unclaimed funds are not held by the 
Department of Justice. They are held by the court system. And 
the courts have actually a task force looking at whether or not 
the administration of that system is optimum.
    As I understand it from information provided by the courts, 
about $300 million is being held in unclaimed funds, and it 
increases about $10 million per year. And those occur when a 
trustee gets a returned check, for example. The creditor cannot 
be found. But those are not DOJ funds.
    I also am not expert in whatever legal issues there could 
be with regard to the propriety of then distributing those 
[funds] otherwise. I just don't have any expertise in that area 
nor have I given that sufficient consideration. But you are 
quite correct. There is $300 million in unclaimed funds from 
bankruptcy cases.
    Mr. Marino. Well, in the 8 years that I have been here, I 
occasionally--we find unclaimed funds here and there. And I 
think this is one area where it would be important for us to 
look into to help defer these costs.
    Judge Stout, there was some testimony by Attorney Rao 
concerning people not knowing or asking if they can waive the 
fee that they would have to pay to the court, or it is just not 
being evenly addressed across the country.
    Could you clarify that a little bit if that is at case?
    Judge Stout. I cannot comment about other courts. I do know 
that I routinely deal with motions to waive filing fees in my 
court, and they are granted fairly often.
    I do take an approach to it that I look beyond the poverty 
guidelines. I look beyond the schedule I and J of the 
bankruptcy petition. Schedule I is the income. But I will also 
look at whether or not the debtor has substantial exempt 
assets. Sometimes debtors file bankruptcy, and they may have 
substantial retirement funds that are exempt. And if a debtor 
has retirement funds that are exempt or substantial equity if 
their residence, then that is a factor I take into 
consideration on whether or not to grant the fee waivers as 
well.
    Mr. Marino. Mr. Cicilline.
    Mr. Cicilline. Thank you, Mr. Chairman.
    I want to go back to this question about how the burden of 
additional costs should be borne. I mean, you would agree, I 
take it, that the primary beneficiaries of asset chapter 7 
cases are the creditors, right?
    Judge Stout. Yes, creditors. And as has been alluded to, 
taxing authorities as well. Trustees collect a lot of money 
that is distributed to taxing authorities. And many times those 
taxes are nondischargeable, so it benefits the debtor as well.
    Mr. Cicilline. Given the fact that the creditors largely 
benefit from the administration of bankruptcy cases, wouldn't 
it be more equitable to require creditors to bear some of this 
increase rather than imposing the entire burden on the debtor? 
I mean, it just seems like kind of--I know you have expressed 
your support for H.R. 3553. But wouldn't a kind of shared 
responsibility for this increased cost make sense in light of 
who benefits from the administration of the bankruptcy system?
    Judge Stout. Well, I just don't know how practical that 
would be. Currently, creditors file claims in bankruptcy cases. 
And Mr. Rao alluded to assessing a fee to file a claim. Those 
claims that are filed sometimes, for one reason or another, 
they don't receive anything on that claim. Say, for instance, 
in a case that is designated as an asset case, the trustee 
collects assets, and then there are tax claims that come before 
the creditor claims, the unsecured creditor claims, and all the 
funds collected by the trustee is paid to the taxing authority. 
And so you have charged a creditor $5, $10 to file a proof of 
claim. They don't get anything back on it. And I think it would 
have a chilling effect on creditors even filing claims in 
bankruptcy cases.
    There are some mechanisms where creditors do pay for their 
access to the system, as I alluded to earlier, motions to 
terminate the stay, adversary proceedings, filing fees on 
those. But that is the APs, adversary proceedings, are a small 
number.
    Mr. Cicilline. All right. Mr. Rao, you know, when you think 
about other places where creditors would have access to 
recovery, in the private market, creditors would have to pay 
anywhere between 33 percent and 40 percent commission. But in 
an asset chapter 7 case, that percentage drops to less than 10 
percent. And as a result, aren't creditors vastly benefiting 
from this disparity, and, therefore, shouldn't creditors pay a 
greater commission as a result of that?
    Mr. Rao. Yes, I think they do. And it is, certainly, 
especially the unsecured creditors, who do benefit, and when 
you look at some of the asset reports that Director White's 
office collects, you can see that they often do benefit quite 
considerably from the--even from small asset cases. A lot of 
that money does go to unsecured creditors. And I think it is a 
small price for them to pay for that. It is certainly a much 
better deal than trying to collect that debt outside of 
bankruptcy.
    I think Judge Stout mentioned in terms of the filing fee 
that--I think my proposal would be that the filing fee for a 
proof of claim would be assessed in the chapter 7 cases, and 
they would only be asked--in the typical chapter 7 case, 
creditors are not asked to file filing fees but only until 
assets have been recovered. So then a notice goes out, and they 
can file a fee. Judge Stout is correct that there may be some 
cases where, even after they go through that process, they 
might not get a recovery because of tax priority claims. But I 
think, in many of these cases, they would actually get a 
recovery. And, again, I am talking about a very small amount, 
$5.
    Mr. Cicilline. Okay. Thank you.
    Mr. Chairman, I would ask unanimous consent that the very 
eloquent and powerful opening statement of the Ranking Member 
of the full Committee, Mr. Nadler, be made part of the record.
    Mr. Marino. Without objection.
    Statement submitted by the Honorable Jerrold Nadler, New 
York, Ranking Member, Committee on the Judiciary. This material 
is available at the Committee or on the Committee Repository 
at: https://docs.house.gov/meetings/JU/JU05/20180926/108455/
HHRG-115-JU05-20180926-SD002.pdf
    Mr. Cicilline. Thank you.
    I yield back.
    Mr. Marino. The Chair now recognizes the Chairman of the 
full Judiciary Committee, Congressman Goodlatte from Virginia, 
for his opening statement, and if he would like to proceed, 
then, into questioning the panel.
    Chairman Goodlatte. Well, thank you very much, Mr. 
Chairman. I apologize for being late. I will just give my 
opening statement and reserve questions for later, if that is 
appropriate.
    Chapter 7 trustees play an essential role in the 
administration of a liquidation bankruptcy. A chapter 7 trustee 
investigates the financial affairs of the debtor, pursues 
preference, and fraudulent conveyance claims on behalf of the 
bankruptcy estate, and determines whether creditors' proofs of 
claim are objectionable. Trustees also serve as administrators 
of debtors' plans under the Employment Retirement Income 
Security Act.
    Notwithstanding their performance of numerous important 
bankruptcy duties, in most cases, chapter 7 trustees are paid 
only a flat fee of $60 for their services. This dollar amount 
was fixed by statute in the mid-1990s, was not indexed to 
inflation like other dollar amounts in the Code, and has not 
been increased in over 20 years.
    In liquidation cases in which assets are distributed to 
creditors, a trustee earns a commission based on the value of 
the administered assets. That commission, however, is not 
typically large. In 2013, for example, the average trustee 
commission in an asset case was $2,468. Asset cases, moreover, 
are by far the minority of cases. For example, in 2010, out of 
1.4 million chapter 7 cases filed, only about 60,000 were asset 
cases.
    Given the range of important duties that chapter 7 trustees 
must perform, it is not hard to conclude that these trustee are 
undercompensated. This seems especially true in cases in which 
the Bankruptcy Code requires the trustee to administer and 
close out the debtor's 401(k) and other ERISA-qualifying 
benefit plans. Sometimes this process takes years, but even in 
those cases, the trustee typically receives only the $60 base 
pay amount.
    Congress should consider seriously whether and how to raise 
chapter 7 trustee compensation. The bill we consider today 
would provide a raise by increasing bankruptcy filing fees. 
That is a reasonable approach given that the current $60 level 
has not been adjusted for inflation since it was first set in 
the 1990s.
    I look forward to further discussion in this hearing.
    Thank you.
    Mr. Marino. I am going to enter into the record a statement 
from and on behalf of the American Bankers Association. I don't 
hear any objection, so that is so entered.
    This material is available at the Committee or on the 
Committee Repository at: https://docs.house.gov/meetings/JU/
JU05/20180926/108455/HHRG-115-JU05-20180926-SD003.pdf
    Mr. Marino. Ladies and gentlemen, I want to thank you for 
being here. It has been very educational. I always find that 
our sessions, particularly when we get a chance to have a 
second round and really drill down into the bedrock, and as the 
Director said, I think the technical changes we can take care 
of. And I stand by this is as a good solid piece of 
legislation. We are going to continue to work hard to see that 
this moves forward.
    So this concludes today's hearing. Again, thank you for 
being here.
    Thank you for the people in the gallery being here.
    And, without objection, all members will have 5 legislative 
days to submit additional written questions for the witnesses 
or additional materials for the record.
    The hearing is adjourned.
    [Whereupon, at 11:32 a.m., the Subcommittee was adjourned.]

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