Source: United States Department of Justice
Note: Remarks as prepared for delivery.
Thank you for the opportunity to speak with you today. I last joined you in San Francisco three years ago, and I thank President Lon Jenkins, Vice President Melissa Davey, and the rest of the National Association of Chapter Thirteen Trustees’ leadership team for their indulgence in arranging for me to participate today by video. While we wish that we could meet with you in person, I value this opportunity on behalf of the United States Trustee Program to share with you information that is important to all of us.
I am happy to pick up where we left off last year. I am supported by a strong and experienced leadership team you know well. And we are all committed to moving the Program forward in accomplishing our critical role in the bankruptcy system.
There have been, and will be more, changes further to the government’s broader efficiency objectives. You see that today in my appearance by video. Among other measures, we are minimizing travel costs that are unrelated to court appearances.
And as you may have seen reported, the USTP will have less staff. This is reflected in the President’s recent Budget Request for Fiscal Year 2026. If enacted, the President’s Budget will reduce the USTP’s staffing to 670 employees. Many Program staff have already taken advantage of the offers to retire or resign by the end of September.
Fortunately, as a nationwide Program, we have opportunities to build on our earlier consolidation efforts to more effectively deploy our resources. We can leverage staff by looking beyond the boundaries of individual field offices and even regions, and we will consolidate more functions across the Program. These efforts will lessen burdens for individual field offices and improve consistency across the country.
In the weeks and months to come, the Program will refocus and enhance its efficiency in exercising our core statutory duties. I assure you that trustee supervision remains an important priority. We will continue to discuss with your leadership ways we can work together to improve the efficient administration of chapter 13 cases.
But I want to touch on two things that have come up already in those conversations. The first is criminal referrals. You play an important role in promoting the integrity of the bankruptcy process by referring suspected criminal activity. Please continue to make your criminal referrals to your local field office. And if there have been staffing changes in that office, feel free to elevate to the Assistant U.S. Trustee or the U.S. Trustee.
The second issue that has been raised relates to trustee budget season. Many of you have submitted your annual budgets for the next fiscal year. Program staff remain committed to completing our review of your budgets, resolving any issues, and issuing your compensation notices as expeditiously as possible before the end of September. In fact, some of you have heard from us already.
We also understand that many of you remain rightly concerned about the financial impact of the prolonged decrease in case filings that began at the outset of the pandemic. My message on the operating reserve cap remains the same as the last time I spoke with you: (1) the operating reserve cap remains suspended; and (2) you will receive plenty of notice before any hard cap is reinstituted.
We continue to have discussions with each of you regarding an appropriate year-end target for your operating reserves. As we have said before, we generally expect the operating reserves not to exceed 50 percent, unless there is an adequate justification in writing. We are also addressing on a case-by-case basis trust operations that are significantly over- or under-reserved.
Lastly, I want to remind you that the operating reserve is designed to provide funds to cover actual and necessary trust operation expenses, particularly in the first part of each new fiscal year. As case filings rebound, the continued suspension of the operating reserve cap requires your commitment to remain accountable for managing your operating expenses, including your reserve. Controlling trust operation costs benefits the system broadly, including putting downward pressure on your fixed percentage fees.
I will turn to trustee recruitment, which is another of the USTP’s foundational statutory responsibilities. We are committed to recruiting and appointing highly qualified private trustees. I am pleased to report that the quality of interested trustee candidates remains strong.
For the first three quarters of FY 2025 ending June 30, we have successfully recruited and appointed 41 new trustees, including three chapter 13 trustees. We also have closed four standing chapter 12 trust operations and replaced them with case-by-case trustees. In addition, we are actively recruiting a chapter 13 standing trustee in Richmond, Virginia.
We appreciate your colleagues’ efforts to keep U.S. Trustees apprised of their plans to resign or retire and working with the Program to facilitate a smooth transition. Providing advance notice is important for both you and us. With each departure, we evaluate whether to recruit a successor trustee or to consolidate the trusteeship with another operation. That decision is largely dictated by case filings and trust operation finances. We are committed to all of you to ensure financially viable trust operations.
Successfully running a trust operation requires effectively safeguarding sensitive information to protect the trust operation and those who have provided sensitive information in the bankruptcy process. Sadly, the nature of your work in handling and disbursing funds has attracted bad actors eager to exploit vulnerabilities in the process. Continued vigilance from each of you — as well as every member of your staff — remains as important as ever.
Fortunately, you have procedures to mitigate these risks, even as these schemes evolve over time. For example, trustee adoption of positive pay and secure electronic payments has reduced the potential for misdirected paper checks and related schemes from bad actors. Likewise, STACS (the Standing Trustee Alliance for Computer Security) helps improve the security of your computer systems. We value our participation in STACS as a critical information-sharing measure to protect trust operations and personal data.
Notwithstanding these important activities, some trustees have experienced breaches or other cybersecurity incidents. These events require immediate action to mitigate potential harm. Indeed, trustees must inform the USTP as soon as possible, in addition to giving appropriate notice to affected parties if required by law. While it may take some time to understand all relevant facts, you must not delay in initiating your remediation and notification efforts. And to be clear, trustees remain obligated to perform these critical functions even if another party, such as a software vendor, undertakes parallel remediation and notification efforts.
I remind you that the Chapter 13 Trustee Handbook and Supplemental Materials specifically address insurance coverage for cyber liability. While these materials specifically mention a $1 million policy limit per occurrence, I want to make clear that this is not a hard cap. In working with NACTT’s liaison committee in recent years, we have consistently stressed that trustees can, and should, periodically evaluate their cyber liability risks and make an appropriate justification to their U.S. Trustee if they believe that the $1 million policy limit is insufficient. The Program takes these requests seriously.
Next, I want to touch on something else that I addressed the last time I spoke with you. Then, I informed you that we would soon begin a pilot in a single region of the Program’s new, permanent policy to conduct first meetings of creditors by video in chapter 7, 12, and 13 cases. Last year we updated you on our progress, and today I can close the circle and report that the Program successfully completed its nationwide transition to Zoom 341 meetings.
I thank you and your leadership in ensuring that the meetings have proceeded smoothly with few reported issues. We especially appreciated the efforts of Lon Jenkins and Krispen Carroll in arranging a special trustee-only Q&A session with the USTP at the outset of the nationwide expansion. More than 100 of you attended this session as we proactively addressed many of your concerns unique to chapter 13 practice.
The Program spent more than three years researching, developing, and implementing the transition to video 341 meetings. We were very deliberate, and I thought it would be helpful to provide some insight into the procedures that underpin the successful nationwide rollout.
As you know, we procured and provided to each of you a Zoom license for conducting these virtual meetings. We also established standard Zoom settings and features. That includes a Zoom login page with an FBI warning and a formal virtual background for your use when conducting your video 341 meetings.
We also developed Interim Procedures for conducting these virtual meetings. And we devoted substantial time and effort in assisting and providing training for you. We made this significant investment and developed these minimum standards to ensure adequate security, to maintain decorum, and to promote consistency and uniformity nationally. But we also were careful to retain flexibility in our implementation to permit improvements or adjustments as we gained experience and obtained your feedback.
For example, the settings and virtual background were subject to adjustment upon U.S. Trustee approval. The Interim Procedures contemplated the incorporation or use of other features, technology, hardware, software, or security protections as virtual meeting technology developed and we learned more. And although the USTP-provided Zoom licenses were limited to conducting 341 meetings, we also have been clear that you may purchase other Zoom licenses or video conferencing capability for other trust operation business.
Now that we have fully transitioned to Zoom meetings, through our liaison groups we are engaged with NACTT, as well as with the chapter 7 and chapter 12 trustee organizations (NABT and ACT12), about suggestions for further improvements. This includes incorporating NACTT’s feedback and authorizing you to deploy enhanced virtual waiting room videos, subject to key safeguards and USTP approval. These videos assist debtors by providing additional information to facilitate their successful progress through their chapter 13 cases.
Another is the ongoing pilot of a virtual “portal” led by Al Russo and Lon Jenkins, which is designed to reduce staffing burdens on your trust operations by increasing debtor access to the meetings through their mobile devices. In our liaison group meeting yesterday, we discussed extending that testing more broadly. If you have other suggestions for improvements, we encourage you to reach out to your leadership and share them.
In this same vein, I note that the Program is also engaged with NACTT and the other trustee organizations about proposed changes to Federal Rule of Bankruptcy Procedure 2003. The trustee organizations sent suggestions to the Judicial Conference’s Advisory Committee on Bankruptcy Rules advocating for changes to both the timing and location of the meetings. Nancy Whaley serves as NACTT’s representative on the Rules Committee, and I appreciate her assistance in engaging with all three trustee organizations to try to address your concerns. This includes exploring potential clarifications to the USTP’s interim procedures.
With respect to the timing of the 341 meetings, we appreciated hearing NACTT’s perspective in seeking additional time to conduct the first meeting of creditors in chapter 13 cases. As to the location of the meetings, I understand that there is a concern about inconsistencies in the USTP’s current practice. So, I want to explain that practice and hopefully dispel any misunderstanding.
The USTP’s procedures specify that trustees should conduct virtual meetings from their primary business location or another location within the district. They also allow for flexibility for conducting meetings from alternative locations when circumstances warrant. And they include an approval process for exceptions.
Absent unusual circumstances, U.S. Trustees can, and should, approve infrequent exception requests so long as the trustee takes reasonable steps to satisfy decorum and information security requirements. We have recently reiterated this policy with the U.S. Trustees to promote consistency in the exception process.
Again, I appreciate NACTT’s willingness to engage with us to hopefully resolve these concerns.
The last topic I want to touch on is chapter 13 trustee audits. Collectively, chapter 13 trustees distribute billions to creditors each year, and the audits are a critical tool that ensures public confidence in the bankruptcy system. As you know, we have a new five-year contract cycle, and I thank you for your efforts in successfully completing the audits for the first year.
You were each audited by a different firm than the one that performed your audits for the prior three years. Along the way, you raised legitimate questions and concerns. In addition, after the audits were completed, we solicited and obtained your feedback. We have made adjustments in response to your input to improve the process. And we conducted our own review and evaluation, which resulted in additional changes.
Next year is the first year of the “streamlined” audits. The audits will be reduced in scope with fewer tested elements and with less in-person field work. We expect that this will reduce the costs for all trust operations. And as we did with the first year of the new contract, we will review and evaluate this second year and welcome your feedback.
To wrap up, I appreciate the invitation to join you today. As the Program explores new ways to efficiently and effectively meet our mission, we are excited to continue our collaborative relationship with the NACTT.
And I look forward to working with your incoming President Greg Burrell and your strong leadership team on improving the efficient administration of chapter 13 cases. You have an ambitious agenda for your conference, and I thank you for sharing some of your time with me this morning.