U.S. Trustee Program Director Tara Twomey Delivers Remarks at National Association of Chapter Thirteen Trustees’ Annual Seminar

Remarks as Prepared for Delivery

Good morning!  It is an honor to be here with you again, and I must say that July 4 is an auspicious day to talk about new beginnings and fresh starts.

Speaking of beginnings, as some of you know, my legal career began here in Boston. As a lawyer at the Legal Services Center, just a couple of stops down on the Orange Line, I filed my first bankruptcy case for a client – a chapter 13 case. Over the years, that case and many others proceeded under the watchful eye of the chapter 13 trustee.  It is here where I first came to appreciate the power of bankruptcy to change lives.

Some of you may also know that on July 18, 1776, the Declaration of Independence was first read publicly in Boston from the balcony of the Old State House, about a mile and a half from where we are now. One principle deeply ingrained in the Declaration of Independence and the spirit of our nation is the fresh start – a fresh start that represents hope, renewal and the opportunity to rebuild, whether on a grand scale or a deeply personal level. 

On February 6, 1788, in the same Old State House, the Massachusetts convention voted to ratify the Constitution – our Constitution – the cornerstone of this new beginning that encapsulated the hope and determination to create a society where each individual could thrive. But this historical fresh start was about more than geography or governance; it was about principles and possibilities. It offered a clean slate, leaving behind the mistakes and limitations of the past. From its inception, the United States has been a beacon of second chances and a symbol of the transformative power of a fresh start.

The same Constitution that formed the foundation of this new nation also granted to Congress the power to create uniform bankruptcy laws. You see, we were a republic of debtors. As historian and professor Bruce Mann has observed: “Debt was an inescapable fact of life in early America … and the right to imprison debtors was unquestioned.”  While bankruptcy law has evolved significantly since the Act of 1800, in wielding its constitutional power, Congress has long recognized that economic failure for the honest but unfortunate debtor should not result in the loss of liberty. 

Through today’s Bankruptcy Code, Congress has provided individuals and businesses a chance to reassess, restructure and reemerge. Today, financial failure does not dictate future possibilities. Instead, bankruptcy highlights the importance of learning from the past while looking forward to the future with renewed hope and determination. It recognizes the potential for growth and change.

I want to take a moment to appreciate the courage that it takes to seek a fresh start. Courage to admit when change is needed, the strength to act on that knowledge and the resilience to build anew.

Let’s celebrate the courage and success of the foreman and stay-at-home mom, a couple with two small children who successfully navigated a chapter 13 over five years and received their discharge this past winter. Two years before filing, they incurred significant medical debts. Other debts piled up. Then came the foreclosure complaint and the repossession of a car. They took out a debt consolidation loan trying to quell the financial storm. Finally, they sought a fresh start through chapter 13. Five years later, they had paid nearly $32,000 into their chapter 13 plan, and unsecured creditors received a distribution of about 22 percent. They turned the corner and started over.

Let’s also celebrate the strength and resilience of the retiree living solely on his social security income, with a modest home and a Buick LeSabre that didn’t run. With no mortgage and little car debt, he still found himself unable to repay several loans secured by his personal belongings – his TV, computer, lawnmower, weedwhacker, DVD player, exercise bike, drill press and even hand tools. He received his discharge this past spring after paying the secured creditors in full and paying a 6 percent dividend to unsecured creditors. It’s not easy to seek a fresh start in your twilight years, but he made it.

Courage. Strength. Resilience.

And, last but not least, let’s celebrate you, because none of this would happen without you. Thank you for being part of that promise that our founders imagined, a promise for a better tomorrow.

Building A Bankruptcy Talent Pipeline

To ensure access to that promise of a fresh start in the future, it is imperative that we as stakeholders continue to support and promote a strong and inclusive talent pipeline.  Part of that pipeline is the next generation of NACTT members, so I would like to extend a warm welcome to the trustees who have been appointed in the past year. The USTP continues to enhance its recruitment efforts, including steps to attract trustee candidates who represent a range of personal and professional backgrounds, experiences and perspectives. This includes, among other things, engaging with affinity and other professional groups to showcase opportunities for service as bankruptcy trustees. But the talent pipeline does not begin and end with trustees. I would also like to extend that welcome to any new staff with us here today. You also play a critical role in this system.

Recognizing that our recruiting efforts must be broad and inclusive, I want to highlight an emerging area of focus – strengthening the talent pool by exposing promising individuals to bankruptcy as a profession early in their careers. I’m thrilled that NACTT actively supports this goal through the Tom Vaughn Memorial Internship Program. The USTP, too, has expanded its internship opportunities. This fiscal year we have had 65 interns in legal and non-legal positions both in Washington, DC, and throughout the country. These internships include new opportunities for college students to serve the public good in a variety of roles, covering diverse responsibilities from administrative support to financial and legal analysis. These talented individuals have enriched our offices and have directly supported our mission. I am confident that many will make lasting contributions to the bankruptcy system, whether through a career with the USTP, working in your offices or representing clients in bankruptcy cases. Let’s continue to build this bankruptcy talent pipeline together.

Operational Matters

Let me turn now to a few operational matters. Before I go into specifics, first let me say: we are listening; we want the system to work for all stakeholders and that includes trustees. We continue to have productive conversations with the NACTT Liaison group on a wide variety of operational issues. Please continue to share your ideas and suggestions with that group.

Now let me touch on some of the details.

Operating reserves. Like you, we are closely monitoring chapter 13 case filings across the country. In the first eight months of FY 2024, chapter 13 filings in USTP districts were up 13 percent compared with those same months in FY 2023. And while chapter 13 filings continue to rebound gradually, they remain down by about one-third compared with our pre-pandemic baseline. We know that while the filings are increasing, case inventory continues to decline for many of you. We know that smaller caseloads raise budgetary concerns. You have weathered the pandemic storm, but we recognize that the bankruptcy system remains in recovery mode. I will reiterate what I told you last year and let you know that we are continuing to suspend the cap on operating reserves. As in the past, we will continue to address significantly over- or under-reserved operations on a case-by-case basis. And you will receive plenty of notice before any cap is reinstituted.

Audits. Second, let me talk about audits. Here, we are committed to balancing efficiency and preserving safeguards. In light of those goals, we have some changes coming with the next cycle of audits. First, we have determined that streamlined procedures in some years will satisfy that balance. We will leverage auditor experience to facilitate reduced-scope audits later in the contract cycle. In practical terms, this means that auditors will not need to review lower risk elements every year if your procedures or internal controls have not changed. 

We are also reducing on-site audits. In developing these revised procedures, we again benefited from NACTT’s feedback. We continue to believe that on-site audit work yields essential insights as auditors observe trust operations practices in person. This is especially true in the first year of the audit cycle.

Nonetheless, we realize that technology has improved and that auditors have better tools to perform work remotely than they did before the pandemic. We also know that small trust operations may experience unique challenges in bearing auditor travel costs. In small trust operations, those travel costs can directly reduce compensation received by the trustee. Here again we are looking to balance efficiency and cost with necessary safeguards for bankruptcy estates.

Going forward we will be doing this in two ways. First, our revised procedures will provide that small trust operations may seek waivers of on-site audit requirements after the first year. Second, our revised procedures will also reduce on-site requirements for auditors in later contract cycle years – regardless of trust operation size. In those later years, only one day of audit work must occur on site. This balance is designed to preserve the essential insights of on-site work while avoiding the undue burdens of housing a team of auditors in your conference rooms over several days. We intend to evaluate the efficiency and effectiveness of this hybrid experience and will remain open to further modifications later in the contract cycle.

Uniform Depository Agreements. Next up, uniform depository agreements. On day 10 of my tenure as Director, we faced an unprecedented banking crisis – 2023 turned out to be the biggest year ever for bank failures.

As you know, bankruptcy law requires trustees to deposit or invest bankruptcy funds with banks or financial institutions that offer products insured or guaranteed by the full faith and credit of the United States. These rules protect the deposits if the bank fails. When deposits exceed deposit insurance limits, banks must “collateralize” the deposits either by obtaining a bond or pledging government securities. The Uniform Depository Agreement between the United States Trustee and the banks facilitates these protections.

We learned from our experience in the spring of 2023, and, as a result, the USTP recently introduced a revised and modernized Uniform Depository Agreement for banks and financial institutions that accept bankruptcy estate deposits. 

The modernized Uniform Depository Agreement reflects the evolution in the way that the USTP, the Department of the Treasury, and financial institutions conduct business. Last month, we began transmitting the new agreement to existing authorized depositories and any banks that have expressed interest in signing up to serve as an authorized depository.

This modernization is the product of a robust outreach process, including as part of liaison meetings with the NACTT as well as informational sessions for banks and software vendors that work with your operations. Again, our process benefited from these productive engagements.

From the perspective of chapter 13 trustees, the modernized agreement should not result in significant changes to your operations. Your estate deposits remain protected under the new UDA – just as they were last year amid the banking turmoil. In addition, I am also pleased to report that the modernized agreement facilitates the delivery of electronic account statements and electronic images of checks to trustees.  

341 Meetings. Finally, I will say a few words about virtual 341 meetings. At this conference last year, I announced the nationwide expansion of virtual 341 meetings in two waves. Most second-wave jurisdictions began noticing the new virtual meetings in May for new cases filed – so we are nearly at the end of the rollout. 

Last year, I assured you that there would be no game of “gotcha” when it came to virtual meetings. Instead, your commitment – as well as the commitment from other system stakeholders, including court clerks and practitioners – shows that the system can improve for the mutual benefit of all. I want to thank NACTT again for its efforts in providing further instruction and support to membership. Among others, I specifically want to recognize Krispen Carroll, Lon Jenkins and Al Russo. They have advocated for your interests while identifying ways to make the process work more smoothly.

But we are not done yet. As we go forward, the USTP will continue to assess the effectiveness of its guidance and processes. This will include future changes to manuals and handbooks, as well as the potential expansion of a live operator for language translation – subject to results from a current pilot effort.

Additionally, based on feedback from a listening session with legal aid providers, the USTP will soon release professionally produced videos, including a sample chapter 13 meeting of creditors and Zoom connection instructions, designed to demystify 341 meetings for debtors. Beyond serving as an accessible resource for debtors, I encourage trustees to point to these resources when you or your staff receive questions about the process.

Conclusion

Let me conclude where I began: how great it is to be here in the cradle of democracy on the Fourth of July. I hope you all have an opportunity to enjoy the city’s rich history while you are here. And if you walk by the Old State House, the site of the public reading of the Declaration of Independence and the place where the Massachusetts convention ratified the Constitution, I hope you will consider the transformative power of a fresh start. As you explore the city and as you celebrate Independence Day, take a moment to remember the promise of hope and renewal that has always been central to our identity. By design that promise is reflected in our bankruptcy system, which provides a crucial lifeline for financially struggling individuals and businesses. Your part in this system is invaluable. Thank you for your dedication and hard work, and happy Fourth of July.