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Bankruptcy Trustees: Who Are They and What Do They Do?
By Leslie Sara Hyman and Janell Thompson
If you have had any interaction with the bankruptcy courts, you probably heard reference to “the Trustee,” but may not know who that person is or what his or her role is in the bankruptcy system. In fact, there are many trustees, each with different roles. This article will introduce the United States Trustee Program and the lawyers who serve in the various roles in San Antonio.
The United States Trustee Program
The United States Trustee Program falls under the auspices of the U.S. Department of Justice. It was created as a pilot program by the 1978 Bankruptcy Reform Act and was expanded in the wake of further bankruptcy reform in the mid-1980s.1 Currently, all states are part of the U.S. Trustee Program except Alabama and North Carolina, which remain under the U.S. Bankruptcy Administration program.
Prior to the U.S. Trustee Program, “in addition to their traditional judicial function of ruling on disputed matters in adversarial proceedings, bankruptcy judges dealt with an array of administrative tasks, such as appointing private trustees where appropriate; organizing creditors’ committees; supervising the filing of required reports, schedules, and taxes; and monitoring cases for signs of abuse and fraud.”2 Congress became concerned that this was “creating an appearance of bias, particularly because judges were responsible for supervising trustees that they themselves had appointed.”3 Congress thus created the U.S. Trustee Program with the stated purpose to “[p]rotect the integrity and promote effectiveness and efficiency” of the American bankruptcy system.4 The U.S. Trustee Program functions as a disinterested monitor among debtors, creditors, and attorneys and has standing to participate in any bankruptcy case under the Program.5
The U.S. Trustee Program has an Executive Office in Washington, D.C., which oversees the Program’s operations and handles its administrative functions. Tara Twomey is the current Director of the Executive Office. The Program is subdivided into twenty-one regional offices, two of which are in Texas. Region 6 covers the Northern and
Eastern Districts of Texas, while Region 7 covers the Western and Southern Districts. Each regional office is headed by a United States Trustee and, depending on the size of the region, may have one or more Assistant United States Trustees. The offices also employ trial attorneys, paralegals, auditors, and legal assistants.
The duties of regional United States Trustees include:
• Appointing and supervising private trustees in bankruptcy cases under Chapters 7, 11, 12, and 13;
• “[A]ssuring compliance with the Bankruptcy Code with respect to information disseminated in cases through reports, schedules, disclosure statements, reorganization plans, and other filings”;
• Reviewing fee applications of attorneys, accountants, and other professionals in Chapter 11 cases; and
• Monitoring bankruptcy cases for fraud and abuse.6
The United States Trustee may refer criminal matters identified through exercising its duties to the U.S. Attorney for prosecution.
A San Antonio Native Sits as U.S. Trustee in Region 7.
The current U.S. Trustee for Region 7 is San Antonio native Kevin Epstein. Epstein graduated with honors from Duke University, where he received a B.A. in Political Science and History. He received his J.D. with honors from the University of Texas School of Law. After law school, Epstein clerked for Bankruptcy Judge James R. Grube in San Jose, California. He then worked for a law firm in San Francisco before joining the U.S. Trustee Program, where he spent his first twenty-one years as a trial attorney. He has been in San Antonio since 2003. During his tenure, he also has served as an Acting Assistant U.S. Trustee in charge of three different field offices. In 2020, thenAttorney General William P. Barr appointed Epstein as the U.S. Trustee for the Southern and Western Districts of Texas (Region 7), effective January 1, 2021. In addition, Epstein served as the interim U.S. Trustee for Region 6.7 The prior U.S. Trustee for Region 6 retired in 2023, and
28 U.S.C. § 585(b) authorizes the United States Attorney General to fill U.S. Trustee vacancies by designating an incumbent U.S. Trustee to serve in a second region. Mr. Epstein served double duty until November 2024, when Lisa L. Lambert was appointed as the U.S. Trustee for Region 6.8 Supervising the bankruptcy cases for all of Texas left Epstein with no shortage of interesting cases to stay on top of and for which to provide input to the United States Bankruptcy Courts within Texas.
The San Antonio office of Region 7 is headed by Assistant U.S. Trustee Aubrey Thomas. Jim Rose, Erin Coughlin, Jessica Hanzlik, and Shane Flanery are the trial attorneys in Region 7.
The U.S. Trustee Program Provides Neutral Oversight of Private Trustees Throughout the Bankruptcy Process.
The role of appointing and supervising private trustees in bankruptcy cases under Chapters 7, 11, 12, and 13 leads to the next category of attorneys who may be referred to as “the Trustee” in a bankruptcy case. Due to the extensive scope of the Bankruptcy Code and the substantively different treatment of debts in various chapters of bankruptcy, the U.S. Trustee Program appoints private trustees to handle the span of Chapter 7, 12, and 13 bankruptcies.9 Private trustees are essential players in the American bankruptcy system.10 These non-government employees are independent contractors, serving under the appointment of the regional offices of the U.S. Trustee Program.
Chapter 7
Chapter 7 bankruptcies are commonly known as “liquidations.” The purpose of a Chapter 7 bankruptcy is to recoup money out of the debtor’s estate to pay out creditors.11 The U.S. Trustee Program manages a panel of private trustees who work to liquidate a debtor’s assets and reimburse a debtor’s creditors as quickly as possible. Whether the debtor is a consumer or a business, these private “panel” trustees are compensated through a percentage of the estate.12 In San Antonio, the Chapter 7 Panel Trustees are Pat Lowe, Randolph Osherow, and Jose Rodriguez.
Chapter 11 and SBRA
Chapter 11 bankruptcies are known as “reorganizations” and are most often filed by businesses, although individuals may file under this Chapter as well. Because the debtor continues to run the business as the “debtor in possession,” Chapter 11 bankruptcies typically do not require a private trustee. Instead, the U.S. Trustee supervises the administration of the case and monitors the debtor in possession’s compliance with the Bankruptcy Code and rules.13 In “small business” bankruptcies, the U.S. Trustee Program plays a greater role, including through conducting an interview with the debtor and evaluating the debtor’s business plan.14 In 2019, Subchapter V was added to Chapter 11. Subchapter V created an option designed to assist smaller businesses to navigate the business bankruptcy “reorganization” process more efficiently.15 A trustee is appointed in Subchapter V bankruptcies.16 The current “Sub V” standing trustees in San Antonio are Eric Terry, Michael Colvard, and Michael O’Connor.
Chapters 12 and 13
Chapter 13 bankruptcies are known as “restructuring” or “wageearner” bankruptcies.17 These bankruptcies assist debtors with holding onto certain property, usually a house or car, by setting up a three-to-fiveyear repayment plan to creditors.18 The U.S. Trustee Program appoints one or more private trustees as “standing” trustees for a geographic region and sets compensation for their services.19 These Chapter 13 standing trustees evaluate the feasibility and the likelihood of success for an individual Chapter 13 debtor, an important function given the long-term nature of these bankruptcies.20 Chapter 12 cases address the unique challenges of family farmer or fisherman bankruptcies and closely resemble Chapter 13 bankruptcy cases.21 In San Antonio, the standing Chapter 13 trustee is Mary Kathryn Viegelahn.
The Western District’s Influence on Supreme Court Decisions
In the last decade, two bankruptcy court cases originating in San Antonio addressing aspects of the U.S. Trustee Program have garnered the United States Supreme Court's attention. A dispute over the disbursement of a debtor’s funds brought a San Antonio-based case squarely in front of the Supreme Court in 2015.22 Consumer bankruptcies frequently convert from Chapter 13 restructuring bankruptcies to Chapter 7 liquidation bankruptcies. Courts had disagreed over how and to whom monies from the estate are paid in such circumstances.23 In Harris v. Viegelahn, the Supreme Court decided that any accumulated funds from a Chapter 13 case would be returned to the debtor post-Chapter 7 conversion, rather than remaining with the original Chapter 13 standing trustee.24
More recently, the San Antonio-based case In re Buffets dealt with the constitutionality of fee differences between the U.S. Trustee Program and the Bankruptcy Administrator Programs. In 2017, Congress imposed a temporary but significant increase in the quarterly fees paid by large Chapter 11 debtors. The law went into effect only in judicial districts covered by the U.S. Trustee Program.25 Buffets, L.L.C. and its affiliates had filed for Chapter 11 protection in 2016 and was arguably subject to these increased fees. Buffets challenged the fee and Judge Ronald B.
King held that the fee was unconstitutional, in part because it did not apply the same way in the judicial districts not covered by the U.S. Trustee Program.26 The Fifth Circuit reversed.27 The Supreme Court took up the question in Siegel v. Fitzgerald, to resolve a circuit split.28 The Supreme Court agreed with Judge King, unanimously holding that the law was unconstitutional as violative of the United States Constitution provision that Congress establish “uniform Laws on the subject of Bankruptcies throughout the United States.”29
Conclusion
The locally headquartered Region 7 U.S. Trustee Program office provides guidance and neutrality to the bankruptcy system across the state of Texas. The local standing and panel trustees likewise promote efficiency and consistency. Alongside these valuable resources, the local San Antonio bankruptcy bar stands ready to further interesting debate and scholarship regarding the role of bankruptcy trustees in the coming years.
ENDNOTES
1 See Eric A. Posner, The Political Economy of the Bankruptcy Reform Act of 1978, 96 Mich. L. Rev. 47, 94 (1997); Overview of the United States Trustee Program, https://www.justice.gov/ust/bankruptcy-fact-sheets/overview-united-states-trustee-program.
2 Siegel v. Fitzgerald, 596 U.S. 464, 468 (2022).
3 Id.
4 U.S. Trustee Program, Overview of the U.S. Trustee Program 14 (2015), https://www.justice.gov/d9/pages/attachments/2015/07/28/volume_1_overview.pdf.
5 Id.
6 Overview of the United States Trustee Program, available at https://www.justice.gov/ust/bankruptcy-fact-sheets/overview-united-states-trustee-program.
7 Press Release, U.S. Trustee Program, Kevin M. Epstein to Serve as the U.S. Trustee for the Northern and Eastern Districts of Texas for Interim Period (June 13, 2023), https://www.justice.gov/opa/pr/kevin-m-epstein-serve-us-trustee-northern-and-eastern-districts-texas-interim-period.
8 Press Release, U.S. Trustee Program, Lisa L. Lambert Appointed as U.S. Trustee for the Northern and Eastern Districts of Texas (November 18, 2024), https://www.justice.gov/archives/opa/pr/lisa-l-lambert-appointed-us-trustee-northern-and-eastern-districts-texas.
9 U.S. Trustee Program, Overview of the U.S. Trustee Program 14 (2015) https://www.justice.gov/d9/pages/attachments/2015/07/28/volume_1_overview.pdf.
10 U.S. Trustee Program, Private Trustee Information, https://www.justice.gov/ust/private-trustee-information.
11 U.S. Courts, Chapter 7- Bankruptcy Basics, https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics.
12 See 11 U.S.C. §§ 326 and 330.
13 U.S. Courts, Chapter 11- Bankruptcy Basics https://uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics. On occasion, generally where there is some reason to believe that the debtor’s control persons cannot operate the business, a Chapter 11 trustee will be appointed by the bankruptcy court. Id.
14 See 11 U.S.C. § 101(51C) for the definition of a small business. See also U.S. Courts, Chapter 11- Bankruptcy Basics https://uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics.
15 U.S. Courts, Chapter 11- Bankruptcy Basics https://uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics.
16 11 U.S.C. § 1183.
17 U.S. Courts, Chapter 13- Bankruptcy Basics https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics.
18 Id.
19 U.S. Department of Justice Executive Office for United States Trustees, Handbook for Chapter 13 Standing Trustees, 7, 13 https://www.justice.gov/ust/page/file/1442271/dl.
20 Id.
21 U.S. Courts, Chapter 12- Bankruptcy Basics, https://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-12-bankruptcy-basics.
22 See Harris v. Viegelahn, 575 U.S. 510 (2015).
23 Id. at 514.
24 Id. at 521.
25 Matter of Buffets, L.L.C., 979 F.3d 366, 370 (5th Cir. 2020), abrogated by Siegel v. Fitzgerald, 596 U.S. 464 (2022).
26 In re Buffets, LLC, 597 B.R. 588 (Bankr. W.D. Tex. 2019), rev’d and remanded sub nom. Matter of Buffets, L.L.C., 979 F.3d 366 (5th Cir. 2020).
27 Matter of Buffets, L.L.C., 979 F.3d 366 (5th Cir. 2020).
28 Siegel, 596 U.S. at 473.
