Greater Oversight and Guidance of Bankruptcy Process Needed

GAO reviewed the activities of bankruptcy trustees in eight judicial districts to determine whether the interests of debtors and creditors are being protected during the administration of cases under chapters 7 and 13 of the Bankruptcy Reform Act. Chapter 7 of the act provides for the liquidation of a debtor's nonexempt assets; chapter 13 provides a debtor with the opportunity to retain his assets and repay his creditors over a set period of time.

In the chapter 7 cases reviewed, GAO found that: (1) liquidated assets were frequently deposited in non-interest-bearing accounts for several months; (2) some trustees who were appointed by the court to act as their own attorneys were being paid attorney fees for performing trustee duties; and (3) the minimum dollar limits used to determine whether to liquidate or abandon assets varied widely among trustees. GAO found that chapter 13 trustees, in four of the eight courts visited, improperly claimed and received compensation and expenses above the 10-percent ceiling set by the act. GAO believes that, if the judiciary and the Department of Justice would monitor trustee activities more closely and provide detailed procedural guidance to bankruptcy trustees, debtors and creditors could more fully realize the benefits of the bankruptcy process.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Arnold P. Jones Team: General Accounting Office: General Government Division Phone: (202) 512-7797