[1]
The Chapter 13 trustee has a statutory duty to advise and assist the debtor in performance under the plan, but the trustee is prohibited from giving legal advice and is not a substitute for effective debtor’s counsel. The trustee also has important fiduciary responsibilities to creditors. These roles inevitably conflict, rendering the trustee an inadequate advocate for individual debtors.
[2]
There is a fine line between advising and assisting the debtor and giving legal advice. The Chapter 13 trustee can maintain a lawsuit against a creditor on the debtor’s behalf without violating the proscription against legal advice to the debtor. On unusual facts, one court of appeals chided the Chapter 13 trustee for violating the obligation to assist debtors when the trustee recovered an overpayment to a creditor in one Chapter 13 case by withholding payments to that same creditor in an unrelated Chapter 13 case.
[3]
In some jurisdictions, the standing trustee provides extensive counseling and education to all Chapter 13 debtors in the form of videotapes or seminars that the debtor may be required to attend. Advice is included regarding budgeting, credit, shopping, transportation, housing and the like. In other jurisdictions, the Chapter 13 trustee plays no role other than to receive and disburse funds. It has been held that it is appropriate for a Chapter 13 trustee to provide financial counseling to a debtor.
[4]
The Bankruptcy Court for the Southern District of Ohio has broadly conceived the role of the Chapter 13 trustee to advise and assist debtors:
[I]t is the view of this Court that the Trustee is far more than a mere disbursing agent and has the statutory authority and ability to assist eligible debtors in their credit transactions that occur between confirmation and consummation of the plan. Standing chapter 13 Trustees should be encouraged by the U.S. Trustee Program to make reasonable efforts to provide credit rehabilitation services to chapter 13 debtors both pre- and post-consummation. It is only through such efforts that cycles of poor financial judgment can be broken and debtors can be returned to the market and credit community with a greater likelihood of success.
Dates v. HSBC U.S.A. N.A., No. 1:16-cv-1037, 2017 WL 6402920 (S.D. Ohio Oct. 5, 2017) (Bowman), report and recommendation adopted by No. 1:16cv1037, 2017 WL 6403865 (S.D. Ohio Dec. 14, 2017) (Dlott) (Bankruptcy court appropriately denied debtor’s motion to require the Chapter 13 trustee to conduct a Rule 2004 examination with respect to the validity of a mortgage. Debtor was eight years in arrears of payments and made no provision for mortgage in proposed plan.).
Ferrell v. Countryman, 398 B.R. 857 (E.D. Tex. Jan. 6, 2009) (Crone) (Statutory requirement that trustee advise and assist debtors does not include representation of debtors; debtors have no Sixth Amendment right to counsel in civil cases and § 1302(b)(4) does not require trustee to give legal advice to debtors.).
In re Lundy, No. 15-32271, 2017 WL 4467270 (Bankr. N.D. Ohio Sept. 29, 2017) (Whipple) (The trustee’s offer of access to data internal to the operation of the trustee’s office was consistent with the trustee’s duty to assist the debtor under § 1302(b)(4).).
In re Clinkscale, 525 B.R. 399, 406-07 (Bankr. W.D. Mich. Jan. 14, 2015) (Dales, Boyd) (Standing trustee and debtors' attorney share responsibility to monitor status of Chapter 13 cases; debtors' attorney may justify fees for status review only in appropriate cases. Debtors' attorney sought fees for routine monthly monitoring of each Chapter 13 case. The trustee objected. "[T]he Trustee asks the court to decree that Mr. Mapes and others similarly situated should rely upon the Trustee, and limit their reviews in response to inquiries from the Trustee or a motion to dismiss. The Trustee's position . . . is also paternalistic, as well as inconsistent with the division of responsibilities between the Trustee and debtors' counsel. Although the Trustee has a statutory duty to advise and assist each debtor, . . . Mr. Mapes represents his clients and the Trustee does not. The court finds no fault in Mr. Mapes's proactive and independent approach to his cases, and rejects the Trustee's categorical disapproval of regular monitoring practices by Mr. Mapes and others in his position. . . . [T]he circumstances of each case will control. . . . [A]lthough monitoring activities may be reasonable in some cases, and at some intervals, Mr. Mapes has provided no case-specific information upon which the court may approve fees for this category of services.").
In re Goines, 465 B.R. 704 (Bankr. N.D. Ga. Feb. 9, 2012) (Sacca) (Trustee's duty under § 1302(b)(4) to advise and assist debtors in performance of plan did not obligate trustee to hire special counsel to prosecute state law cause of action. Debtors were in possession of claim, and use of word "trustee" in § 327(e) included Chapter 13 debtor. Debtors were in control of property of estate, including prosecuting causes of action, and debtors had primary obligation to employ special counsel.).
Morgan v. Goldman (In re Morgan), 353 B.R. 599, 604-05 (Bankr. E.D. Ark. Oct. 10, 2006) (Chapter 13 trustee's obligation to advise and assist debtor under § 1302(b)(4) does not include refunding $10,000 to debtor from postconfirmation settlement of a tort claim. "There is nothing in the text of 11 U.S.C. § 1302(b)(4) that even remotely suggests that the Chapter 13 Trustee is vested with discretion to permanently divert monies in her possession to the debtors outside the provisions of a confirmed plan. . . . The Court is aware that for many years it has been the practice of the Chapter 13 Trustee to grant refunds that would subsequently be repaid by the debtor. However, any type of refund based on 11 U.S.C. § 1302(b)(4), especially without notice to creditors, is of doubtful legality, and the Court is reviewing this practice for future cases.").
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