Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
At least two Chapter 7 trustees in Maryland are demanding that debtors provide them with log-ins and passwords for their PayPal, Amazon Prime and eBay accounts, according to an attorney involved in a bankruptcy case.
It’s a practice bankruptcy attorneys who spoke with Bloomberg BNA called invasive and intimidating. The Justice Department branch tasked with overseeing bankruptcy also doesn’t support the move.
Bobby Wilbert, a consumer bankruptcy attorney from Silver Spring, Md., and Jacksonville, Fla., provided Bloomberg BNA with a copy of a questionnaire he said was being submitted by trustees Gary Rosen and Roger Schlossberg to their Chapter 7 debtors in Maryland. Wilbert represents a debtor who received the demand.
Schlossberg and Rosen didn’t respond to requests for comment by Bloomberg BNA.
The form demands log-in and password information for the three online services and states that debtors will keep the accounts active and won’t change passwords for at least 10 days.
It doesn’t say what the trustees will do with the information, or who will have access to the online shopping login and password data. It’s not clear how many cases are involved.
“This document request is ridiculous,” Ed Boltz told Bloomberg BNA Aug. 2.
Boltz is a past president and current member of the board of the National Association of Consumer Bankruptcy Attorneys. The group’s membership includes about 3,000 consumer bankruptcy attorneys nationally. He practices in North Carolina.
The demand is “very, very invasive and a bit frightening,” Boltz said.
Such a blanket request for user ID and passwords—especially without offering a reason—is a departure from the usual practice of Chapter 7 trustees.
In Chapter 7, a debtor’s assets are administered by a trustee for the benefit of creditors. Trustees have certain powers to recover assets on behalf of the bankruptcy estate.
As part of their duties, they examine debtors early in the case to ascertain what, if any, assets are available for administration, or which might be recovered by a lawsuit. Notably, trustees typically don’t ask for bank or investment account passwords, although they may inquire about account and transaction information.
The U.S. Trustee Program, a branch of the Department of Justice charged with overseeing bankruptcies and bankruptcy trustees, told Bloomberg BNA in an Aug. 4 email that it doesn’t support the routine collection of user IDs and passwords for debtors’ accounts.
The problem for some isn’t that the trustees are seeking this information, but that they are doing so as a matter of course, for all their debtors, and without any specific basis.
“If there’s a real question about these assets or transfers (related to the online accounts), the trustee has every right to explore them,” Boltz said. “But the trustee should at least have a scintilla of a reason to make a demand,” he said.
And there are far less invasive ways for the trustee to review the account information. He can ask to see statements or can even subpoena documents from the online accounts, Boltz said.
“I doubt the trustees will find this to be a cost effective fishing trip anyway,” Donald Peterson told Bloomberg BNA in an Aug. 3 email. Peterson practices in Orlando, Fla., and has represented consumers in bankruptcy since 1993.
“Given the number of trustees and relatively unsophisticated IT security skills, the risk of data breaches are substantial,” Peterson said.
By demanding the passwords, the trustee is treating debtors like criminals, Boltz said.
“It’s something that’s really odious on their part,” he said.
“This is the kind of thing that would change clients’ decisions to file a bankruptcy in the first place,” Boltz said. “It’s counter-productive.”
Lawyers will instruct clients to close their accounts before filing, he said.
“This sort of nonsense intimidates debtors and drives up the debtors’ bars’ cost of representing clients in Maryland,” Peterson said.
The Office of the U.S. Trustee, in concert with NACBA and representative groups of Chapter 7 and Chapter 13 Trustees, recently published best practices guidelines for trustees demanding information from debtors.
The idea, Boltz explained, was for trustees to ask for what they need, but to keep from having to ask everyone for everything, leading to over-burdensome and often inapplicable document requests.
The better solution is to tell debtor attorneys to be sure to cover PayPal and eBay accounts when preparing the schedules and papers required to be filed with the bankruptcy, Boltz said. If there is a cash balance, it would have to be disclosed, for example.
To contact the reporter on this story: Daniel Gill in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
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