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HAMMOND | The country's shattered economy has driven many a distressed debtor to bankruptcy court for relief.

Yet their creditors may walk away with nothing because of costs claimed by some bankruptcy trustees administering the estates.

Those bankruptcy trustees, who are appointed by the U.S. Trustee Program and are allowed to appoint themselves as attorney as well, argue that pocketing money recovered from debtors without disbursing any to creditors is within the law.

Some highly placed bankruptcy attorneys in Northwest Indiana, however, say the practice — especially with estates of less than $5,000 — is an abuse of the system.

Henry Sommer, the former president and a current board member of the National Association of Consumer Bankruptcy Attorneys, said the problem persists throughout the country, not just in the Northern District of Indiana. Sommer is based in Philadelphia.

"It's been a problem, something the U.S. trustee's office ought to crack down on," Sommer said in recent weeks.

Pocketing the proceeds

Recognized as an aggressive trustee in the Hammond bankruptcy court, Merrillville attorney Stacia Yoon has been singled out for criticism by concerned local bankruptcy attorneys, most of whom represent primarily debtors but also creditors.

The complaints focus on Yoon's receipt of thousands of dollars for her work as a trustee and attorney, whereas the four other Hammond trustees accept hundreds of dollars for the same work, according to a local attorney familiar with bankruptcy court who asked not to be named.

Of particular concern to local bankruptcy attorneys is many of these Chapter 7 cases represent the poorest of the region's poor; often there is little to recover except for checking accounts and tax refunds, the attorney said.

Few of Yoon's cases The Times reviewed that originated between 2005 and 2009 show any distribution to creditors.

For example, court records show in recent years Yoon filed a final trustee's report on an estate worth $3,225.92. Yoon, as both trustee and self-appointed attorney, paid herself $2,607.83.

In another small estate with assets of $3,001, Yoon collected $2,160.33, of which she took for herself $1,903.83.

In yet another case in which the debtor had only $1,900 in assets, Yoon was able to collect $4,105 from a combination of tax refunds and loans from the debtor's family and friends. Of that, Yoon pocketed $3,867.26.

In each case, filing fees account for the difference between the amount Yoon collected and what she kept as payment for her services.

Yoon declined to discuss the issue but, through an assistant, said she cannot receive any fees without notice to all creditors and by approval of the bankruptcy court.

She also said through her assistant that her payouts to unsecured creditors are well above the national average and the highest in the Northern District of Indiana.

When asked by email for supporting documents, Yoon did not reply by deadline. The Times attempted to speak with Yoon for three days.

A pattern of such results amounts to an abuse of the U.S. Trustee Program, said Sommer, with the national bankruptcy lawyers group.

"The trustees program does not exist for trustees to make a living," Sommer said.

As Yoon pointed out through her assistant, some local attorneys also report Yoon's claims had been approved by Bankruptcy Judge J. Philip Klingeberger.

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But Sommer minces no words in dismissing that as a defense.

"In my opinion, the judge is allowing the abuse to take place," Sommer said.

"Trustees should not administer money unless there is a significant and substantial distribution to creditors," Sommer said.

Instead, low-asset cases should be abandoned and treated as "no asset" cases, where the standard trustee fee is $60.

Klingeberger declined to comment through an assistant, saying he routinely does not comment publicly.

A spokeswoman for the U.S. trustee's office in Washington, D.C., declined to comment specifically on any billing practices of the U.S. trustee-appointed bankruptcy trustees except to refer The Times to the trustees' handbook, which appears to bear out Sommer's position.

Local and regional officials with the U.S. trustee's office either declined to comment or did not return calls for comment.

In Philadelphia, trustees rarely administer estates of less than $4,000 or $5,000, Sommer said.

The threshold for estates administered in the Midwest appears to be lower, Sommer said.

Smaller estates

Attorney David P. Leibowitz, also a high-profile member of the national bankruptcy lawyers group who practices in the Midwest, said he frequently administers cases with assets as little as $2,000.

Providing perspective on both sides of the issue, Leibowitz has served as a trustee for 20 years and also represents debtors in Illinois, Wisconsin and the Northern District of Indiana.

When serving as trustee, Leibowitz said he rarely requires the services of an attorney in cases where assets are as little as $2,000.

"My trustee's fee of 25 percent of the first $5,000 administered is sufficient," he said. If the assets amount to $1,000, for example, that fee would be $250; for assets of $5,000, the fee would be $1,250.

Aside from the $60 trustee fee Sommer cites, trustees can be paid a commission on the recovered assets, beginning with 25 percent of the first $5,000, to 3 percent of $1 million.

Drawing the line

"However, trustees should not administer small-asset cases, which can be predicted to exhaust the estate through administrative expense," Leibowitz said. "An experienced trustee will exercise discretion and billing judgment to assure that administrative expense in a small estate is low enough to allow for a reasonable and meaningful distribution to creditors."

Leibowitz said while "meaningful distribution" is undefined, to him it means disbursing a check large enough that a creditor will want to cash it.

Regarding payment to trustees, Liebowitz pointed to a 2009 ruling by federal Judge Bruce Black, of the the Northern District of Illinois.

In the ruling, Black addressed the duties of a trustee in a case where the trustee spent more than $83,000 to recover less than $57,000, all of which went to the trustee and her hired professionals.

Black concluded while it may be impossible to define the line between the legal duties of a trustee and hired professionals, it was imperative the court identify the line in each case, especially when the only distributions are to the trustee and the hired help.

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