After going 25 years without a change in personnel, the Chapter 7 trustees panel for the southern division of the Eastern District of Tennessee was looking long in the tooth. Until recently, Chattanooga attorney Douglas Johnson was the newest member, and the U.S. trustee for the region tapped him for the job in 1993.
Then two of the trustees on the five-person panel – Richard Jahn and James Paris – stepped down, and a third trustee, William Foster, stopped taking new cases. This left three chairs for U.S. Trustee Sam Crocker to fill.
Following the new appointment of three local attorneys last August, Johnson’s face is no longer the freshest on the panel.
That honor now mutually belongs to Andrea Hayduk, Elisabeth Donnovin and Robert “Jay” Wilkinson – all seasoned attorneys with active practices in Chattanooga. Although they’re not federal employees, they do work under the supervision of Crocker, the U.S. trustee for region eight, which serves the federal judicial districts established for Tennessee and Kentucky.
Hayduk, Donnovin and Wilkinson come to trustee’s panel from vastly different legal backgrounds. Hayduk has a busy criminal defense practice at her new firm, Best Hayduk Brock, and is becoming one of Chattanooga’s preeminent DUI attorneys.
Donnovin does personal injury, general litigation and some corporate work at Johnson & Mulrooney. And Wilkinson does mainly debtor work at the Thomas Bible Firm. Of the new trustees, he’s the only bankruptcy attorney.
But learning the job of overseeing the administration of bankruptcy cases in Chattanooga and dozens of surrounding counties has Donnovin feeling like a “first year” again.
“We’re still in the learning stage. If someone calls Andrea about a DUI, she knows what to do, but when one of us receives a check in a bankruptcy case, suddenly, we don’t know how to make a deposit.”
“It takes an act of Congress,” Hayduk moans.
“It does. You have to hold it for this long, and then a copy has to go there, and then you shred it ...” Donnovin says, sounding like she’s stopping short of explaining the entire process.
But while each of the new trustees is somewhat overwhelmed by the administrative aspects of the position, they all say they’re becoming more comfortable with them and expect them to become second nature before long.
Therefore, the bulk of their focus is on learning the ins and outs of administering the estates that are created when a debtor files for chapter 7 bankruptcy.
For this, they’re leaning not on the help desk for their trustee software but their unofficial mentors in the business. Johnson, a named partner at Johnson & Mulrooney, is overseeing some of Donnovin’s cases, while Hayduk calls Jerry Farinash, another local trustee and a former law partner, a few times a week.
This is necessary because bankruptcy work is anything but cut and dry, says Donnovin.
“The law does a good job of balancing the interests of the debtor, who’s trying to start fresh, and the creditors, who are owed money,” she says. “Some parts are weighted toward the debtor and others are weighted toward the creditor, but it does a good job of balancing those interests. At the same time, it’s complicated, and no two situations are exactly alike.”
Because of the unpredictable nature of the circumstances trustees encounter, they’re given a considerable degree of discretion in how to administer an estate. So even as Hayduk and Donnovin rely on their mentors for advice, they’re also working on developing their own style.
For example, Hayduk says Farinash is one of the more aggressive trustees she knows. She’s finding herself coming in at just below his level of assertiveness. “I might not ask for the ring off your finger,” she says, “or the shirt off your back.”
“Unless it’s Versace,” Wilkerson quips.
Hayduk says she’s learning to balance the resources she’ll need to invest in an item that rightfully belongs to the estate with the needs of the creditors. “There are a lot of things to consider,” she says. “Is it worth my time, energy and money to fight over your $3,000 ring? What’s my cost benefit analysis? What’s the return to the estate?”
“Is it going to be worthwhile to take possession of your baby grand piano, which I’m going to have to move, store and auction off?” Wilkerson adds.
“So, we decide what to abandon and what to go after,” Hayduk says.
As Hayduk and the others are discovering, trustees learn by doing. Hayduk is currently wrestling with what to do with a Ford Flex that’s part of a case she inherited from a former trustee.
The ex-trustee went to the expense of transporting the vehicle from South Carolina to Chattanooga in the hopes of selling it for $12,000 – which would have been a nice chunk of change to divvy among the estate’s creditors. But mechanical issues, problems with the title and skittish buyers have Hayduk wondering if she’s going to be able to milk even $5,000 out of the vehicle.
When Hayduk calculates the number of checks she’ll have to write to creditors, she might be even more leery. “Depending on the number of creditors, I could be writing 40 small checks,” she says.
But just like any job, hesitant baby steps are part of the learning process, says Donnovin. “We’ll make mistakes that go both ways. We’ll go after something that doesn’t provide much return, and I’m sure I’ve walked away from things I needed to pursue,” she says. “Right now, I’m overly cautious. But we’ll find our footing.”
One thing that helps, Wilkerson says, is the camaraderie the three of them have found in each other. In additional to frequent phone calls and emails, they regularly have lunch together. “The three of us will get together, talk about things and help each other find a way,” he says.
“I like doing that because each of us has a different perspective,” Donnovin chimes in. “Plus, I might be dealing with something Andrea’s handled recently, or I might need one of them to recommend a Realtor.”
Also helpful are the less concrete, more esoteric skills Hayduk, Donnovin and Wilkerson have acquired as attorneys. “All three of us have practiced long enough to know when someone is telling the truth and when they’re not,” Donnovin says. “Most of the debtors we see are in genuine financial distress, but there are people who try to game the system.”
This includes attorneys, Hayduk says. “There are debtor lawyers who will try to slide things through,” she says. “I’m starting to see a lot of home exemptions. If there’s equity in the house that should go to the estate but they know it might not be enough for me to go after, they’ll try to slide that through. If they’re successful, the debtor gets to keep the equity in their home and discharge some of their debts.”
To help ease the threesome into the work, the U.S. trustee has each of them working only half of a regular docket. The full brunt of a trustees’ work will come in June, when each of them will receive a full docket.
Even then, they’ll continue with their private practices, partly due to financial necessity. Although trustees are paid – they receive a flat fee for cases with no redeemable assets and a percentage of the take on the other cases – they’re not sitting on a pile of money. At least not yet.
“I might not be making much money right now, but I’m gaining experience and exposure,” says Hayduk. “This is a unique opportunity. If my firm ever wants to build a bankruptcy practice, I’m learning it from the inside out, and people are learning my name.”
In other words, Hayduk, Donnovin and Wilkerson are paying their dues. In time, when their practices grow to size of Thomson’s or Farinash’s – the other two trustees on the panel – they’ll get the big, million-dollar cases.
Until then, they’ll enjoy the smaller pleasures. “My trustee work is a nice change of pace from criminal court, which is always contentious,” Hayduk says. “Even when we’re working with debtors, it’s generally peaceful.”
“I’ve had only one nasty little run-in,” Wilkerson says. “I had an individual debtor who had half an interest in a piece of property. So, I said, ‘I get that 50 percent.’ Then I received a phone call from a debtor’s attorney who tried to browbeat me into a lowball settlement. He was very aggressive.”
Wilkerson likes being able to occasionally help a debtor, even as he’s fulfilling his obligation to look after the interests of the creditors. “ I had a lady with a personal injury settlement. There was enough to make almost a full distribution to the unsecureds, but that would have left little for her,” he says.
“So, I spoke with the firm that was representing her in the personal injury case and convinced them to lower their attorney fees so I could give her an exemption and make it three-way split. Everybody was happy.”
Hayduk and Donnovin are also excited to be the first female trustees on the panel since Chattanooga attorney Flossie Weill served on the panel from 1979-1982. “This is a big deal,” says Hayduk, who thumps her fist on the table in the conference room at Best Hayduk Brock, where she and her fellow trustees have convened. “When I started working with Jerry in 2008, I remember walking in and realizing there were no women in the room.”
Since then, Kim Swafford has become the assistant U.S. trustee for the region and the U.S. Bankruptcy Court for the Eastern District of Tennessee is home to the Hon. Shelley Rucker, a former lawyer.
“And we now have two women on the panel,” Hayduk says. “There’s a strong female energy, and a younger energy, in bankruptcy court for the first time in a very long time. It’s no longer just an older man’s game. I think it’s cool to have a young female attorney and her male assistant walk into the room.”
Then there are the surprises that come with the more interesting cases. These range from shocking to humorous. In one case, Donnovin reports seeing nearly $200,000 in student loans, none of which could be discharged. In a case assigned to another trustee, Wilkerson learned that the debtor, a museum, had an adult novelty section among its assets.
The most surprising thing the trustees have learned, however, is that bankruptcy filings are down, likely due to a robust economy. But Donnovin expects the pendulum will eventually swing the other way.
“I believe changes in health insurance law will have an adverse effect on bankruptcies,” she says. “As people become uninsured, we’ll end up with more people filing for relief from medical bills.
“And as lending laws loosen, we’ll see more people getting underwater on mortgages again.”
No one wishes for this, but the economy is cyclical, and there will be ups and downs, Hayduk says. And she and her fellow newcomers to the trustees’ panel will be there, ready to help debtors through a difficult time while also honoring their fiduciary responsibility to the creditors.