Hot Document: U.S. Trustee Has Power to Investigate Countrywide Bankruptcy Practices

JD Supra contributor Scott Riddle recently shared this decision by Judge Thomas Agresti of the Bankruptcy Court for the Western District of Pennsylvania in the Scoop section of JD Supra.  And the document certainly is Scoop-worthy.

In his decision, Judge Agresti ruled that the U.S. Trustee has the standing and power to investigate a creditor (in this case, Countrywide) – and not only regarding the specifics of the particular bankrupt debtor, but also the creditor’s policies and procedures relating to bankruptcy claims. Though I am not a bankruptcy expert, this decision appears to be the first of its kind, and quite provocative.

Here is what  Brian McCaffrey of Leffler, Marcus & McCaffrey, LLC had to say about it:

This is the tip of the iceberg. It is ironic, and, personally pleasing, that the constituencies that shoved this amendment to the bankruptcy code down the throat of a compliant and complicit Congress are now squealing because the Courts are appropriately saying that fraud by anyone, whether creditor or debtor, is an issue of national concern. The Trustee not only has the authority to investigate Countrywide, but the obligation to look for assets of the bankruptcy estate – which may well include a claim against Countrywide for predatory lending practices. 

And bankruptcy attorney Marc Stern’s reaction:

It’s about time the U.S. Trustee’s office did what it was intended to do – oversee the bankruptcy system and investigate fraud by not only debtors, but creditors, as well – who are some of the worst perpetrators. Most debtors do not have the resources to pursue these kinds of claims. Until now, the U.S. Trustee’s office was basically a super-collection agency working for creditors. I am glad the judge did his job.

What are your thoughts about this decision? We’d love to hear them.