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Legal Memorandum: Lift-stay Relief Order

Issue: If lift-stay relief is granted, is there a requirement that counsel report to the trustee on the progress of the litigation?

Area of Law: Bankruptcy & Creditors Rights
Keywords: Lift-stay relief; Bankruptcy trustee; Report on progress of the litigation
Jurisdiction: Federal
Cited Cases: None
Cited Statutes: 11 U.S.C. §§ 701–704 (1993 & Supp. 2000); 11 U.S.C.A. § 1104, § 1104(a), § 521
Date: 02/01/2008

  There is no requirement in the bankruptcy statutes that a debtor’s attorney PERIODICALLY report to the bankruptcy trustee on the prosecution of a lawsuit proceeding under a lift-stay order.  In fact, bankruptcies filed under Chapter 7 require that a trustee be appointed, and the selection process and the trustee’s duties are covered in the statutes in detail.  See 11U.S.C. §§ 701–704 (1993 & Supp. 2000).  Chapter 11 filings have no similar requirement.  Under 11 U.S.C.A. § 1104, a trustee is appointed only if needed

(1)        for cause, including fraud, dishonesty, incompetence or gross mismanagement of the affairs of the debtor . . . or

(2)        if such appointment is in the interests of creditors, any equity security holders, and other interests of the estate.

Id. § 1104(a).

Section 105 of the Bankruptcy Code endows the court with wide discretion in issuing orders and using various processes to carry out the intent of the Bankruptcy Code and would certainly appear to provide authority broad enough for the court to lawfully require reports to any trustee appointed.  Id. § 105.  If the court were to consider it to be in the best interests of the bankruptcy estate, there is nothing in the Code which would specifically prohibit the judge from including as part of his lift-stay order the requirement that the debtor’s counsel report to the trustee on the progress of the litigation.  Any court appointed trustee, whether under Chapter 7 or Chapter 11, would be guaranteed the cooperation […]

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