The Justice Department’s U.S. Trustee Program (USTP) has updated safeguards for bankruptcy funds by introducing a revised and modernized depository agreement for banks and financial institutions that accept bankruptcy estate deposits.
On June 3, the USTP began transmitting the new agreement to existing authorized depositories and any banks interested in signing up. The modernized agreement reflects changes in how the USTP, Department of the Treasury, and financial institutions conduct business. The previous version was last revised in 2013.
“Banks that serve as authorized depositories provide vital foundational support to the bankruptcy system by safeguarding critical recoveries,” said Director Tara Twomey of the Executive Office for U.S. Trustees. “In modernizing this agreement, the USTP remains dedicated to ensuring broad access to banking services for debtors, including those in rural and remote areas.”
The new agreement accommodates advances in technology and reorganization within the Treasury, reflecting changes in methods used for safeguarding certain deposits and applicable laws and regulations. Additionally, it aims to simplify the process for banks to become authorized depositories by streamlining two versions of the prior agreement into a single document.
These updates come as the USTP continues to strengthen important safeguards for bankruptcy estate funds following recent banking instability. During this period of turmoil, the USTP conducted a comprehensive review of its systems for monitoring deposit and collateralization of funds by trustees and other fiduciaries under its supervision. Despite banking challenges, all bankruptcy funds were protected from risk except where bankruptcy courts waived safeguards.
The modernization of the depository agreement resulted from extensive outreach, including meetings with stakeholder groups and informational sessions for banks and software vendors working with trustees.
Under bankruptcy law, trustees and other fiduciaries, including chapter 11 debtors-in-possession, must deposit or invest bankruptcy funds with banks or financial institutions offering products insured or guaranteed by the full faith and credit of the United States. These rules protect deposits if a bank fails. When deposits exceed applicable insurance limits, banks must "collateralize" them either by obtaining a bond or pledging government securities. The USTP routinely objects to attempts to waive these safeguards in chapter 11 cases.
The mission of the USTP is to promote integrity and efficiency within the bankruptcy system for all stakeholders – debtors, creditors, and the public. The program consists of 21 regions with 89 field offices nationwide and an Executive Office in Washington, D.C.