Posted on Aug 16, 2014

Affirming a bankruptcy court decision, U.S. District Judge Lynn Hughes sitting in Houston Texas ruled on August 11, 2014 that W. Steve Smith will not be restored as a chapter 7 trustee. The Court found that the bankruptcy court properly removed him from all of his cases.

Mr. Smith had been serving as trustee in the IFS Financial Corporation's bankruptcy from 2002 until his removal in 2013. During that time, the bankruptcy estate sued and obtained a judgment for $1.5 million. When the judgment was appealed, Smith hired his wife and law partner Blanche to represent the bankruptcy estate in the appeal.

Smith and his family went to New Orleans for oral argument. He, his wife and two children went along, and they went three days early. He billed the estate almost $3500 in travel expenses. A creditor objected to the expenses. The bankruptcy court removed Smith as Trustee because it determined that Smith's attempt to convert the estate assets was a willful breach of his fiduciary duty to the estate.

By removing him from one case, Smith was automatically removed from all of his chapter 7 cases, basically ending his career as a trustee. He is still on the "panel" of trustees, but is not receiving new cases from the U.S. Trustee and may be asked to resign if he loses his appeal. Judge Hughes concluded his opinion by stating:

Trustees must be trustworthy. After admitting that he took money from an estate — however recklessly — the bankruptcy court correctly concluded that Smith cannot be trusted. Its orders removing W. Steve Smith as a Chapter 7 trustee and denying a stay of his removal pending appeal will be affirmed.

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J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization