11 U.S.C. Section 322 - Qualification of Trustee

The acceptance and bond requirements that complete a bankruptcy trustee's qualification to serve; the blanket-bond regime and protection of estate property against trustee misconduct.

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What Is Section 322?

Section 322 completes the trustee-qualification regime that begins with Section 321. Eligibility under Section 321 establishes who may serve; qualification under Section 322 establishes that the candidate has formally accepted appointment and posted any required bond. A trustee who is eligible but unqualified cannot perform the duties of the office.

Official citation: 11 U.S.C. § 322

Acceptance and Bond: Section 322(a)

Section 322(a) provides that, within five days after selection, the person selected as trustee in a case under Chapter 7, 11, 12, or 13 shall file with the court a bond in favor of the United States conditioned on the faithful performance of the trustee's duties. The statute requires the bond to be filed before the trustee may "qualify" and begin to perform.

"Acceptance" of appointment is normally implicit in the act of filing the bond and beginning service. A trustee who declines appointment must do so promptly so that the U.S. Trustee can identify and appoint a replacement without delaying case administration.

Setting the Bond Amount: Section 322(b)

Section 322(b)(1) provides that "the United States Trustee qualifies the trustee by approving the bond." The amount and the surety are determined by the United States Trustee. In Chapter 7, 12, and 13 cases the trustee is typically covered by a blanket bond purchased by the trustee or by the U.S. Trustee Program covering all cases administered by the trustee, with case-specific increases for unusually large estates.

Section 322(b)(2) makes clear that the costs of the bond are administrative expenses of the estate or are otherwise borne in accordance with U.S. Trustee Program policy. Section 322(c) provides that a trustee is not liable personally or on the bond for any penalty or forfeiture incurred by the debtor.

The Surety Mechanism

The bond functions as an insurance backstop for the estate. If a trustee misappropriates estate funds, fails to account for property received, or otherwise breaches fiduciary duties causing loss to creditors, the surety is liable on the bond up to its face amount. The estate's recovery on the bond is then pursued by a successor trustee, by the U.S. Trustee, or by creditors with standing.

Bond claims are infrequent. The U.S. Trustee Program's panel-selection and ongoing-supervision regime catches most problems before they ripen into losses. When losses do occur, the bond is the primary remedy for affected estates.

Section 322(d): Five-Year Limitations Period

Section 322(d) provides that a proceeding on the trustee's bond may not be commenced after two years after the date on which such trustee was discharged. This is the limitations period for actions on the bond.

Practical Effect: Trustees as Bonded Fiduciaries

Section 322 reinforces the conception of the bankruptcy trustee as a bonded fiduciary, comparable in many respects to a probate executor or other court-appointed officer with custody of others' property. The bond, supervisory regime, removal procedures of Section 324, and personal liability for negligence collectively impose substantial responsibilities on trustees that go beyond ordinary professional service.

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