Chapter 16 Compliance with § 345 of the Bankruptcy Code

• Jurisdiction: United States

Chapter 16 Compliance with § 345 of the Bankruptcy Code

A. 11 U.S.C. § 345 Requirements

In order to protect the safety of bankruptcy estate monies, Congress enacted 11 U.S.C. § 345 which restricts or specifies the types of investments and accounts in which bankruptcy estate funds may be maintained. Unless the court orders otherwise, a debtor may not deposit or maintain funds in banks or investments that are not compliant with 11 U.S.C. § 345. Section 345 provides as follows:

§ 345 Money of estates
(a) A trustee in a case under this title may make such deposit or investment of the money of the estate for which such trustee serves as will yield the maximum reasonable net return on such money, taking into account the safety of such deposit or investment.
(b) Except with respect to a deposit or investment that is insured or guaranteed by the United States or by a department, agency, or instrumentality of the United States or backed by the full faith and credit of the United States, the trustee shall require from an entity with which such money is deposited or invested—

(1) a bond—

(A) in favor of the United States;
(B) secured by the undertaking of a corporate surety approved by the United States trustee for the district in which the case is pending; and
(C) conditioned on—

(i) a proper accounting for all money so deposited or invested and for any return on such money;
(ii) prompt repayment of such money and return; and
(iii) faithful performance of duties as a depository; or

(2) the deposit of securities of the kind specified in section 9303 of title 31;

unless the court for cause orders otherwise. (c) An entity with which such moneys are deposited or invested is authorized to deposit or invest such moneys as may be required under this section.

In plain English, § 365(a) requires the trustee or debtor-in-possession to be a good steward of estate money. Money must be deposited or invested funds handled in a way that will yield the "maximum reasonable net return" and minimize the risk of losing the funds if the financial institution were to become insolvent or the investment were to lose capital.

Section 345(b) gives some guidance on how to be a proper steward. If a debtor's funds are never going to aggregate more than the $250,000 FDIC-insured limit, then as long as the funds are in a bank insured by the FDIC, nothing further is required for § 345 compliance.

If the funds aggregate more than the $250,000 insured limit at any one depository institution...