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entitled 'Bankruptcy Reform: Dollar Costs Associated with the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005' which
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
June 2008:
Bankruptcy Reform:
Dollar Costs Associated with the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005:
GAO-08-697:
GAO Highlights:
Highlights of GAO-08-697, a report to congressional requesters.
Why GAO Did This Study:
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(Bankruptcy Reform Act) made significant changes to the administration
of bankruptcy relief, affecting (1) the U.S. Trustee Program (Trustee
Program), which oversees the bankruptcy process; (2) the federal
judiciary, which includes bankruptcy courts and a central
administrative support office; (3) consumers filing for bankruptcy; and
(4) private trustees—individuals who administer bankruptcy cases and
are supervised by the Trustee Program but are not government employees.
The number of new personal bankruptcy filings declined after the
act—about 600,000 people filed in 2006 as compared to an average of 1.5
million annually between 2001 and 2004.
GAO was asked to examine (1) new costs incurred as a result of the
Bankruptcy Reform Act by the Trustee Program and federal judiciary, (2)
new costs to consumers, and (3) the impact of the act on private
trustees. GAO reviewed budget information from the Trustee Program and
federal judiciary, and collected data on attorney fees from a random
and projectable sample of personal bankruptcy cases. GAO also obtained
documentation and interviewed staff from these entities, as well as
from organizations representing consumers, bankruptcy attorneys,
creditors, and private trustees.
What GAO Found:
The Trustee Program estimated that its costs to carry out
responsibilities resulting from the Bankruptcy Reform Act were
approximately $72.4 million for fiscal years 2005 through 2007. These
costs were mostly for staff time for ongoing activities related to the
means test, debtor audits, data collection and reporting, and
counseling and education requirements. The federal judiciary could not
isolate all costs related to the act since it broadly affected nearly
all bankruptcy court staff and operations, but estimated about $48
million was incurred in one-time start-up costs for such things as
training and revisions of rules, forms, and procedures. These estimates
do not incorporate the effect of the decline in bankruptcy filings
since the act, which presumably has helped reduce the Trustee Program’s
and judiciary’s overall costs, but has also reduced fee revenues.
Trustee Program filing fee revenues declined from $74 million to $52
million between fiscal years 2005 and 2007, and federal judiciary
filing and miscellaneous fee revenues declined from $237 million to
$135 million.
Consumers filing for bankruptcy pay higher legal and filing fees since
the Bankruptcy Reform Act went into effect. Based on a random sample of
bankruptcy files, GAO estimated that the average attorney fee for a
Chapter 7 case increased from $712 in February-March 2005 to $1,078 in
February-March 2007. For Chapter 13 cases, the standard attorney fees
that individual courts approve rose in nearly all the districts and
divisions with such fees that GAO reviewed, and in more than half the
cases the increase was 55 percent or more. As a result of the act and
subsequent budget legislation, total bankruptcy filing fees have risen
from $209 to $299 for Chapter 7 and from $194 to $274 for Chapter 13.
GAO estimated that the proportion of Chapter 7 debtors filing without
an attorney had declined and did not find a significant change in the
proportion of such debtors receiving free legal assistance. In
addition, fees to meet the act’s credit counseling and debtor education
requirements are typically about $100, although some clients receive a
fee reduction or a full waiver.
Private trustees told GAO that new Bankruptcy Reform Act requirements
related to documentation, verification, and reporting have increased
the time and resources they spend administering each case. The caseload
of some private trustees has declined in concert with the significant
decline in bankruptcy filings that has occurred since the act went into
effect, but trustees’ overall rate of attrition has not changed
significantly.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-697]. For more
information, contact Yvonne D. Jones at (202) 512-2717 or
jonesy@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Trustee Program Incurred Approximately $72 Million in Overall Costs,
and the Judiciary Approximately $48 Million in Start-up Costs, Related
to the Bankruptcy Reform Act:
Cost to Bankruptcy Filers Has Risen Due to Increased Legal and Filing
Fees and New Counseling and Education Requirements:
Bankruptcy Reform Act Has Affected the Duties and Caseloads of Private
Trustees:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Standard Attorney Fees for Chapter 13 Cases:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Trustee Program's Estimated Allocation for Activities
Resulting from the Bankruptcy Reform Act, Fiscal Years 2005-2007:
Table 2: Federal Judiciary's Estimate of Start-up Costs to Implement
the Bankruptcy Reform Act, as of December 2007:
Table 3: Changes in Chapter 7 Filing Fees Resulting from the Bankruptcy
Reform Act and the Deficit Reduction Act of 2005:
Table 4: Changes in Chapter 13 Filing Fees Resulting from the
Bankruptcy Reform Act and the Deficit Reduction Act of 2005:
Table 5: Population and Disposition of Our Sample of Chapter 7 Filings:
Table 6: Standard Attorney Fees for Chapter 13 Cases in Selected
Districts and Divisions, before and after the Bankruptcy Reform Act:
Figures:
Figure 1: Overview of the Bankruptcy System:
Figure 2: Number of Personal Bankruptcy Filings, Calendar Years 1990-
2007:
Figure 3: Trustee Program's Filing Fee Revenues, Fiscal Years 2004-
2009:
Figure 4: Federal Judiciary's Bankruptcy Fee Revenues, Fiscal Years
2004-2009:
Figure 5: Estimated Average Attorney Fee for Chapter 7 Personal
Bankruptcy Cases, February-March 2005 and February-March 2007:
Figure 6: Estimated Frequency of Attorney Fees for Chapter 7 Personal
Bankruptcy Cases, February-March 2005 and February-March 2007:
Figure 7: Standard, Court-Set Chapter 13 Attorney Fees before and after
the Bankruptcy Reform Act in Selected Judicial Districts and Divisions:
Abbreviations:
AOUSC: Administrative Office of the United States Courts:
Bankruptcy Reform Act: Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005:
Trustee Program: U.S. Trustee Program:
[End of section]
United States Government Accountability Office: Washington, DC 20548:
June 27, 2008:
Congressional Requesters:
Congress enacted major bankruptcy reform legislation with the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(Bankruptcy Reform Act), most of the provisions of which became
effective in October 2005.[Footnote 1] The act made many significant
changes to the administration of consumer bankruptcy relief and has
resulted in certain new responsibilities for the various entities
involved in the bankruptcy process. Within the judicial branch (or
federal judiciary), these entities include the 90 bankruptcy courts;
the Administrative Office of the United States Courts, which provides
the courts with central support functions; and the bankruptcy
administrators in the six judicial districts in Alabama and North
Carolina. Within the executive branch, the Department of Justice's U.S.
Trustee Program (Trustee Program) oversees bankruptcy case
administration in most federal judicial districts and litigates to
enforce the bankruptcy laws. The Bankruptcy Reform Act also has
affected the roles and responsibilities of the approximately 1,400
"private trustees." These trustees are private individuals who are
appointed and supervised by the Trustee Program or bankruptcy
administrators and are responsible for administering bankruptcy estates
and distributing assets as appropriate to creditors.
Among other things, the Bankruptcy Reform Act established a means test
for determining whether a consumer is eligible for bankruptcy relief
under Chapter 7 (in which assets are liquidated and debts discharged)
or must file under Chapter 13 (which involves a court-approved plan for
repayment of debts) or under Chapter 11. The act required procedures be
established for audits of consumer bankruptcy cases by a certified
public or licensed accountant. Further, the act required the federal
judiciary to collect and publish certain annual statistics on
bankruptcy cases. In addition, consumers must receive approved credit
counseling before filing a petition in bankruptcy court and take an
approved debtor education course before having debts discharged. The
act also increased bankruptcy filing fees, and is widely believed to
have affected the fees bankruptcy attorneys charge consumers for these
cases. The number of new consumer bankruptcy filings declined after
implementation of the Bankruptcy Reform Act--about 600,000 people filed
for bankruptcy in 2006 as compared with an average of 1.5 million
people annually from 2001 through 2004.
In light of these changes, you asked us to report on new costs
resulting from the Bankruptcy Reform Act. The specific objectives of
this report are to examine (1) new costs incurred as a result of the
Bankruptcy Reform Act by the Department of Justice and the federal
judiciary, (2) new costs incurred as a result of the act by consumers
filing for bankruptcy, and (3) the impact of the act on private
trustees. Our review focused on the impact of the act with regard to
consumer (that is, personal) bankruptcies and not business
bankruptcies. Further, the scope of the first two objectives is limited
to the monetary (dollar) costs incurred by federal entities and
consumers and not on other ways the Bankruptcy Reform Act may have
affected them. The scope of this report also is limited to costs
directly related to the process of filing for bankruptcy, and not on
the overall financial impact the act may be having on consumers.
Finally, this report did not seek to assess the benefits of the
Bankruptcy Reform Act and is therefore not an evaluation of the merits
of the act.
To address the objectives, we obtained documentation from, and
interviewed representatives of, the Trustee Program; the federal
judiciary, including the Administrative Office of the United States
Courts (AOUSC) and selected individual bankruptcy courts; Congressional
Budget Office; and organizations representing consumers, bankruptcy
attorneys, the financial services industry, and Chapter 7 and Chapter
13 trustees. For the first objective, we reviewed available data on the
budgets of the Trustee Program and the federal judiciary for fiscal
years 2003 to 2009. We asked the Trustee Program and the judiciary to
provide estimates of their spending, including staff time, dedicated to
implementing the Bankruptcy Reform Act. We did not verify these
estimates, although we reviewed and analyzed them and we interviewed
the staff who provided the estimates to understand how they were
created. We determined that the estimates were sufficiently reliable
for our purposes. For the second objective, to determine changes in
attorney fees for Chapter 7 bankruptcy cases, we selected two random
and projectable samples of cases (from before and after the act) and
collected information on the attorney compensation, if any, from the
disclosure statements regarding compensation that are required to be
filed by debtors' attorneys[Footnote 2]. To determine changes in
attorney fees for Chapter 13 cases, we collected data on the standard
fees set by 48 judicial districts or divisions (a sublevel below that
of judicial district). These fees represent the amount most attorneys
charge consumers to handle a Chapter 13 case in those divisions or
districts. To determine costs associated with credit counseling and
debtor education courses, we obtained data from the Trustee Program and
a credit counseling trade organization and reviewed information we
collected previously for a report on that topic. [Footnote 3] To
determine changes in filing fees, we reviewed changes in fees made by
the Bankruptcy Reform Act and subsequent budget legislation. For the
third objective, we reviewed provisions of the Bankruptcy Reform Act
that affect private trustees' roles and responsibilities and the
Trustee Program's policy and procedure manuals for private trustees. We
also interviewed professional associations representing private
trustees and conducted individual and group interviews of,
collectively, 21 Chapter 7 and Chapter 13 private trustees, who were
chosen because they served in districts that represented a range of
sizes and geographic regions. A more extensive discussion of our scope
and methodology appears in appendix I.
We conducted this performance audit from June 2007 through June 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Results in Brief:
The Trustee Program and the federal judiciary have both incurred new
costs--mostly in staff resources--as a result of the Bankruptcy Reform
Act, but these costs are difficult to measure since it is not always
possible to isolate the amount of staff time devoted specifically to
implementing the act's requirements. At our request, the Trustee
Program estimated that for fiscal years 2005 through 2007, its costs
related to carrying out responsibilities resulting from the Bankruptcy
Reform Act were approximately $72.4 million, mostly for personnel. The
costs included $42.5 million to implement the means test, $6.1 million
related to credit counseling and debtor education requirements, and
$3.0 million to supervise and conduct debtor audits. Additional funds
were spent for studies, reporting requirements, and information
technology needs related to the act. The federal judiciary could not
isolate costs specifically resulting from the Bankruptcy Reform Act
since the act had a broad effect on nearly all bankruptcy court staff
and operations. However, the judiciary did estimate that $48.4 million
was incurred in costs for specific start-up activities associated with
the initial implementation of the act's requirements. The largest of
these costs was for staff time dedicated to revisions of the Bankruptcy
Rules, official forms, court operating procedures, and the courts'
electronic filing, docketing, and case management system. Other major
expenses were for training, statistical and reporting requirements, and
new responsibilities for the bankruptcy administrators who oversee
cases in certain districts. The cost estimates for the Trustee Program
and the judiciary do not incorporate the effect of the decline in
bankruptcy filings since the act, which presumably has helped reduce
their overall costs to some extent. As a result of the decline in
bankruptcy filings since the passage of the act, revenues from
bankruptcy-related filing and other fees declined between fiscal year
2005 and fiscal year 2007--from $74 million to $52 million for the
Trustee Program and from $237 million to $135 million for the federal
judiciary.
Since the implementation of the Bankruptcy Reform Act, there have been
increased costs to individual consumers filing for bankruptcy resulting
from higher attorney fees and filing fees, as well as new fees to meet
credit counseling and debtor education requirements. Based on a review
of legal fee disclosure forms in our random sample of Chapter 7
personal bankruptcy filings, we estimate that the average attorney fee
for a Chapter 7 case increased from $712 in February-March 2005 to
$1,078 in February-March 2007. The proportion of Chapter 7 debtors
filing without an attorney (pro se) was about 11 percent in February-
March 2005, according to our sample estimate, as compared to 5.9
percent in calendar year 2007, according to AOUSC data. We did not find
a statistically significant difference in the proportion of Chapter 7
debtors receiving free legal assistance between the 2 years. For
Chapter 13 cases, our review found the standard attorney fee approved
by courts (and which, in practice, is the fee Chapter 13 attorneys
typically charge their clients) rose in nearly all the districts and
divisions with such fees. In more than half of these cases, the
increase was 55 percent or more. The act raised Chapter 7 filing fees
by $65 and reduced Chapter 13 filing fees by $5. However, as a result
of further changes to filing fees made by the Deficit Reduction Act of
2005, total bankruptcy filing fees since 2005 have risen from $209 to
$299 for Chapter 7 filers and from $194 to $274 for Chapter 13 filers.
The act included a new provision allowing these filing fees to be
waived for qualified Chapter 7 debtors, and these fees were waived in
2.1 percent of Chapter 7 personal bankruptcy cases filed in fiscal year
2007. The Bankruptcy Reform Act also included a new requirement that
consumers receive credit counseling from an approved provider before
filing for bankruptcy and complete a debtor education course before
debts can be discharged. Most consumers pay about $100 to fulfill these
requirements since credit counseling and debtor education providers
typically charge about $50 per session, according to data from the
Trustee Program and other sources. The act requires that these services
be provided without regard to a client's ability to pay, but providers
vary significantly in their policies for waiving or reducing fees. To
address this variation, the Trustee Program issued a proposed rule in
February 2008 stating that a client's inability to pay for credit
counseling shall be presumed if the client's household income is less
than 150 percent of the poverty line.
The Bankruptcy Reform Act has affected the responsibilities and
caseloads of Chapter 7 and Chapter 13 private trustees. As a result of
new provisions in the act, trustees must collect, track, store, and
safeguard additional documents such as tax returns; notify appropriate
parties of domestic support obligations; check calculations and review
the accuracy of information in forms associated with the means test;
and, once finalized, will be required to comply with new requirements
for uniform final reports. Private trustees told us that these new
responsibilities have significantly increased the time and resources
required to administer a bankruptcy case. The $60 fee Chapter 7
trustees collect for each case they administer remained unchanged with
the passage of the Bankruptcy Reform Act. The caseload of private
trustees has declined since the act in concert with the decline in
filings. From fiscal years 2004 through 2007, Chapter 7 filings--
personal and business--declined from 1.2 million to 484,000, and
Chapter 13 filings declined from 454,412 to 310,802. However, the one-
time surge in filings that occurred just prior to the act helped offset
these declines in caseload since Chapter 7 trustees receive a portion
of assets liquidated and Chapter 13 trustees receive a portion of
payments to creditors, both of which can take several years to
complete. Our analysis of data provided by the Trustee Program showed
that Chapter 7 trustees collectively received an estimated $192 million
in total compensation in fiscal year 2005 and an estimated $212 million
in fiscal year 2007, while Chapter 13 trustees received about $31
million in fiscal year 2005 and about $32 million in fiscal year 2007.
Attrition among private trustees has not changed significantly since
the implementation of the Bankruptcy Reform Act, according to our
analysis of Trustee Program data, although the program is moving more
slowly to fill trustee vacancies given the reduced number of bankruptcy
filings.
We provided a draft of this report to the Administrative Office of the
United States Courts and the Department of Justice, which provided
technical comments that we incorporated as appropriate.
Background:
Bankruptcy is a federal court procedure designed to help both
individuals and businesses eliminate debts they cannot fully repay as
well as help creditors receive some payment in an equitable manner.
Individuals usually file for bankruptcy under one of two chapters of
the Bankruptcy Code. Under Chapter 7, the filer's eligible nonexempt
assets are reduced to cash and distributed to creditors in accordance
with distribution priorities and procedures set out in the Bankruptcy
Code. Under Chapter 13, filers submit a repayment plan to the court
agreeing to pay part or all of their debts over time, usually 3 to 5
years. Upon the successful completion of both Chapter 7 and 13 cases,
the filer's personal liability for eligible debts is discharged at the
end of the bankruptcy process, which means that creditors may take no
further action against the individual to collect any unpaid portion of
the debt. Most debtors who file for bankruptcy use an attorney, but
some debtors represent themselves without the aid of an attorney and
are referred to as pro se debtors.
The bankruptcy system is complex and involves entities in both the
judicial and executive branches of government (see fig. 1).
Figure 1: Overview of the Bankruptcy System:
[See PDF for image]
This figure is an illustration of an overview of the bankruptcy system,
as follows:
Judicial Branch:
* Judicial Conference of the United States;
* Administrative Office of the U.S. Courts;
* U.S. bankruptcy courts.
Executive Branch:
* Department of Justice;
* Executive Office for U.S. Trustees;
* U.S. Trustees;
* Private trustees.
Source: GAO analysis.
Note: While not shown in this graphic, the judicial branch oversees
private trustees in six judicial districts.
[End of figure]
Within the judicial branch, 90 federal bankruptcy courts have
jurisdiction over bankruptcy cases. The Administrative Office of the
United States Courts (AOUSC) serves as the central support entity for
federal courts, including bankruptcy courts, providing a wide range of
administrative, legal, financial, management, and information
technology functions. The Director of AOUSC is supervised by the
Judicial Conference of the United States, the judiciary's principal
policy-making body. Within the executive branch, the Trustee Program, a
component of the Department of Justice, is responsible for overseeing
the administration of most bankruptcy cases. The program consists of
the Executive Office for U.S. Trustees, which provides general policy
and legal guidance, oversees operations, and handles administrative
functions, as well as 95 field offices and 21 U.S. Trustees--federal
officials charged with supervising the administration of federal
bankruptcy cases.[Footnote 4] The Trustee Program appoints and
supervises approximately 1,400 private trustees, who are not government
employees, to administer bankruptcy estates and distribute payments to
creditors.[Footnote 5]
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was
signed into law on April 20, 2005, and most of its provisions became
effective on October 17, 2005. The following are among the most
significant changes the act made with respect to consumer bankruptcies:
* Means test. The act established a new means test to determine whether
a debtor is eligible to file under Chapter 7. If a debtor's current
monthly income minus allowable living expenses exceeds certain
thresholds, a Chapter 7 petition is presumed to be abusive and the
debtor may have to file under Chapter 11 or under Chapter 13 (which
requires repayment of at least a portion of outstanding debt over a
period of several years under a court-approved plan) or receive no
bankruptcy relief at all.[Footnote 6]
* Credit counseling and debtor education. The act created certain
counseling and education requirements for filers. To be a "debtor"
(that is, eligible to file for bankruptcy), an individual, except in
limited circumstances, must receive credit counseling from a provider
approved by the Trustee Program (or the bankruptcy administrator, if
applicable). In addition, prior to discharge of debts, debtors must
complete a personal financial management instructional course--
typically referred to as debtor education--from an approved provider.
[Footnote 7]
* Debtor audits. The act required that procedures be established for
independent audit firms to audit bankruptcy petitions, schedules, and
other information in consumer bankruptcy cases filed on or after
October 20, 2006. The act specified that the procedures should include
random audits of at least one out of every 250 bankruptcy cases in each
judicial district, as well as additional audits of cases with incomes
or expenditures above certain statistical norms.[Footnote 8]
* New reporting and data collection requirements. The act required that
the judiciary collect certain new aggregate statistics and report on
them annually beginning no later than July 1, 2008.[Footnote 9] The act
also required that the Attorney General--who delegated the authority to
the Trustee Program--draft rules requiring private trustees to submit
uniform final reports on individual bankruptcy cases that include
certain specified information about the case.[Footnote 10]
The Bankruptcy Reform Act was enacted, in part, to address certain
factors viewed as contributing to an escalation in bankruptcy filings.
As shown in figure 2, consumer bankruptcy filings in the United States
more than doubled between 1990 and 2004, with an average of more than
1.5 million people filing annually between 2001 and 2004. In the months
leading up to the effective date of the act (October 17, 2005),
bankruptcy filings rose dramatically because many consumers believed it
would be more difficult to receive bankruptcy protection once the act
went into effect.[Footnote 11] Immediately after the act went into
effect, filings fell substantially. Although filings have been rising
since that time, they are still well below historic levels, with about
823,000 Chapter 7 and Chapter 13 consumer bankruptcies reported in
calendar year 2007.
Figure 2: Number of Personal Bankruptcy Filings, Calendar Years 1990-
2007:
[See PDF for image]
This figure is a stacked vertical bar graph depicting the following
data:
Calendar year: 1990;
Chapter 7 filings: 506,940;
Chapter 13 filings: 208,666;
Total filings: 715,606.
Calendar year: 1991;
Chapter 7 filings: 617,359;
Chapter 13 filings: 251,883;
Total filings: 869,242.
Calendar year: 1992;
Chapter 7 filings: 643,538;
Chapter 13 filings: 254,138;
Total filings: 897,676.
Calendar year: 1993;
Chapter 7 filings: 568,415;
Chapter 13 filings: 241,464;
Total filings: 809,876.
Calendar year: 1994;
Chapter 7 filings: 537,551;
Chapter 13 filings: 240,639;
Total filings: 778,190.
Calendar year: 1995;
Chapter 7 filings: 597,048;
Chapter 13 filings: 276,225;
Total filings: 873,273.
Calendar year: 1996;
Chapter 7 filings: 779,741
Chapter 13 filings: 344,092
Total filings: 1,123,833.
Calendar year: 1997;
Chapter 7 filings: 957,117
Chapter 13 filings: 391,930
Total filings: 1,349,047.
Calendar year: 1998;
Chapter 7 filings: 1,007,920;
Chapter 13 filings: 389,398;
Total filings: 1,397,318.
Calendar year: 1999;
Chapter 7 filings: 904,564;
Chapter 13 filings: 376,311;
Total filings: 1,280,875.
Calendar year: 2000;
Chapter 7 filings: 838,885;
Chapter 13 filings: 378,400;
Total filings: 1,217,285.
Calendar year: 2001;
Chapter 7 filings: 1,031,490;
Chapter 13 filings: 419,750;
Total filings: 1,451,240.
Calendar year: 2002;
Chapter 7 filings: 1,087,602;
Chapter 13 filings: 450,516;
Total filings: 1,538,118.
Calendar year: 2003;
Chapter 7 filings: 1,156,274;
Chapter 13 filings: 467,999;
Total filings: 1,624,273.
Calendar year: 2004;
Chapter 7 filings: 1,117,766;
Chapter 13 filings: 444,428;
Total filings: 1,562,194.
Calendar year: 2005;
Chapter 7 filings: 1,631,011;
Chapter 13 filings: 407,322;
Total filings: 2,038,333.
Calendar year: 2006;
Chapter 7 filings: 349,012;
Chapter 13 filings: 248,430;
Total filings: 597,442.
Calendar year: 2007;
Chapter 7 filings: 500,613;
Chapter 13 filings: 321,359;
Total filings: 821,972.
Note: Excludes personal bankruptcy filings under Chapter 11. While most
bankruptcies filed under Chapter 11 involve a corporation or
partnership, individuals also can file under Chapter 11. From 1990
through 2007, fewer than 0.5 percent of personal bankruptcies were
filed under Chapter 11.
[End of figure]
Trustee Program Incurred Approximately $72 Million in Overall Costs,
and the Judiciary Approximately $48 Million in Start-up Costs, Related
to the Bankruptcy Reform Act:
The Trustee Program estimated its costs related to carrying out
responsibilities resulting from the Bankruptcy Reform Act to be
approximately $72.4 million in fiscal years 2005-2007, mostly in
personnel costs, to implement the means test and credit counseling and
debtor education requirements, conduct debtor audits, comply with
reporting requirements, establish information technology systems, and
expand facilities. The federal judiciary could not isolate costs
specifically resulting from the Bankruptcy Reform Act since the act had
a broad effect on nearly all bankruptcy court staff and operations, but
did estimate that $48.4 million was incurred in one-time costs
associated with start-up activities to implement the act's
requirements. The largest of these expenses related to necessary
revisions of the Bankruptcy Rules, official forms, and court operating
procedures. The cost estimates for the Trustee Program and the
judiciary do not incorporate the effect of the decline in bankruptcy
filings since the act, which presumably has helped reduce their overall
costs to some extent. However, this decline in filings also has
resulted in some reduction in fee revenues for the Trustee Program and
the judiciary.
In Fiscal Years 2005-2007, the Trustee Program Allocated about $72
Million for Responsibilities Resulting from the Bankruptcy Reform Act:
Based on estimates developed at our request, the Trustee Program
allocated approximately $72.4 million in fiscal years 2005 through 2007
to carry out responsibilities resulting from the Bankruptcy Reform Act.
[Footnote 12] The majority of these costs represented staff time
dedicated to new tasks required by the act.[Footnote 13] In some cases,
the Trustee Program hired new staff--including 156 bankruptcy analysts,
attorneys, paralegals, and other administrative and information
technology personnel hired as of October 1, 2007--to fulfill new
responsibilities. In other cases, the program reallocated the time and
responsibilities of existing staff to meet the requirements of the act.
While the scope of this report is largely limited to describing costs
incurred through fiscal year 2007, many or most of those costs are for
ongoing tasks that will continue in fiscal year 2008 and beyond.
These cost estimates are approximate for two major reasons. First, the
Bankruptcy Reform Act had a broad impact on the agency's overall
operations, and thus it is difficult to isolate staff time devoted
specifically to elements of the act. Second, although the cost of
overseeing each bankruptcy filing may have increased, to some extent
this has been offset by the significant decline in the number of
bankruptcy filings following the act, and the net effect on overall
costs is difficult to measure.
As shown in table 1, the Trustee Program's most significant costs
resulting from the Bankruptcy Reform Act for fiscal years 2005 through
2007 were related to the means test ($42.5 million), credit counseling
and debtor education requirements ($6.1 million), debtor audits ($3.0
million), studies and reporting requirements ($5.6 million),
information technology ($13.7 million), and facilities expansion ($1.5
million).
* Means test. As of October 1, 2007, the Trustee Program had hired 127
new staff for duties related to the means test, including attorneys who
litigate cases and paralegals, bankruptcy analysts, and legal clerks
who review the bankruptcy petition, supporting forms, and financial
materials filed by every individual debtor in a Chapter 7 case to
identify whether the case is "presumed abusive."[Footnote 14] This
involves an initial review of each debtor's income, a more thorough
review of debtors with income exceeding the state median, and any
related litigation. The program estimated it allocated $15.76 million
in fiscal year 2006 and $26.7 million in fiscal year 2007 to
implementing the means test.[Footnote 15]
* Credit counseling and debtor education. The Trustee Program
established a separate unit responsible for developing application
forms and procedures, approving and monitoring approved credit
counseling and debtor education agencies, and taking steps to help
ensure that filers were meeting the new requirements. The program
initially used detailees from field offices to staff this unit until
permanent staff could be hired. The program estimated its costs related
to credit counseling and debtor education to be approximately $6.1
million for fiscal years 2005 through 2007.
* Debtor audits. The Trustee Program had to develop procedures for the
audits described in the act. The program contracted with and supervised
six third-party auditors, who completed nearly 4,000 debtor audits
during fiscal year 2007. The program obligated $2.6 million in fiscal
year 2007 for audit contracts. The Trustee Program estimated that staff
time allocated to developing audit procedures and overseeing
contractors cost $160,000 in fiscal year 2006 and $280,000 in fiscal
year 2007.[Footnote 16]
* Studies and reporting requirements. The Trustee Program estimated the
costs of the act's various studies and reporting requirements--which
include reports on the results of debtor audits and a study of the
effectiveness of debtor education--to have been approximately $263,363
in fiscal year 2005, $3.15 million in fiscal year 2006, and $2.21
million in fiscal year 2007.[Footnote 17]
* Information technology. The Trustee Program created several new data
systems--including the Means Test Review Management System, Credit
Counseling/Debtor Education Tracking System, and Debtor Audit
Management System--and modified or updated several others. According to
Trustee Program officials, these efforts cost $1.9 million in fiscal
year 2005, $7.2 million in fiscal year 2006, and $4.6 million in fiscal
year 2007.[Footnote 18]
* Facilities expansion. To accommodate the additional staff hired as a
result of the act, the Trustee Program expanded numerous offices. The
expansion involved one-time build-out costs, for which the Trustee
Program spent $1.42 million in fiscal year 2006 and $69,863 in fiscal
year 2007.[Footnote 19]
Table 1: Trustee Program's Estimated Allocation for Activities
Resulting from the Bankruptcy Reform Act, Fiscal Years 2005-2007:
Dollars in thousands:
Category: Means test;
Fiscal year: 2005: $[A];
Fiscal year: 2006: $15,760;
Fiscal year: 2007: $26,700;
Fiscal year: 2005-2007: $42,460.
Category: Credit counseling and debtor education;
Fiscal year: 2005: $531;
Fiscal year: 2006: $3,014;
Fiscal year: 2007: $2,532;
Fiscal year: 2005-2007: $6,077.
Category: Debtor audits;
Fiscal year: 2005: 0;
Fiscal year: 2006: $160;
Fiscal year: 2007: $2,880;
Fiscal year: 2005-2007: $3,040.
Category: Studies and reporting requirements;
Fiscal year: 2005: $263;
Fiscal year: 2006: $3,150;
Fiscal year: 2007: $2,211;
Fiscal year: 2005-2007: $5,624.
Category: Information technology;
Fiscal year: 2005: $1,900;
Fiscal year: 2006: $7,200;
Fiscal year: 2007: $4,600;
Fiscal year: 2005-2007: $13,700.
Category: Facilities expansion;
Fiscal year: 2005: 0;
Fiscal year: 2006: $1,422;
Fiscal year: 2007: $70;
Fiscal year: 2005-2007: $1,492.
Category: Total cost;
Fiscal year: 2005: $2,694;
Fiscal year: 2006: $30,706;
Fiscal year: 2007: $38,993;
Fiscal year: 2005-2007: $72,393.
Source: GAO analysis of data provided by the Trustee Program.
Note: In some cases, these estimated allocations represent staff time
and other resources dedicated to a given initiative or activity, and
not necessarily actual obligations or dollar outlays. The allocations
for a given fiscal year were not always obligated in that year.
[A] Costs associated with the means test for fiscal year 2005 were not
available since staff time associated with that function could not be
isolated during that time period.
[End of table]
As of December 2007, the Federal Judiciary Had Dedicated Approximately
$48 Million in Start-up Costs to Implement the Bankruptcy Reform Act:
The Bankruptcy Reform Act had a significant effect on the operations of
AOUSC and the bankruptcy courts. However, unlike the Trustee Program,
where the act resulted in several discrete new functions and tasks, the
impact on the judiciary has been more diffuse. In congressional
testimony, a representative of the Judicial Conference noted that the
act created new docketing, noticing, and hearing requirements that make
addressing bankruptcy cases more complex and time-consuming.[Footnote
20] In its fiscal year 2008 congressional budget justification, the
judiciary estimated that as a result of the Bankruptcy Reform Act, it
takes at least 10 percent more time to process a bankruptcy case. New
or expanded tasks relate to additional petition documents, an increased
number of motions and hearings, and new procedures associated with such
things as rent deposits, tax return filings, and petitions to waive
filing fees.
Because of the broad impact the Bankruptcy Reform Act has had on
bankruptcy court staff and operations--affecting nearly all aspects of
court operations and staff responsibilities and tasks--AOUSC could not
readily differentiate costs resulting from the act ("new costs") from
those costs incurred in everyday operations. Therefore, it did not
provide us with estimates of the costs associated with any additional
staff time needed to process a case resulting from the act. Further, as
noted earlier, it is difficult to determine the extent to which new
costs related to the act may be offset by overall cost savings
associated with the decline in bankruptcy filings following the act.
However, at our request, AOUSC did estimate that as of December 2007,
$48.4 million was incurred for specific start-up activities to
implement the act, which included $47.2 million in staff time and $1.2
million for travel, equipment, and contractors.[Footnote 21]
As shown in table 2, these costs were incurred for the following
functions:
* Revision of rules, forms, and procedures. The judiciary estimated
that it spent approximately $32.5 million revising the Bankruptcy
Rules, official forms, and court operating procedures to reflect
provisions of the Bankruptcy Reform Act. About 98 percent of this
amount was attributed to staff time and the remainder to travel and
other expenses related to changes in the courts' case management
system.
* Training and communication to courts. The judiciary estimated that it
spent about $7.3 million to disseminate information on changes made by
the act--through training and other means--to judges, clerks,
bankruptcy administrators, and other personnel. The judiciary used
broadcasts over the Federal Judicial Television Network, conference
calls, national workshops and conferences, and the Internet to conduct
training and make the information available. About 98 percent of the
costs related to training and communication was for staffing.
* Bankruptcy administrator responsibilities. As noted earlier, in the
six judicial districts in North Carolina and Alabama, the bankruptcy
administrator program, rather than the Trustee Program, oversees the
administration of bankruptcy cases. AOUSC estimated that the bankruptcy
administrators' offices incurred an estimated $3.6 million in expenses
for activities similar to those described above for the Trustee
Program.
* Statistical and reporting responsibilities. The judiciary spent about
$2.8 million--88 percent for staffing costs--on statistical and
reporting responsibilities, which required revisions to the courts'
electronic filing, docketing, and case management system. To prepare
its annual statistical reports, the judiciary modified its electronic
database and statistical infrastructure, reprogrammed software to
accept new data elements, and prepared additional tables to conform to
the statistical reporting required by the act. The judiciary also
prepared several reports required by the act, including a report to
Congress outlining the courts' procedures for safeguarding the
confidentiality of filers' tax information.
* Other items. The judiciary spent an estimated $2 million on other
activities related to the implementation of the act, of which about 98
percent was for staffing costs. These activities included revisions to
studies to determine staffing needs and the revision and updating of
publications and manuals for external parties.
Table 2: Federal Judiciary's Estimate of Start-up Costs to Implement
the Bankruptcy Reform Act, as of December 2007:
Dollars in thousands:
Activity: Revision of rules, forms, and procedures;
Staffing costs (based on estimated full-time equivalents dedicated to
task): $32,020;
Other costs: $512;
Total costs: $32,532.
Activity: Training and communication to courts;
Staffing costs (based on estimated full-time equivalents dedicated to
task): $7,185;
Other costs: $151;
Total costs: $7,336.
Activity: Bankruptcy administrator responsibilities;
Staffing costs (based on estimated full-time equivalents dedicated to
task): $3,520;
Other costs: $112;
Total costs: $3,632.
Activity: Statistical and reporting responsibilities;
Staffing costs (based on estimated full-time equivalents dedicated to
task): $2,432;
Other costs: $343;
Total costs: $2,775.
Activity: Other items;
Staffing costs (based on estimated full-time equivalents dedicated to
task): $2,080;
Other costs: $34;
Total costs: $2,114.
Activity: Total cost;
Staffing costs (based on estimated full-time equivalents dedicated to
task): $47,237;
Other costs: $1,152;
Total costs: $48,389.
Source: GAO analysis of data provided by AOUSC.
[End of table]
As a Result of Fewer Filings Since the Bankruptcy Reform Act, Revenues
from Bankruptcy Filing Fees Have Declined:
Revenues to the Trustee Program and federal judiciary from bankruptcy
filing fees and other fees have declined since the implementation of
the Bankruptcy Reform Act due to the reduction in the number of
bankruptcy filings.
Trustee Program:
Since 1997, the Trustee Program has been entirely self-funded from a
portion of the filing fees paid by bankruptcy debtors, which are
deposited in the U. S. Trustee System Fund.[Footnote 22] As shown in
figure 3, the Trustee Program's filing fee revenues (excluding Chapter
11 quarterly fees) have declined since the Bankruptcy Reform Act--from
$68 million and $74 million in fiscal years 2004 and 2005,
respectively, to $58 million and $52 million in fiscal years 2006 and
2007.[Footnote 23] The Bankruptcy Reform Act and subsequent budget
legislation increased bankruptcy filing fees, as discussed later in
this report. In addition, the Bankruptcy Reform Act changed the portion
of the filing fee allocated to various parties.[Footnote 24] The net
effect was that the amount received by the Trustee Program for each
Chapter 7 filing increased from $42.50 to $89 while the amount received
by the program for each Chapter 13 filing remained unchanged at $42.50.
However, the decline in the number of consumer bankruptcy filings since
the implementation of the act offset the increase in revenue per
Chapter 7 case. As we discussed previously, the number of filings in
2006 and 2007 was less than half the annual number of filings in the
years just prior to the act. To a more limited extent, Trustee Program
revenues also have been affected by a provision of the act that allows
the court to waive the Chapter 7 filing fee for debtors below certain
income thresholds[Footnote 25]. Chapter 7 filing fees were waived for
2.1 percent of cases in fiscal year 2007, according to data provided by
AOUSC.
Figure 3: Trustee Program's Filing Fee Revenues, Fiscal Years 2004-
2009:
[See PDF for image]
This figure is a vertical bar graph depicting the following data:
Fiscal year: 2004;
Filing fee revenues: $67.9 million.
Fiscal year: 2005;
Filing fee revenues: $73.9 million.
Fiscal year: 2006;
Filing fee revenues: $57.9 million.
Fiscal year: 2007;
Filing fee revenues: $51.3 million.
Fiscal year: 2008(projected);
Filing fee revenues: $70.4 million.
Fiscal year: 2009(projected);
Filing fee revenues: $82.9 million.
Source: Trustee program.
Note: These revenues represent fees paid at the time of filing received
by the Trustee Program for personal and business bankruptcies under
Chapters 7, 11, and 13.
[End of figure]
The Trustee Program may expend the funds in the U.S. Trustee System
Fund as appropriated by Congress. In its annual budget request to
Congress, the Trustee Program provides an estimate of its filing fee
revenues, based on the anticipated number of bankruptcy filings. In
years where the actual amount of fee revenues deposited in the U.S.
Trustee System Fund is greater than the amount appropriated for that
year, the excess fee revenue remains in the fund and is available until
expended.[Footnote 26] Accordingly, in years where the actual amount of
fee revenues falls short of the amount appropriated for that year, the
program may draw down monies from the fund. In fiscal years 2006 and
2007, the program drew down about $44 million and $92 million,
respectively, from the U.S. Trustee System Fund, with congressional
approval, to allow the program to operate at appropriated levels. In
its 2009 budget request, the Trustee Program stated it expected
bankruptcy filings to increase in the coming years and estimated its
fee revenues would rise to approximately $70 million and $83 million
for fiscal years 2008 and 2009, respectively.
Federal Judiciary:
Funding for the federal judiciary comes from appropriations that are
funded from filing and other fees, as well as "carry forward" balances
from prior years.[Footnote 27] The judiciary receives revenues from a
portion of the fee charged for filing a bankruptcy petition, as well as
from certain administrative fees and fees charged for filing certain
motions.[Footnote 28] The portion of the statutory filing fee received
by the judiciary for each Chapter 7 bankruptcy petition increased from
$52.50 to $63.51 and the portion received for each Chapter 13 petition
remained unchanged at $52.50. In addition, the "miscellaneous
administrative fee" paid to the courts by debtors in all bankruptcy
cases remained at $39.
However, as with the Trustee Program, the decline in the number of
bankruptcy filings (and to a lesser extent the provision allowing fee
waivers in a limited number of cases) resulted in a reduction in the
judiciary's overall bankruptcy fee revenues. As shown in figure 4, the
judiciary's bankruptcy-related fee revenues declined from $221 million
and $237 million in fiscal years 2004 and 2005, respectively, to $168
million and $135 million in fiscal years 2006 and 2007.[Footnote 29]
According to an AOUSC official, the reduction in bankruptcy fee
revenues is offset by increases in appropriated funds. AOUSC officials
have estimated that fee revenues will be $158 million in fiscal year
2008 and $172 million in fiscal year 2009.
Figure 4: Federal Judiciary's Bankruptcy Fee Revenues, Fiscal Years
2004-2009:
[See PDF for image]
This figure is a vertical bar graph depicting the following data:
Fiscal year: 2004;
Bankruptcy fee revenues: $221 million.
Fiscal year: 2005;
Bankruptcy fee revenues: $237 million.
Fiscal year: 2006;
Bankruptcy fee revenues: $168 million.
Fiscal year: 2007;
Bankruptcy fee revenues: $135 million.
Fiscal year: 2008(projected);
Bankruptcy fee revenues: $158 million.
Fiscal year: 2009(projected);
Bankruptcy fee revenues: $172 million.
Source: AOUSC.
Note: These revenues represent all statutory fees and miscellaneous
fees received by the judiciary for personal and business bankruptcies
under Chapters 7, 9, 11, 12, 13, and 15.
[End of figure]
Cost to Bankruptcy Filers Has Risen Due to Increased Legal and Filing
Fees and New Counseling and Education Requirements:
Based on our sample of bankruptcy files, we estimate that the average
attorney fee for a Chapter 7 case has increased roughly 50 percent
since the Bankruptcy Reform Act. The proportion of Chapter 7 debtors
filing without attorney representation (pro se) appears to have
declined, but we did not find a change in the proportion of Chapter 7
debtors receiving free legal assistance. For Chapter 13 cases, our
analysis found the standard attorney fees that individual courts
approve rose in nearly all the districts and divisions with such fees
that we reviewed. Due to changes made by the Bankruptcy Reform Act and
the Deficit Reduction Act of 2005, bankruptcy filing fees have risen by
$90 and $80 for Chapter 7 and Chapter 13 filers, respectively. Fees
related to the new credit counseling and debtor education requirements
typically total about $100.
Average Attorney Fees Have Risen an Estimated 51 Percent for Chapter 7
Filings and Many Courts Have Approved Attorney Fee Increases for
Chapter 13 Filings:
Most debtors hire an attorney when seeking bankruptcy relief, and
bankruptcy attorneys typically charge a fixed fee to handle a consumer
bankruptcy case. Anecdotal evidence from a variety of stakeholders--
including organizations representing bankruptcy attorneys, private
trustees, and consumers--indicated that legal fees associated with
seeking consumer bankruptcy relief have risen significantly since the
effective date of the Bankruptcy Reform Act. According to bankruptcy
attorneys and other parties involved in the process, significantly more
legal work is required to meet the requirements of the new law. For
example, satisfying the new means test for a bankruptcy filing requires
completing a lengthy form that includes various calculations of the
debtor's income and expenses. Attorneys also must collect additional
documents from the debtor--such as pay stubs and tax returns--to
satisfy new documentation requirements, and ensure compliance with new
provisions related to credit counseling and domestic support
obligations.[Footnote 30] Bankruptcy cases since the act typically have
involved a greater number of motions and hearings, according to AOUSC
officials, which further can increase the time an attorney spends on a
case. Finally, new provisions in the act require attorneys to attest to
the accuracy of information in bankruptcy petitions.[Footnote 31] Some
parties have said that concerns about increased liability may have
affected legal costs, but others have said this has not been a
significant factor.
Chapter 7 Attorney Fees:
To estimate how legal fees for Chapter 7 consumer bankruptcy cases may
have changed since the implementation of the Bankruptcy Reform Act, we
reviewed disclosures of legal fees contained in a nationwide random
sample of 468 Chapter 7 consumer bankruptcy filings.[Footnote 32] Our
sample included 176 cases filed in February and March 2005--prior to
the act's enactment--and 292 cases filed in February and March 2007--
more than 15 months after the act went into effect.[Footnote 33] The
fee disclosure form that we reviewed does not necessarily constitute a
full or final accounting of compensation actually paid, but rather
states the amount the attorney agreed to accept.[Footnote 34] However,
bankruptcy attorneys, private trustees, and representatives of AOUSC
and the National Association of Consumer Bankruptcy Attorneys with whom
we spoke told us that the fee amount in these disclosures typically
represents the actual amount paid by the debtor.
As shown in figure 5, on the basis of our sample we estimate that the
average attorney fee in Chapter 7 consumer bankruptcy cases was $712 in
February-March 2005 and $1,078 in February-March 2007.[Footnote 35] The
average fee therefore increased by $366--or 51 percent--during this 2-
year period.[Footnote 36] (These averages include only cases in which
the debtor paid an attorney; they exclude those cases in which the
debtor filed without an attorney or received legal assistance at no
charge. We discuss pro se and pro bono cases later in this report.)
Figure 5: Estimated Average Attorney Fee for Chapter 7 Personal
Bankruptcy Cases, February-March 2005 and February-March 2007:
[See PDF for image]
This figure is a vertical bar graph depicting the following data:
Date: February - March, 2005;
Estimated average attorney fee: $712;
Estimated 95% confidence interval: $650-$800.
Date: February - March, 2007;
Estimated average attorney fee: $1,078;
Estimated 95% confidence interval: $1,000-$1,100.
Source: GAO analysis of sample data from Chapter 7 consumer bankruptcy
files.
Note: The lines within the bars represent the 95 percent confidence
intervals for fee estimates.
[End of figure]
Within each time period, the attorney fees showed considerable
variability, but the increase in fees was evident across all fee
ranges. For cases filed in February-March 2005, the fee was less than
$750 in 59 percent of cases, from $750 to $999 in 27 percent of cases,
and $1,000 or more in 14 percent of cases. For cases filed in February-
March 2007, the fee was less than $750 in 20 percent of cases, from
$750 to $999 in 28 percent of cases, and $1,000 or more in 52 percent
of cases. Further, the fee exceeded $1,499 in 18 percent of cases in
the 2007 time frame, as compared with 3 percent of cases in the 2005
time frame. Figure 6 illustrates the estimated frequency of these
attorney fees.
Figure 6: Estimated Frequency of Attorney Fees for Chapter 7 Personal
Bankruptcy Cases, February-March 2005 and February-March 2007:
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
data.
Frequency of fees, less than $500:
Date: February - March, 2005: 20.4% (95% confidence interval: 15-28%);
Date: February - March, 2007: 2.2% (95% confidence interval: 1-5%).
Frequency of fees, $500 to $749:
Date: February - March, 2005: 38.2% (95% confidence interval: 32-46%);
Date: February - March, 2007: 17.8% (95% confidence interval: 15-23%).
Frequency of fees, $750-$999:
Date: February - March, 2005: 27% (95% confidence interval: 20-35%);
Date: February - March, 2007: 28.2% (95% confidence interval: 23-34%).
Frequency of fees, $1,000-$1,249:
Date: February - March, 2005: 10.5% (95% confidence interval: 6-16%);
Date: February - March, 2007: 25.6 (95% confidence interval: 21-31%).
Frequency of fees, $1,250-$1499:
Date: February - March, 2005: 1.3% (95% confidence interval: 0-5%);
Date: February - March, 2007: 8.2% (95% confidence interval: 6-12%).
Frequency of fees, $1,500 or more:
Date: February - March, 2005: 2.6% (95% confidence interval: 1-7%);
Date: February - March, 2007: 18.2 (95% confidence interval: 15-23%).
Source: GAO analysis of sample data from Chapter 7 consumer bankruptcy
files.
Note: The lines within the bars represent the 95 percent confidence
intervals for fee estimates.
[End of figure]
Chapter 13 Attorney Fees:
To determine the impact of the Bankruptcy Reform Act on legal fees paid
for Chapter 13 bankruptcy cases, we collected and analyzed information
on how standard attorney fees have changed since the effective date of
the act. These fees--which often are also referred to as either
"presumptively reasonable" or "no-look" fees--are fee amounts that
individual courts have predetermined as reasonable compensation to an
attorney representing a Chapter 13 debtor. An attorney who seeks to
collect a fee up to that predetermined amount does not need to apply
for court approval of the fee.[Footnote 37] Such fees are used widely
throughout the country for Chapter 13 cases and can be uniform across
an entire judicial district or can vary by division or individual
judge.[Footnote 38] According to many of the participants with whom we
spoke--including attorneys, private trustees, and court personnel--in
locations with an established fee, that amount represents the actual
fee attorneys charge Chapter 13 bankruptcy filers in the majority of
cases.
We collected information on the standard fees in place before and after
the Bankruptcy Reform Act in 48 districts or divisions that
collectively accounted for 65 percent of Chapter 13 filings in fiscal
year 2007.[Footnote 39] For each of these districts or divisions, we
gathered data on the amount of the standard fee, if any, as of (1)
October 2005, just prior to the effective date of the Bankruptcy Reform
Act; and (2) February 2008, which was more than 2 years after the act
had been in effect.[Footnote 40] Of the 48 districts or divisions we
reviewed, 42 had court-set standard fees as of October 2005 and 41 had
them as of February 2008.
Our analysis found that the Chapter 13 standard fee had increased in
nearly all the districts and divisions with such fees. In more than
half of those districts and divisions, the increase was 55 percent or
more. As shown in figure 7, just prior to implementation of the act,
standard fees ranged from $1,500 to $3,000 (with a median of $2,000).
As of February 2008, the standard fees ranged from $1,800 to $4,000
(with a median of $3,000)[Footnote 41]. (See app. II for the full list
of standard fees in these selected districts and divisions.)
Figure 7: Standard, Court-Set Chapter 13 Attorney Fees before and after
the Bankruptcy Reform Act in Selected Judicial Districts and Divisions:
[See PDF for image]
This figure is a multiple vertical bar graph depicting the following
data:
Attorney fees: $1,500;
Number of districts or divisions, before the Bankruptcy Reform Act: 8;
Number of districts or divisions, after the Bankruptcy Reform Act: 0.
Attorney fees: $1,501 to $1,999;
Number of districts or divisions, before the Bankruptcy Reform Act: 11;
Number of districts or divisions, after the Bankruptcy Reform Act: 1.
Attorney fees: $2,000 to $2,499;
Number of districts or divisions, before the Bankruptcy Reform Act: 9;
Number of districts or divisions, after the Bankruptcy Reform Act: 3.
Attorney fees: $2,500 to $2,999;
Number of districts or divisions, before the Bankruptcy Reform Act: 12;
Number of districts or divisions, after the Bankruptcy Reform Act: 7.
Attorney fees: $3,000 to $3,499;
Number of districts or divisions, before the Bankruptcy Reform Act: 2;
Number of districts or divisions, after the Bankruptcy Reform Act: 16.
Attorney fees: $3,500 to $3,999;
Number of districts or divisions, before the Bankruptcy Reform Act: 0;
Number of districts or divisions, after the Bankruptcy Reform Act: 8.
Attorney fees: $4,000 and up;
Number of districts or divisions, before the Bankruptcy Reform Act: 0;
Number of districts or divisions, after the Bankruptcy Reform Act: 6.
Source: GAO analysis of the standard fees set by bankruptcy courts in
selected judicial districts or divisions.
[End of figure]
Several of the local rules and administrative orders that raised the
standard fees specifically cited the Bankruptcy Reform Act as the
reason for the change. For example, one order noted that the act's
amendments "have had a material effect on the amount of time attorneys
must devote to the representation of a Chapter 13 debtor" and that
"many tasks which formerly might have been delegated to [nonattorney
professionals, such as a paralegal] must now be handled personally by
an attorney."[Footnote 42] Similarly, several of the Chapter 13
trustees with whom we spoke told us that the standard fees were
increased as a direct result of the act, which had increased the
average amount of time an attorney spent on each case.
Although legal fees associated with seeking consumer bankruptcy relief
have risen since the Bankruptcy Reform Act went into effect, in some
cases creditors rather than debtors bear the true financial costs of
the fee increase. For example, in many Chapter 13 cases, debtors enter
a repayment plan in which only part of their total debt is paid to
creditors and the rest is discharged. Approved claims for Chapter 13
attorneys' fees are paid out of the debtor's estate as an
administrative claim--which are to be paid before most unsecured
claims.[Footnote 43] As a result, in a Chapter 13 bankruptcy case with
a partial repayment plan, it may be the unsecured creditors rather than
the debtor who absorb the cost of higher attorney fees.
Pro Se Filings:
According to data from AOUSC, 6.3 percent of Chapter 13 cases and 5.9
percent of Chapter 7 cases were filed pro se (without an attorney) in
calendar year 2007, which was the first year that the agency collected
complete data on pro se filings.[Footnote 44] The proportion of
bankruptcy cases filed pro se varied substantially across judicial
districts. For example, fewer than 2 percent of Chapter 7 cases were
filed pro se in 25 districts, while more than 10 percent were filed pro
se in another 16 districts. Some bankruptcy attorneys, consumer
advocates, and bankruptcy court staff told us that based on anecdotal
evidence, they believed that the overall proportion of bankruptcy
petitioners filing pro se had increased since the Bankruptcy Reform
Act, in large part because increases in legal fees made hiring an
attorney less affordable. However, data from our sample of Chapter 7
consumer case files and from AOUSC suggest that the proportion of
Chapter 7 bankruptcy cases filed pro se may actually have declined
since the act. We estimate that 11 percent of Chapter 7 consumer cases
were filed pro se in February-March 2005, compared with the 5.9 percent
of Chapter 7 cases that AOUSC reported were filed pro se in calendar
year 2007.[Footnote 45]
Debtors who file for bankruptcy without an attorney sometimes use the
services of a nonattorney "bankruptcy petition preparer" to assist them
in filing the petition.[Footnote 46] Of the 19 cases filed pro se in
our sample of Chapter 7 filings in February-March 2005, 15 were
prepared by a nonattorney petition preparer; fee information was
available for 9 of those cases and the average fee was $179. Of the
nine cases filed pro se in our sample of Chapter 7 filings in February-
March 2007, seven were prepared by a non-attorney petition preparer and
the average fee was $302. (Because of the small sample size, these
figures cannot be projected beyond the sample to all Chapter 7 petition
preparer fees.)
Pro Bono Services:
Various local legal services providers throughout the country employ
staff attorneys who assist clients or match clients with private
attorneys who volunteer their time to provide legal services at a
discount or at no cost (pro bono). We spoke with providers at five
agencies that provide legal services to bankruptcy filers, as well as a
representative of the American Bar Association's Center for Pro Bono,
about the effect the Bankruptcy Reform Act has had on the availability
of pro bono services. In general, they said that fewer attorneys have
been willing to volunteer their services to assist bankruptcy filers
since the act went into effect, largely due to the increased time and
responsibilities required to handle a bankruptcy case. As a result,
clients must sometimes wait longer for a referral and one agency noted
it had reduced the number of clients for whom it provided pro bono
assistance.
We did not find a statistically significant difference in the
proportion of Chapter 7 bankruptcy filers receiving free legal services
since implementation of the Bankruptcy Reform Act. We estimate that 2.8
percent of filers received free legal services in February-March 2005,
compared with 4.5 percent of cases filed in February-March 2007.
[Footnote 47] (Additional filers may have received legal services at a
discounted fee.) These findings do not necessarily contradict the
anecdotal evidence that fewer attorneys may be offering pro bono
bankruptcy services, because the decline in the number of bankruptcy
filings since the act may diminish the effect of the reduced supply of
such services.
Bankruptcy Reform Act Changed Filing Fees and Permitted Fee Waivers:
As shown in tables 3 and 4, as a result of changes made in the
Bankruptcy Reform Act and the subsequent Deficit Reduction Act of 2005,
the total fees paid at the time of filing a bankruptcy petition under
Chapter 7 rose from $209 to $299--an increase of $90. The total fees
paid for cases under Chapter 13 rose from $194 to $274--an increase of
$80. The total fees paid to file for bankruptcy protection include both
statutory fees and "miscellaneous" fees, which are set by the Judicial
Conference of the United States pursuant to statutory authority.
[Footnote 48] The Bankruptcy Reform Act, as amended, increased the
statutory filing fee from $155 to $220 for Chapter 7 cases and
decreased the statutory filing fee from $155 to $150 for Chapter 13
cases.[Footnote 49] Subsequently, the Deficit Reduction Act, which was
signed into law on February 8, 2006, raised these statutory filing fees
from $220 to $245 for Chapter 7 cases and from $150 to $235 for Chapter
13 cases.[Footnote 50] The "miscellaneous administrative fee" of $39
paid by all filers and the "miscellaneous fee for Chapter 7 trustees"
of $15 paid by filers in a Chapter 7 case were not affected by either
piece of legislation.
Table 3: Changes in Chapter 7 Filing Fees Resulting from the Bankruptcy
Reform Act and the Deficit Reduction Act of 2005:
Chapter 7: Before the Bankruptcy Reform Act;
Statutory fee: $155;
Miscellaneous administrative fee: $39;
Miscellaneous fee for Chapter 7 trustees: $15;
Total filing fee: $209.
Chapter 7: As modified by the Bankruptcy Reform Act, as amended;
Statutory fee: $220;
Miscellaneous administrative fee: $39;
Miscellaneous fee for Chapter 7 trustees: $15;
Total filing fee: $274.
Chapter 7: As modified by the Deficit Reduction Act of 2005;
Statutory fee: $245;
Miscellaneous administrative fee: $39;
Miscellaneous fee for Chapter 7 trustees: $15;
Total filing fee: $299.
Source: 28 U.S.C. § 1930(a) as amended.
[End of table]
Table 4: Changes in Chapter 13 Filing Fees Resulting from the
Bankruptcy Reform Act and the Deficit Reduction Act of 2005:
Chapter 13: Before the Bankruptcy Reform Act;
Statutory fee: $155;
Miscellaneous administrative fee: $39;
Total filing fee: $194.
Chapter 13: As modified by the Bankruptcy Reform Act, as amended;
Statutory fee: $150;
Miscellaneous administrative fee: $39;
Total filing fee: $189.
Chapter 13: As modified by the Deficit Reduction Act of 2005;
Statutory fee: $235;
Miscellaneous administrative fee: $39;
Total filing fee: $274.
Source: 28 U.S.C. § 1930(a) as amended.
[End of table]
However, the Bankruptcy Reform Act also contains a provision that
allows the bankruptcy court to waive the filing fee in a Chapter 7
filing if the court determines that the filer has (1) an income of less
than 150 percent of the income official poverty line (as defined in the
Bankruptcy Code), and (2) the debtor is unable to pay the fee in
installments.[Footnote 51] Prior to the Bankruptcy Reform Act,
bankruptcy courts had no authority to waive filing fees. Courts waived
Chapter 7 filing fees in 2.1 percent of cases filed during fiscal year
2007, according to data provided by AOUSC.
Required Credit Counseling and Education Cost about $100, and Fees Are
Waived for Consumers Unable to Pay:
As noted earlier, the Bankruptcy Reform Act required that individuals
receive credit counseling before filing for bankruptcy and take a
debtor education course before having debts discharged.[Footnote 52]
Information from a variety of sources indicates that most providers
charge around $50 each, or slightly less, for the required credit
counseling and debtor education sessions--a total of about $100 to
fulfill both requirements.[Footnote 53] During the summer of 2007, the
Trustee Program's Credit Counseling and Debtor Education Unit collected
and analyzed fee information from agencies approved to provide
prefiling credit counseling and predischarge debtor education. The
unit's review found that the median fee for credit counseling was $50
for an individual and $50 for a couple among the 156 approved credit
counseling providers that charged a fee and for whom data were
available.[Footnote 54] An additional three credit counseling providers
charged no fee. For debtor education, the reports indicated that the
median fee was $50 for an individual and $55 for a couple for 81
approved debtor education providers that charged a fee and for whom
data were available. An additional 20 debtor education providers
charged no fee. The National Foundation for Credit Counseling, which
periodically collects fee data from its members, reported similar
findings.[Footnote 55] The average prefiling credit counseling fee
charged by the 68 member agencies that provided data to the National
Foundation for Credit Counseling was $46.05 during the period from July
1 to September 30, 2007.[Footnote 56] Further, in our April 2007 report
on credit counseling and debtor education, we reported that each of
three largest providers of prefiling credit counseling--which together
had issued about half of all certificates as of October 2006--charged
exactly $50 for an individual credit counseling or debtor education
session.[Footnote 57] In a few cases, we identified smaller counseling
and education providers with higher fees, such as $75 per session.
The Bankruptcy Reform Act requires that in order to become an approved
provider of credit counseling or debtor education, any fee charged by
such provider must be reasonable. However, the act did not specify
criteria for determining whether a fee amount is "reasonable." On
February 1, 2008, the Trustee Program's proposed procedures and
criteria to be used by the program to approve credit counseling
agencies were published.[Footnote 58] The proposed rule provides that a
fee of $50 or less for credit counseling services would be presumed to
be reasonable, and that an agency seeking to be an approved provider
must obtain prior approval from the Trustee Program in order to charge
a fee of more than $50.[Footnote 59] Trustee Program officials told us
that a separate proposed rulemaking covering debtor education agencies
was forthcoming.
The Bankruptcy Reform Act also required that credit counseling and
debtor education providers offer their services without regard to the
client's ability to pay.[Footnote 60] Based on the periodic activity
reports submitted by providers to the Trustee Program in 2006 and 2007,
approximately 11 percent and 13 percent of clients had their fees
waived for credit counseling and debtor education, respectively, and an
additional 28 percent and 19 percent of clients received a partial
reduction of the fee. Similarly, the National Foundation for Credit
Counseling provided us with data showing that among member agencies
surveyed, the fee for prefiling credit counseling was waived about 18
percent of the time between July, 1, 2007 and September 30, 2007.
Our April 2007 report noted that the policies of individual providers
for waiving fees varied. Trustee Program data on the three largest
providers showed significant variations in the proportions of clients
whose fees were waived--from 4 percent to 26 percent for counseling
sessions and from 6 percent to 34 percent for debtor education courses.
As a result, our report recommended that the Trustee Program issue
formal guidance on what constitutes a client's "ability to pay." In its
proposed rule of February 1, 2008, the Trustee Program stated that the
client shall be deemed unable to pay, and thereby entitled to a fee
waiver, if the client's household income is less than 150 percent of
the poverty line as defined by the Office of Management and Budget.
[Footnote 61]
Bankruptcy Reform Act Has Affected the Duties and Caseloads of Private
Trustees:
The Bankruptcy Reform Act has affected the responsibilities of Chapter
7 and Chapter 13 private trustees, largely as a result of new
documentation, verification, and reporting requirements. The trustees
with whom we spoke said the act significantly increased the amount of
staff time needed to administer a bankruptcy case. The caseloads of
many Chapter 7 and Chapter 13 trustees have declined since the act in
concert with the decline in bankruptcy filings. However, as yet, the
overall compensation to trustees collectively has not declined
significantly because disbursements and repayments are still being made
from the surge in bankruptcy filings that occurred just prior to the
effective date of the act. Further, according to data provided by the
Trustee Program, attrition among trustees has not changed significantly
since the implementation of the act.
Private Trustees Have Additional Documentation, Verification, and
Reporting Requirements:
The Bankruptcy Reform Act has affected the responsibilities of Chapter
7 and Chapter 13 private trustees, largely as a result of new
documentation, verification, and reporting requirements. As noted
earlier, private trustees--individuals who are not government employees
and are overseen in most districts by the Trustee Program--administer
individual Chapter 7 and Chapter 13 bankruptcy cases. Chapter 7
trustees identify the debtor's available assets, liquidate them (turn
them into cash), and distribute the proceeds to creditors.[Footnote 62]
Chapter 13 trustees administer cases according to a court-approved plan
for the repayment of debt, collecting payments from the debtor and
making distributions to creditors.[Footnote 63] One of the key
responsibilities for both Chapter 7 and Chapter 13 trustees is to
preside over the meeting of creditors (commonly known as the "341
meeting"), in which the debtor must appear and answer questions under
oath from the trustee and creditors.[Footnote 64] In addition, trustees
collect, review, and verify the information in the bankruptcy petition
and the supporting documentation that lists the debtor's assets,
liabilities, income, and expenditures. This ensures that exemptions are
accurately claimed and that assets that can be liquidated are
distributed to creditors.
The provisions of the Bankruptcy Reform Act with the most significant
impact on the duties of the private trustees for personal bankruptcy
cases are the following:
* New documentation requirements. Trustees must confirm that debtors
have submitted documentation required under the act, which includes 2
months of wage statements and the tax return from the year prior to
filing. The trustees must safeguard all tax return documents according
to procedures set by the Trustee Program--for example, access to tax
records must be restricted and sensitive documents must be properly
secured, destroyed, or returned to the debtor.
* Domestic support obligations. In cases where a debtor has a domestic
support obligation--alimony or child support--private trustees must
notify the claimant (such as the custodial parent) and the relevant
state child support enforcement agency of the bankruptcy. The trustee
must notify applicable parties twice during the bankruptcy process--
once around the time of the meeting of the creditors and once at the
time of discharge.
* Means test. Chapter 7 trustees must review the means test form
submitted by debtors and verify the calculation of current monthly
income. In those cases where the income is below the state median--and
therefore not presumed abusive--the trustees are to verify that the
income is truly below the median by examining wage statements and tax
documents. Chapter 13 trustees use the means test form--in conjunction
with other documents, such as tax returns--to determine what the debtor
can afford to pay each month in a repayment plan.
* Uniform final reports. Once the Trustee Program issues a final rule,
private trustees will be required to submit a uniform final report of
each bankruptcy case.[Footnote 65] For Chapter 7 trustees, the proposed
reporting forms add additional responsibilities since they require
reporting data not currently collected for no-asset cases, and they
must enter this information manually. Chapter 13 trustees already
submit final reports, although the proposed new forms require some
additional information they must collect, such as assets abandoned.
Bankruptcy Reform Act Has Affected the Time and Resources Trustees
Require to Administer Cases and Has Reduced Some Trustees' Caseloads:
The Bankruptcy Reform Act has affected the time and resources required
by trustees to administer bankruptcy cases, according to private
trustees and representatives of the Trustee Program. We spoke with,
collectively, 18 Chapter 7 and Chapter 13 trustees, as well as
organizations representing them, about how the act has affected their
work. While the experiences of individual trustees varied, all said
that the act increased the amount of staff time it took to administer a
bankruptcy case, with many reporting that the staff time needed per
case roughly doubled. For example, trustees told us they require
additional administrative and clerical support to help collect and
track newly required documents, such as tax returns and wage
statements. There also are costs associated with printing, storing,
securing, and shredding these documents. The trustees also told us that
the means test significantly increased the time spent reviewing
documentation.
In addition, while individual experiences varied, Chapter 7 and Chapter
13 trustees typically told us that the 341 meetings were taking longer,
in part due to more questions about the documents submitted; additional
time also is sometimes required to determine the addresses for
notifying child support claimants for the domestic support obligations.
Furthermore, the 341 meetings have been postponed more frequently
because of debtors' delays in gathering the required documentation. In
addition, according to the Trustee Program's notice of proposed rule
making, the new uniform final reports will require Chapter 7 trustees
to spend an estimated 10 additional minutes per case to collect and
input newly required information, potentially adding $2,100 a year in
increased costs.[Footnote 66] Finally, a representative of the National
Association of Chapter 13 Trustees noted that trustees have been
required to make significantly more court appearances as a consequence
of the additional hearings and litigation that have resulted from the
Bankruptcy Reform Act.
The caseload of Chapter 7 trustees has declined significantly since the
Bankruptcy Reform Act in concert with the decline in filings--from 1.2
million personal and business Chapter 7 bankruptcy filings in fiscal
year 2004 to about 484,000 in fiscal year 2007. Chapter 7 trustees are
unsalaried and typically work part time in their trustee duties. They
collect a fee of $60 for each case they administer and this amount
remained unchanged with the passage of the Bankruptcy Reform Act.
[Footnote 67] In addition, as noted earlier, a provision of the act
allows the court to waive the filing fee for qualified Chapter 7
debtors, and for these cases the trustee receives no compensation at
all.[Footnote 68] In addition, for cases where there are assets to be
liquidated, the Chapter 7 trustee receives a percentage--as prescribed
by statute--of the assets distributed to creditors, and also may be
reimbursed for certain direct expenses.[Footnote 69]
Although about 95 percent of Chapter 7 filings have traditionally been
"no-asset" cases with $60 as the trustee's sole compensation, Chapter 7
trustees derive the majority of their overall revenues from those few
cases involving disbursement of assets. It can take several years to
completely disburse available assets. As a result, the dramatic surge
in bankruptcy filings just prior to the Bankruptcy Reform Act's October
2005 implementation resulted in an increase in Chapter 7 trustees'
overall compensation from 2005 to 2007, despite the decline in their
caseload. According to our analysis of Trustee Program data, in fiscal
year 2005, Chapter 7 trustees collectively received $191.7 million in
total compensation ($111 million from asset disbursements and an
estimated $80.7 million from filing fees), while in fiscal year 2007,
they received $212.4 million in total compensation ($183.7 million from
asset disbursements and an estimated $28.5 million from filing fees).
[Footnote 70] However, these revenues may decline in future years as
assets from cases filed in 2005 are disbursed fully.
The caseload for Chapter 13 trustees since the Bankruptcy Reform Act
also has declined, although less substantially--from 454,412 personal
and business Chapter 13 filings in fiscal year 2005 to 310,802 in
fiscal year 2007. In contrast to Chapter 7 trustees, Chapter 13
trustees are full time and typically run offices that employ other full-
time staff. Chapter 13 trustees' compensation is based--up to a preset
limit--on a percentage of the total payments made to creditors. The
Chapter 13 trustee uses these funds to pay for rent, staff, and certain
other office expenses. Most Chapter 13 repayment plans are either 3
years or 5 years in length and, as with Chapter 7 trustees, the surge
in filings just prior to the Bankruptcy Reform Act has continued to be
a source of revenue for Chapter 13 trustees despite the decline in
filings. According to data provided by the Trustee Program, in fiscal
year 2005, total compensation to Chapter 13 trustees was $31.02
million, averaging $162,432 per trustee. In fiscal year 2007, total
compensation was $31.85 million, averaging $165,870 per trustee.
Attrition among Chapter 7 and Chapter 13 trustees has not changed
significantly since the implementation of the Bankruptcy Reform Act,
according to our analysis of Trustee Program data. This analysis found
that the rate of attrition--due to resignations, retirements, or
terminations--has stayed consistent at approximately 3 percent to 4
percent over the past several years.[Footnote 71] Almost all of the
private trustees with whom we spoke told us that they were not likely
to leave their position, despite the challenges resulting from the
Bankruptcy Reform Act. However, a Trustee Program official noted that
the program has not always sought to fill vacancies that have occurred
since the act because of the decline in filings.
Agency Comments:
We provided a draft of this report to AOUSC and the Department of
Justice for comment. These agencies provided technical comments that we
incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this letter. We will then send copies of this
report to the Ranking Member of the Committee on the Judiciary, U.S.
Senate; the Ranking Member of the Committee on the Judiciary, House of
Representatives; the Director of the Administrative Office of the
United States Courts; the Attorney General; and other interested
committees and parties. We will also make copies available to others
upon request. In addition, the report will be available at no charge on
the GAO Web site at [hyperlink, http://www.gao.gov]. If you or your
staffs have any questions concerning this report, please contact me at
(202) 512-8678 or jonesy@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this
report are listed in appendix III.
Signed by:
Yvonne D. Jones:
Director, Financial Markets and Community Investment:
List of Requesters:
The Honorable Patrick J. Leahy:
Chairman:
Committee on the Judiciary:
United States Senate:
The Honorable John Conyers, Jr.
Chairman:
Committee on the Judiciary:
House of Representatives:
The Honorable Richard J. Durbin:
The Honorable Russell D. Feingold:
The Honorable Edward M. Kennedy:
United States Senate:
The Honorable Howard L. Berman:
The Honorable William D. Delahunt:
The Honorable Sheila Jackson-Lee:
The Honorable Zoe Lofgren:
The Honorable Jerrold Nadler:
The Honorable Robert C. Scott:
The Honorable Chris Van Hollen, Jr.
The Honorable Debbie Wasserman Schultz:
The Honorable Melvin L. Watt:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our report objectives were to examine (1) new costs incurred as a
result of the Bankruptcy Abuse Prevention and Consumer Protection Act
of 2005 (Bankruptcy Reform Act) by the Department of Justice and the
federal judiciary, (2) new costs incurred as a result of the act by
consumers filing for bankruptcy, and (3) the impact of the act on
private trustees. Our review focused on the impact of the act on
personal and not business bankruptcies. Further, the first two
objectives examined only the monetary (dollar) costs incurred by
federal agencies and consumers and not on other ways that the
Bankruptcy Reform Act may have affected them. In addition, the scope of
this report is limited to costs directly related to the process of
filing for bankruptcy, and not on the overall financial impact the act
may be having on consumers. Finally, this report did not seek to assess
the benefits of the Bankruptcy Reform Act and is therefore not an
evaluation of the merits of the act.
To address all of the objectives, we reviewed the relevant provisions
of the Bankruptcy Reform Act. We also obtained documentation from, and
interviewed representatives of, the Department of Justice's U.S.
Trustee Program (Trustee Program); the federal judiciary, including the
Administrative Office of the United States Courts (AOUSC) and selected
individual bankruptcy courts; Congressional Budget Office; and
organizations representing consumers, including the National Consumer
Law Center, and the financial services industry, including the
Financial Services Roundtable.
To address the first objective on new costs to the federal government,
we reviewed relevant budget-related documents. For the Department of
Justice's Trustee Program, these included its actual or projected
annual budgets for fiscal years 2005 through 2009, as well as annual
budget and performance summaries, strategic plans, annual reports, and
congressional testimonies by Trustee Program officials. For the federal
judiciary, we reviewed congressional budget justifications for fiscal
years 2003 through 2008, as well as annual reports, and congressional
testimonies by officials of the Judicial Conference of United States
and AOUSC. We also reviewed internal documentation from AOUSC on
activities and timelines for implementing requirements of the
Bankruptcy Reform Act.
Since the budget documentation generally did not identify costs
specific to implementation of the Bankruptcy Reform Act, we requested
the Trustee Program and federal judiciary to estimate costs to date
incurred specifically as a result of the act, including the cost of
allocated staff time. To develop its estimates, the Trustee Program
primarily used information from its fiscal year 2006 budget
justification, which specified funds needed to address specific
provisions of the act. For costs for debtor audit contracts,
information technology, and facilities expansion--which were largely
contract costs--the program provided actual obligations. The cost
estimates from the judiciary were specific to a set of one-time
activities undertaken to initially implement the Bankruptcy Reform Act
and were based on a tracking report developed by AOUSC to monitor its
efforts to implement the act. We did not verify the estimates provided
to us by the Trustee Program and the federal judiciary, although we
reviewed and analyzed them and we interviewed the staff who provided
the estimates to understand how they were created. We determined that
the estimates were sufficiently reliable for our purposes. The
Bankruptcy Reform Act included provisions authorizing new bankruptcy
judgeships, but we did not include the costs of these new judgeships
because they had been planned prior to and independent of the act. In
addition, we collected and analyzed data on the Trustee Program's and
judiciary's revenues from bankruptcy-related statutory and
miscellaneous filing fees.
To address the second objective on new costs to consumers, we reviewed
changes in attorney fees and filing fees, as well as fees to fulfill
the new credit counseling and debtor education requirements. To
determine changes in attorney fees for Chapter 7 bankruptcy cases, we
selected two random and projectable samples of cases (from before and
after the Bankruptcy Reform Act) and collected information on the
attorney compensation, if any, disclosed in the case file. From AOUSC's
U.S. Party/Case Index, we selected a random sample of 193 Chapter 7
cases that had been filed nationwide during February or March 2005 and
had closed within 272 days from the filing date. We chose this time
period because it occurred just before the act was enacted. We selected
another random sample of 307 cases filed during February or March 2007
that had closed within 272 days from the filing date. We chose this
time period because it was about 16 months after the effective date of
the Bankruptcy Reform Act; bankruptcy attorneys with whom we spoke said
that most significant changes in attorney fees resulting from the act
had occurred by that time. For both timeframes, we included only cases
that had closed within 272 days of filing to ensure we did not include
cases that were still open at the time of our review. From our sample,
we excluded business cases since these were outside the scope of our
review. We also excluded cases that had converted from Chapter 13 to
Chapter 7 because it would not have been possible to determine the
extent to which the attorney fee was based on work related to the
Chapter 7 filing. Finally, we excluded cases in which necessary data
were not accessible from the electronic file (which represented fewer
than 3 percent of cases).
With these exclusions, we had an effective sample of 176 Chapter 7
cases from February-March 2005 and 292 cases from February-March 2007.
Table 5 summarizes the population and sample disposition for the
Chapter 7 filings sample.
Table 5: Population and Disposition of Our Sample of Chapter 7 Filings:
Total population:
Feb.-Mar. 2005: 191,012;
Feb.-Mar. 2007: 71,106;
Total: 262,118.
Sample selected:
Feb.-Mar. 2005: 193;
Feb.-Mar. 2007: 307;
Total: 500.
Completed cases (in scope for study):
Feb.-Mar. 2005: 176;
Feb.-Mar. 2007: 292;
Total: 468.
Total excluded (out-of-scope for study):
Feb.-Mar. 2005: 17;
Feb.-Mar. 2007: 15;
Total: 32.
Dismissed:
Feb.-Mar. 2005: 4;
Feb.-Mar. 2007: 8;
Total: 12.
Business cases:
Feb.-Mar. 2005: 0;
Feb.-Mar. 2007: 2;
Total: 2.
Chapter 13 conversions:
Feb.-Mar. 2005: 1;
Feb.-Mar. 2007: 0;
Total: 1.
Other:
Feb.-Mar. 2005: 0;
Feb.-Mar. 2007: 1;
Total: 1.
Data not accessible; Feb.-Mar. 2005: 12; Feb.-Mar. 2007: 4; Total: 16.
Source: GAO.
[End of table]
Because we followed a probability procedure based on random selections,
our sample is only one of a large number of samples that we might have
drawn. Since each sample could have provided different estimates, we
express our confidence in the precision of our particular sample's
results as a 95 percent confidence interval (for example, plus or minus
6 percentage points). This is the interval that would contain the
actual population value for 95 percent of the samples we could have
drawn. As a result, we are 95 percent confident that each of the
confidence intervals in this report will include the true values in the
study population. All percentage estimates in this report based on our
sample review of Chapter 7 filings have 95 percent confidence intervals
of plus or minus 6 percentage points or less, unless otherwise noted.
All numerical estimates other than percentages (for example, estimated
mean Chapter 7 fees) have 95 percent confidence intervals of within
plus or minus 6.3 percent of the value of those estimates, unless
otherwise noted.
We performed our case file review using a data collection instrument
that included uniform questions to ensure data were collected
consistently. For each case, we reviewed the docket and relevant
documents from the bankruptcy file to determine (1) the attorney fee,
if any, disclosed in Form B203, the Disclosure of Compensation of
Attorneys for Debtor(s), and any amendments to that form; (2) whether
the attorney represented the debtor at no charge (pro bono); (3)
whether the debtor filed without an attorney (pro se); and (4) the
bankruptcy petition preparer fee, if any, disclosed in Form B280, the
Disclosure of Compensation of Bankruptcy Petition Preparer.
We relied on data presented in bankruptcy documents filed with the
courts by debtors, creditors, and debtor attorneys and electronically
stored in the courts' Public Access to Court Electronic Records system.
Bankruptcy courts and U.S. Trustees manage bankruptcy cases and perform
some measures to verify data that help ensure the reliability of
information provided in these case files. For example, bankruptcy court
officials have measures to ensure that data entered into information
systems are accurate. Other measures we used to ensure reliability of
these data included relying on our past work using the U.S. Party/Case
Index and Public Access to Court Electronic Records and by performing
additional steps during our review to compare information between these
two systems.
For attorney fees for Chapter 13 cases, we collected and analyzed
changes since the Bankruptcy Reform Act in standard attorney fees
approved by individual judicial districts or divisions--in 48 districts
or divisions that collectively accounted for 65 percent of Chapter 13
filings in fiscal year 2007. For each of these districts or divisions,
we collected the amount of the standard fee, if any, as of (1) October
2005, just prior to the effective date of the Bankruptcy Reform Act,
and (2) February 2008, more than 2 years after the act went into
effect. We obtained these data from published local rules or
administrative orders, as well as through interviews with relevant
Chapter 13 trustees and bankruptcy court personnel. A few districts and
divisions had two or more standard fees based on the extent of services
provided or the specific characteristics of the case. In such
instances, we used the highest fee for both time periods for our
analysis, although in one case, we used the mid-level fee because the
Chapter 13 trustee told us it was the fee most commonly charged by
attorneys in that district.
We also collected available data from AOUSC on the number of
bankruptcies filed without an attorney (pro se) and spoke with
representatives of the National Association of Consumer Bankruptcy
Attorneys and the Business Law Pro Bono Project of the American Bar
Association's Center for Pro Bono, and with attorneys at five firms
that provide free or reduced-cost legal assistance to bankruptcy
filers.
To review filing fees, we reviewed changes to these fees made by the
Bankruptcy Reform Act, as amended, and the Deficit Reduction Act of
2005, as well as any changes made by the judiciary to nonstatutory
fees. We obtained from AOUSC data on the number of cases in which the
court waived the filing fee. To determine costs associated with credit
counseling and debtor education requirements, we reviewed information
in our prior report, Bankruptcy Reform: Value of Credit Counseling
Requirement Is Not Clear (GAO-07-203), and reviewed and analyzed
additional fee and waiver data provided to us by the Trustee Program.
We also reviewed data provided to us by the National Foundation for
Credit Counseling that included its members' fees for prefiling credit
counseling. Finally, we interviewed officials from the Trustee
Program's Credit Counseling and Debtor Education Unit and reviewed
provisions of the agency's proposed rule related to credit counseling
fees.
To address the third objective on private trustees, we reviewed
provisions of the Bankruptcy Reform Act that affect private trustees'
roles and responsibilities, as well as the Trustee Program's interim
guidance and policy and procedure manuals for private trustees. We
spoke with Trustee Program staff responsible for overseeing trustees
and with officials from the National Association of Bankruptcy Trustees
and National Association of Chapter 13 Trustees, two professional
associations representing Chapter 7 and Chapter 13 trustees,
respectively. We also reviewed published materials from the National
Association of Bankruptcy Trustees, including a survey conducted of its
members on the impact of the Bankruptcy Reform Act. In addition, we
conducted individual and small group interviews of 10 Chapter 7 and 11
Chapter 13 private trustees. These trustees were chosen because they
served in districts that represented a range of sizes and geographic
regions. Finally, we collected and analyzed data from the Trustee
Program on attrition rates for private trustees from fiscal years 2003
through 2007.
We conducted this performance audit from June 2007 through June 2008 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Standard Attorney Fees for Chapter 13 Cases:
The "standard fees" provided in table 6 represent standard amounts
individual courts approve as reasonable compensation for an attorney
representing a Chapter 13 debtor. The districts and divisions shown
here collectively accounted for 65 percent of Chapter 13 filings in
fiscal year 2007. A few districts and divisions had two or more
standard fees. In such cases, the applicable fee is based on the extent
of services provided or the specific characteristics of the case, as
prescribed by local rules or administrative orders.
Table 6: Standard Attorney Fees for Chapter 13 Cases in Selected
Districts and Divisions, before and after the Bankruptcy Reform Act:
District: Alabama, Middle District;
Personal Chapter 13 filings (fiscal year 2007): 3,851;
Standard fee before the act (as of Oct. 16, 2005): $1,600;
Standard fee after the act (as of Feb. 2008)[A]: $2,500.
District: Arkansas, Eastern & Western Districts;
Personal Chapter 13 filings (fiscal year 2007): 5,712;
Standard fee before the act (as of Oct. 16, 2005): $1,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: California, Eastern District;
Personal Chapter 13 filings (fiscal year 2007): 4,035;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,500.
District: Florida, Southern District;
Personal Chapter 13 filings (fiscal year 2007): 3,146;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Georgia, Middle District;
Personal Chapter 13 filings (fiscal year 2007): 5,973;
Standard fee before the act (as of Oct. 16, 2005): $1,501;
Standard fee after the act (as of Feb. 2008)[A]: $2,500.
District: Georgia, Northern District;
Personal Chapter 13 filings (fiscal year 2007): 15,710;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: None.
District: Georgia, Southern District;
Personal Chapter 13 filings (fiscal year 2007): 6,497;
Standard fee before the act (as of Oct. 16, 2005): $1,500;
Standard fee after the act (as of Feb. 2008)[A]: $2,500.
District: Illinois, Northern District;
Personal Chapter 13 filings (fiscal year 2007): 9,634;
Standard fee before the act (as of Oct. 16, 2005): $3,000;
Standard fee after the act (as of Feb. 2008)[A]: $3,500.
District: Maryland District;
Personal Chapter 13 filings (fiscal year 2007): 5,867;
Standard fee before the act (as of Oct. 16, 2005): None;
Standard fee after the act (as of Feb. 2008)[A]: $2,000 $3,500 $4,500.
District: Massachusetts District;
Personal Chapter 13 filings (fiscal year 2007): 4,382;
Standard fee before the act (as of Oct. 16, 2005): $3,000;
Standard fee after the act (as of Feb. 2008)[A]: $4,000.
District: Michigan, Eastern District;
Personal Chapter 13 filings (fiscal year 2007): 11,300;
Standard fee before the act (as of Oct. 16, 2005): $1,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Missouri, Eastern District;
Personal Chapter 13 filings (fiscal year 2007): 3,739;
Standard fee before the act (as of Oct. 16, 2005): $1,850;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Missouri, Western District;
Personal Chapter 13 filings (fiscal year 2007): 3,089;
Standard fee before the act (as of Oct. 16, 2005): $2,000;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Mississippi, Southern District;
Personal Chapter 13 filings (fiscal year 2007): 3,390;
Standard fee before the act (as of Oct. 16, 2005): $1,700;
Standard fee after the act (as of Feb. 2008)[A]: $2,500.
District: New Jersey District;
Personal Chapter 13 filings (fiscal year 2007): 6,866;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,500.
District: North Carolina, Middle District;
Personal Chapter 13 filings (fiscal year 2007): 3,273;
Standard fee before the act (as of Oct. 16, 2005): $1,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Ohio, Southern District;
Personal Chapter 13 filings (fiscal year 2007): 8,078;
Standard fee before the act (as of Oct. 16, 2005): $1,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Pennsylvania, Eastern District;
Personal Chapter 13 filings (fiscal year 2007): 4,681;
Standard fee before the act (as of Oct. 16, 2005): $2,000;
Standard fee after the act (as of Feb. 2008)[A]: $3,000 $3,500.
District: Pennsylvania, Western District;
Personal Chapter 13 filings (fiscal year 2007): 3,742;
Standard fee before the act (as of Oct. 16, 2005): $2,000;
Standard fee after the act (as of Feb. 2008)[A]: $3,100.
District: Puerto Rico District;
Personal Chapter 13 filings (fiscal year 2007): 5,581;
Standard fee before the act (as of Oct. 16, 2005): $1,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: South Carolina District;
Personal Chapter 13 filings (fiscal year 2007): 4,789;
Standard fee before the act (as of Oct. 16, 2005): $1,800;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Tennessee, Eastern District;
Personal Chapter 13 filings (fiscal year 2007): 5,319;
Standard fee before the act (as of Oct. 16, 2005): $1,600;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Tennessee, Middle District;
Personal Chapter 13 filings (fiscal year 2007): 5,095;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Tennessee, Western District;
Personal Chapter 13 filings (fiscal year 2007): 13,045;
Standard fee before the act (as of Oct. 16, 2005): $1,800;
Standard fee after the act (as of Feb. 2008)[A]: $2,400.
District: Texas, Northern District;
Personal Chapter 13 filings (fiscal year 2007): 8,595;
Standard fee before the act (as of Oct. 16, 2005): $2,000;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Texas, Southern District;
Personal Chapter 13 filings (fiscal year 2007): 7,263;
Standard fee before the act (as of Oct. 16, 2005): $2,460;
Standard fee after the act (as of Feb. 2008)[A]: $3,085.
District: Virginia, Eastern District;
Personal Chapter 13 filings (fiscal year 2007): 5,388;
Standard fee before the act (as of Oct. 16, 2005): $1,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
District: Washington, Western District;
Personal Chapter 13 filings (fiscal year 2007): 3,176;
Standard fee before the act (as of Oct. 16, 2005): $1,800;
Standard fee after the act (as of Feb. 2008)[A]: $1,800.
Division[B]: Los Angeles, Calif., Central District;
Personal Chapter 13 filings (fiscal year 2007): 2,277;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $4,000.
Division[B]: Northern/Santa Barbara, Calif., Central District;
Personal Chapter 13 filings (fiscal year 2007): 189;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $4,000.
Division[B]: Riverside/San Bernardino, Calif., Central District;
Personal Chapter 13 filings (fiscal year 2007): 2,216;
Standard fee before the act (as of Oct. 16, 2005): $1,750;
Standard fee after the act (as of Feb. 2008)[A]: $4,000.
Division[B]: Santa Ana, Calif., Central District;
Personal Chapter 13 filings (fiscal year 2007): 535;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $4,000.
Division[B]: Woodland Hills/San Fernando, Calif., Central District;
Personal Chapter 13 filings (fiscal year 2007): 1,314;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $4,000.
Division[B]: Tampa, Fla., Middle District;
Personal Chapter 13 filings (fiscal year 2007): 4,119;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,300 $3,600.
Division[B]: Fort Wayne, Ind., Northern District;
Personal Chapter 13 filings (fiscal year 2007): 519;
Standard fee before the act (as of Oct. 16, 2005): None;
Standard fee after the act (as of Feb. 2008)[A]: None.
Division[B]: Hammond, Ind., Northern District;
Personal Chapter 13 filings (fiscal year 2007): 1,754;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $2,800.
Division[B]: Lafayette, Ind., Northern District;
Personal Chapter 13 filings (fiscal year 2007): 188;
Standard fee before the act (as of Oct. 16, 2005): None;
Standard fee after the act (as of Feb. 2008)[A]: None.
Division[B]: South Bend, Ind., Northern District;
Personal Chapter 13 filings (fiscal year 2007): 613;
Standard fee before the act (as of Oct. 16, 2005): $2,500;
Standard fee after the act (as of Feb. 2008)[A]: $2,800.
Division[B]: Alexandria, La., Western District;
Personal Chapter 13 filings (fiscal year 2007): 906;
Standard fee before the act (as of Oct. 16, 2005): $2,100;
Standard fee after the act (as of Feb. 2008)[A]: $2,500.
Division[B]: Las Vegas, Nev. District;
Personal Chapter 13 filings (fiscal year 2007): 3,281;
Standard fee before the act (as of Oct. 16, 2005): $2,700;
Standard fee after the act (as of Feb. 2008)[A]: None.
Division[B]: Albany, N.Y., Northern District;
Personal Chapter 13 filings (fiscal year 2007): 1,276;
Standard fee before the act (as of Oct. 16, 2005): None;
Standard fee after the act (as of Feb. 2008)[A]: None.
Division[B]: Syracuse, N.Y., Northern District;
Personal Chapter 13 filings (fiscal year 2007): 1,255;
Standard fee before the act (as of Oct. 16, 2005): None;
Standard fee after the act (as of Feb. 2008)[A]: None.
Division[B]: Utica, N.Y., Northern District;
Personal Chapter 13 filings (fiscal year 2007): 953;
Standard fee before the act (as of Oct. 16, 2005): None;
Standard fee after the act (as of Feb. 2008)[A]: None.
Division[B]: Akron, Ohio, Northern District;
Personal Chapter 13 filings (fiscal year 2007): 1,204;
Standard fee before the act (as of Oct. 16, 2005): $2,000;
Standard fee after the act (as of Feb. 2008)[A]: $2,000.
Division[B]: Canton, Ohio, Northern District;
Personal Chapter 13 filings (fiscal year 2007): 929;
Standard fee before the act (as of Oct. 16, 2005): $1,250 $1,750;
Standard fee after the act (as of Feb. 2008)[A]: $1,500 $2,000.
Division[B]: Cleveland, Ohio, Northern District;
Personal Chapter 13 filings (fiscal year 2007): 3,821;
Standard fee before the act (as of Oct. 16, 2005): $1,200 $1,700;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
Division[B]: Youngstown, Ohio, Northern District;
Personal Chapter 13 filings (fiscal year 2007): 1,183;
Standard fee before the act (as of Oct. 16, 2005): $1,500;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
Division[B]: Waco, Tex., Western District;
Personal Chapter 13 filings (fiscal year 2007): 619;
Standard fee before the act (as of Oct. 16, 2005): $2,000;
Standard fee after the act (as of Feb. 2008)[A]: $3,000.
Source: GAO.
[A] In some instances, the district or division had an imminent
increase in its standard fee that had not been formally finalized as of
February 2008. For those cases, we confirmed the increased amount
subsequently.
[B] A division is a sublevel below that of the federal judicial
district.
[End of table]
[End of section]
Appendix III GAO Contact and Staff Acknowledgments:
GAO Contact:
Yvonne D. Jones, (202) 512-6878 or jonesy@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Jason Bromberg, Assistant
Director; Randy Fasnacht; Cynthia Grant; Carol Henn; Tiffani Humble;
Kristeen McLain; Marc Molino; Mark Ramage; Carl M. Ramirez; Omyra
Ramsingh; Barbara Roesmann; and Rhonda P. Rose made key contributions
to this report.
[End of section]
Footnotes:
[1] Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
Pub. L. No. 109-8, 119 Stat. 23 (Apr. 20, 2005) (as amended, Bankruptcy
Reform Act).
[2] Estimates from our review of Chapter 7 filings are based on a
probability sample and are subject to sampling error. At the 95 percent
confidence level, all fee estimates have margins of error of +/-6.3
percent or less and all percentage estimates have sampling errors of +/
-6 percentage points or less. Appendix I contains additional
information about our survey of Chapter 7 files and the sampling error
for our estimates.
[3] GAO, Bankruptcy Reform: Value of Credit Counseling Requirement Is
Not Clear, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-203]
(Washington, D.C.: Apr. 6, 2007).
[4] Bankruptcy cases in Alabama and North Carolina are not administered
by the Trustee Program; instead, bankruptcy administrators within the
judicial branch administer the cases in the judicial districts in those
states.
[5] For the purposes of this report, we use "private trustees" to refer
to Chapter 7 trustees and Chapter 13 trustees.
[6] Bankruptcy Reform Act § 102, 119 Stat. at 37-42 (amending 11 U.S.C.
§ 707). A debtor may overcome the presumption of abuse by demonstrating
to the court special circumstances, such as a serious medical condition
or a call to active duty in the armed forces, which justify further
adjustments to a debtor's current monthly income. Such adjusted current
monthly income may overcome the presumption of abuse.
[7] Bankruptcy Reform Act § 106 (b)-(c), 119 Stat. at 38 (amending
various sections of Title 11 of the U.S.C.). The act also sets forth
procedures and standards for the Trustee Program and bankruptcy
administrators, as applicable, to use in approving agencies and
providers. Bankruptcy Reform Act § 106(e), 119 Stat. at 38-41 (codified
at 11 U.S.C. § 111).
[8] Bankruptcy Reform Act § 603(a) - (b), 119 Stat. at 122-23 (amending
11 U.S.C. § 586).
[9] Bankruptcy Reform Act § 601(a), 119 Stat. at 119-20 (codified at 11
U.S.C. § 159).
[10] Bankruptcy Reform Act § 602, 119 Stat. at 120-22 (codified at 11
U.S.C. § 589b).
[11] Oct. 17, 2005 was the effective date for most of the provisions of
the Bankruptcy Reform Act, including the prefiling credit counseling
requirement and the Chapter 7 means test.
[12] The Trustee Program generally was able to provide estimates of
costs related to the act for fiscal years 2005-2007, but in some cases
estimates for fiscal year 2005 were not available. However, program
officials told us costs in this year were limited since the effective
date of most of the provisions of the act was October 17, 2005. The
Trustee Program's overall budget for all of its operations was
approximately $174 million in fiscal year 2005, $212 million in fiscal
year 2006, and $223 million in fiscal year 2007.
[13] For the purposes of this report, we use "costs" to refer to
resources dedicated to a given initiative or activity, and not
necessarily to refer to actual obligations or dollar outlays. The
Trustee Program's financial system does not track obligations according
to activities related to the Bankruptcy Reform Act, but rather
according to a set of "object classes" established uniformly across the
federal government. The classes categorize obligations according to the
types of goods or services purchased, such as personnel compensation,
supplies, and materials.
[14] Under the Bankruptcy Reform Act, the means test takes into account
the debtor's current monthly income, debt burden, and various allowable
living expenses. If the debtor's current monthly income minus allowable
living expenses exceeds certain thresholds, a Chapter 7 petition is
presumed to be abusive and the trustee, bankruptcy administrator, or a
party in interest (such as a creditor) may seek dismissal of the case
or conversion to a case under Chapter 11 or Chapter 13. Bankruptcy
Reform Act § 102(a)(2)(C), 119 Stat. at 27-29 (amending 11 U.S.C. §
707(b)).
[15] Trustee Program officials noted that allocations for a given
fiscal year were not necessarily obligated in that year. In particular,
$20 million of the $26.7 million for fiscal year 2007 was carried over
to fiscal year 2008 and then obligated as the program continued to fill
means test staff positions.
[16] In January 2008, the Trustee Program temporarily suspended its
designation of cases subject to audit for budgetary reasons. The
program resumed its designation of cases in May 2008, although random
audits will now be conducted in 1 in 1,000 cases (as opposed to 1 in
250 cases) filed in a judicial district.
[17] The costs for fiscal year 2005 are actual obligations related to
the debtor education study.
[18] These costs represent actual obligations, which largely consisted
of third-party contracts and purchases of software and physical
equipment.
[19] These figures represent actual costs in terms of obligations.
[20] Prepared statement of Judge Julia S. Gibbons, Chair, Committee on
the Budget, Judicial Conference of the United States, before the Senate
Subcommittee on Financial Services and General Government, Committee on
Appropriations, 110th Cong., 1st Sess. (Mar. 21, 2007).
[21] The Bankruptcy Reform Act included provisions authorizing new
bankruptcy judgeships, but we did not include the costs of these new
judgeships because they had been planned prior to and independent of
the act.
[22] Prior to fiscal year 1997 the Trustee Program's operations were
funded through a combination of direct appropriations and offsetting
collections. Fee revenues deposited in the United States Trustee System
Fund are offsetting collections to amounts appropriated to the Attorney
General for the Trustee Program. See 11 U.S.C. § 589a.
[23] The filing fee revenues we cite include fees from all bankruptcy
filings--including both business and personal bankruptcies--but exclude
Chapter 11 quarterly fees. Trustee Program staff told us that they do
not track the proportion of filing fee revenues collected under each
chapter of the Bankruptcy Code. Historically, about 40 percent of
Trustee Program revenues come from filing fees paid in business and
personal cases filed under Chapters 7, 11, 12, and 13, as well as
interest earnings and other miscellaneous revenue. The remaining 60
percent come from quarterly fees paid in Chapter 11 business
reorganization cases.
[24] Filing fees paid by a debtor are allocated among the U.S. Trustee
System Fund, the federal judiciary and the private trustee. See
Judiciary Appropriations Act, 1990, § 406(b), Pub. L. No. 101-162, 103
Stat. 988, 1016 (Nov. 21, 1989) (set out, as amended, as a note to 28
U.S.C. § 1931); 11 U.S.C. § 330 (b) and (d).
[25] Bankruptcy Reform Act § 418(2), 119 Stat. at 109 (codified at 28
U.S.C. § 1930(f)). Under the procedures prescribed by the Judicial
Conference of the United States, the district court or the bankruptcy
court may waive the filing fee in a case under Chapter 7 for an
individual if the court determines that such an individual has income
of less than 150 percent of the official poverty line.
[26] Monies in the fund are available without fiscal limitation in such
amounts as appropriated by Congress for the operation of the Trustee
Program.
[27] Carry-forward balances are funds remaining in the judiciary-wide
fee account from prior years that remain available until obligated.
[28] Two types of fees are collected by federal courts--statutory fees
and "miscellaneous" fees. Statutory fees are those fees expressly
established by statute; for bankruptcy courts, these are set forth in
28 U.S.C. § 1930(a). The Judicial Conference of the United States has
statutory authority under 28 U.S.C. § 1930(b) to prescribe additional
("miscellaneous") fees in bankruptcy cases. See U.S.C. § 1930(b).
[29] These revenues represent all statutory fees and miscellaneous fees
received by the judiciary for personal and business bankruptcies under
Chapters 7, 9, 11, 12, 13, and 15. AOUSC staff told us they do not
track the proportion of fee revenues collected under each chapter of
the Bankruptcy Code.
[30] The Bankruptcy Reform Act included new provisions to help ensure
that debtors in bankruptcy continue paying their child support
obligations. See Bankruptcy Reform Act, Subtitle B of Title II, 109
Stat. at 50-59. For example, (1) domestic support obligations are given
priority over all other unsecured claims, (2) domestic support
obligations are nondischargeable, and (3) a bankruptcy court is
authorized to withhold income that is property of the bankruptcy estate
for payment of domestic support obligations under a judicial or
administrative order. See 11 U.S.C. §§ 362(b)(2), 507(a) and 523(a)(5).
[31] See 11 U.S.C. § 707(b)(4)(C) (as added by Bankruptcy Reform Act §
102(a)(2)(C), 119 Stat. at 30). Among other things, section
707(b)(4)(C) provides that an attorney's signature on a bankruptcy
filing constitutes a certification that the attorney (1) has performed
a reasonable investigation as to the circumstances giving rise to the
filing and (2) has determined that the filing is well-grounded in fact
and does not constitute an abuse under section 707(b)(1).
[32] We accessed the bankruptcy filings through the federal judiciary's
Public Access to Court Electronic Records system, which allows
registered users to use the Internet to obtain case and docket
information from federal appellate, district, and bankruptcy courts.
[33] To ensure that we did not include cases that were still open at
the time of our review (and thus subject to changes in disclosed fees),
we limited our sample to cases that had closed within 272 days of being
filed.
[34] An attorney representing a debtor in bankruptcy is required to
file with the court, whether or not the attorney applies for
compensation, a written statement of the compensation paid to the
attorney within 1 year before the filing of the bankruptcy petition or
agreed to be paid to the attorney for services rendered in
contemplation of or in connection with the bankruptcy case. See 11
U.S.C. § 329(a) and Fed. R. Bankr. P. 2016(b).
[35] At the 95 percent confidence level, all fee estimates have margins
of error of +/-6.3 percent or less. See app. I for additional
information about sampling error for estimates.
[36] We did not adjust for inflation because the impact of inflation
during this 2-year time period was small and such an adjustment would
not have made a material difference to our findings.
[37] A debtor attorney seeking compensation from the bankruptcy estate
must apply to the court for compensation. After a hearing, the court
may award the attorney reasonable compensation for services rendered
and reimbursement for actual and necessary expenses. Many courts, by
order or local rule, have waived the application and hearing
requirement if the compensation sought does not exceed a predetermined
amount. See 11 U.S.C. § 329 and Fed. R. Bnkr. P. 2016.
[38] A division is a sublevel below that of federal judicial district.
Sometimes court procedures, typically defined as "local rules" or
"administrative orders," are set at the division rather than district
level.
[39] To collect these data, we interviewed Chapter 13 trustees, their
designated staff, or bankruptcy court personnel in each location and
reviewed the documentation on the fees as available in the court's
published local rules and administrative orders.
[40] In some instances, the district or division had an imminent
increase in its standard fee that had not been formally finalized. For
those cases, we confirmed the increased amount subsequently. Further, a
few districts and divisions had two or more standard fees based on the
extent of services provided or the specific characteristics of the
case. In such instances, we used the highest fee for both time periods
for our analysis, although in one case, we used the mid-level fee
because the Chapter 13 trustee told us it was the fee most commonly
charged by attorneys in that district.
[41] Districts and divisions can vary considerably in the number of
Chapter 13 bankruptcy filings that they handle. However, the medians we
provide are not weighted for the number of filings and thus do not
represent the median fee paid by all bankruptcy filers across these
districts and divisions.
[42] General Order No. 2007-06, Attorney Compensation (Bnkr. S.D.Ga.
posted Mar. 1, 2007).
[43] 11 U.S.C. §§ 507 and 1326(b).
[44] According to AOUSC staff, prior to October 17, 2006, AOUSC's case
filing system did not comprehensively capture all cases filed pro se,
and two large districts did not report pro se data at all. AOUSC data
on Chapter 7 pro se filings included business cases, which accounted
for about 4 percent of Chapter 7 filings in 2007.
[45] The 95 percent confidence interval for our 2005 estimate is from
6.6 percent to 16.4 percent.
[46] A bankruptcy petition preparer must file together with the
bankruptcy petition, a declaration disclosing any fee received from or
on behalf of the debtor within the 12 months immediately preceding the
filing of the petition. 11 U.S.C. § 110(h)(2); see also Bankruptcy Form
B280, "Disclosure of Compensation of Bankruptcy Petition Preparer." A
"bankruptcy petition preparer" is defined as a person, other than an
attorney for the debtor or an employee of such attorney under the
direct supervision of such attorney, who prepares for compensation a
document for filing. 11 U.S.C. § 110(a)(1).
[47] The 95 percent confidence interval for the 2005 estimate is from
0.9 percent to 6.5 percent. The 95 percent confidence interval for the
2007 estimate is from 2.4 percent to 7.5 percent.
[48] See 28 U.S.C. § 1930(b).
[49] See Bankruptcy Reform Act § 325(a)(1), 119 Stat. 98 (amending 28
U.S.C. § 1930(a)).
[50] Deficit Reduction Act of 2005 § 10101(a), Pub. L. No. 109-171, 120
Stat. 4, 184 (Feb. 8, 2006). The additional revenue from the act's
increases in statutory filing fees is deposited in a designated fund in
the Treasury; these fee increases are available to the judiciary only
to the extent subsequently appropriated by Congress.
[51] Bankruptcy Reform Act § 418(2) (codified at 28 U.S.C. § 1930(f)).
[52] Specifically, the act amended the federal bankruptcy code to
require (1) individuals to receive budget and credit counseling from an
approved provider before filing a petition in bankruptcy and (2)
bankruptcy petitioners to complete an instructional course on personal
financial management in order to have their debts discharged.
Bankruptcy Reform Act § 106, Pub. L. No. 109-8, 119 Stat. 23, 37-42
(2005) (amending various sections of Title 11). For the purposes of
this report, we refer to the prefiling budget and counseling
requirement as the credit counseling requirement and the predischarge
personal financial management course as the debtor education
requirement.
[53] Representatives of the Financial Services Roundtable noted that
because debtors' attorneys are sometimes the source of payment to the
credit counseling agency, our data on Chapter 7 attorney fee
disclosures may in some cases already capture the cost to consumers for
credit counseling. However, a representative of the National
Association of Consumer Bankruptcy Attorneys told us that attorneys who
provide payment to credit counseling agencies are typically reimbursed
directly by the client and this amount is not typically included in the
legal fee reported in the disclosure forms we reviewed.
[54] These medians represent the full fee normally charged by the
agency, which does not incorporate those cases where that fee is
reduced or waived. Married couples may file a joint bankruptcy
petition. Although a husband and wife may attend the same credit
counseling and debtor education session, both must obtain credit
counseling and debtor education and be issued separate certificates.
[55] The National Foundation for Credit Counseling includes more than
100 nonprofit member agencies, many of which use the name Consumer
Credit Counseling Service®.
[56] The $46.05 figure represents a weighted average to account for the
varying numbers of credit counseling sessions performed by the agencies
that responded to the survey. In addition, it excludes those cases
where the fee was waived.
[57] GAO, Bankruptcy Reform: Value of Credit Counseling Requirement Is
Not Clear, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-203]
(Washington, D.C.: Apr. 6, 2007).
[58] Application Procedures and Criteria for Approval of Nonprofit
Budget and Credit Counseling Agencies by United States Trustees, 73
Fed. Reg. 6062 (Feb. 1, 2008) (proposed rule). This rule, once final,
will supersede the provisions that address credit counseling agencies
in the Trustee Program's Interim Final Rule published in 2006. See
Application Criteria for Approval of Nonprofit Budget and Credit
Counseling Agencies and Approval of Providers of a Personal Financial
Management Instructional Course by United States Trustee, 71 Fed. Reg.
38076 (Jul. 5, 2006) (interim final rule) (codified at 28 C.F.R. §§
58.15-58.27).
[59] 73 Fed. Reg. at 6070 (proposed 28 C.F.R. § 58.21(a)).
[60] 11 U.S.C. §§ 111(c)(2)(B) and 111(d)(1)(E).
[61] 73 Fed. Reg. at 6070 (proposed 28 C.F.R. § 58.21(b)). The proposed
rule states that agencies may waive fees based on other considerations
as well, such as the client's net worth or the percentage of the
client's income from government assistance programs.
[62] Historically, about 95 to 97 percent of Chapter 7 cases yield no
assets, and therefore the trustee makes no distribution of payments.
[63] In both Chapter 7 and Chapter 13 cases, some assets are exempted
by federal or state law, and therefore may be retained by the debtor.
[64] 11 U.S.C. § 341(a).
[65] Proposed rules were published in February 2008. See Procedures for
Completing Uniform Forms of Trustee Final Reports in Cases Filed Under
Chapters 7, 12, and 13 of Title 11, 73 Fed. Reg. 6447 (Feb. 4, 2008)
(proposed rule).
[66] Trustee Program officials told us that these costs may be
mitigated by plans to provide Chapter 7 trustees with certain data
elements in electronic format, which will greatly expedite completion
of the uniform final reports.
[67] A Chapter 7 trustee is paid $45 from the statutory filing fee, as
well as an additional $15 miscellaneous filing fee collected by the
clerk from the debtor upon the filing of the petition. See 11 U.S.C. §
330(b)(2) and the Bankruptcy Court Miscellaneous Fee Schedule issued in
accordance with 28 U.S.C. § 1930(b).
[68] As noted earlier in this report, Chapter 7 filing fees were waived
by the court in 2.1 percent of cases filed during fiscal year 2007,
according to data provided by AOUSC.
[69] A court may allow reasonable compensation to trustees for services
rendered in a Chapter 7 case or Chapter 13 case, subject to a statutory
maximum allowed, plus reimbursement for actual and necessary expenses.
11 U.S.C. §§ 300 and 326. Trustees also can receive compensation for
services rendered as a professional when the trustee retains himself or
herself as attorney or accountant for the trustee. 11 U.S.C. § 328. For
the purposes of this report, we limit our discussion to compensation
received for those services rendered as trustee.
[70] These figures include both personal and business cases because
available data on trustee compensation do not distinguish between the
two. The figures exclude reimbursement for direct expenses and
compensation for services rendered as a professional when the trustee
retains himself or herself as attorney or accountant for the trustee.
The Trustee Program provided us with data on trustee compensation from
disbursed assets. To estimate compensation from the per-case fee, we
multiplied the number of Chapter 7 filings for fiscal years 2005 and
2007 (excluding those in which the fee was waived) by $60.
[71] To calculate the rate of attrition, we divided the number of
trustees that departed (as of the end of the fiscal year) by the number
of trustees at the beginning of the fiscal year.
[End of section]
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