[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
    IMPLEMENTATION OF THE BANKRUPTCY ABUSE PREVENTION AND CONSUMER 
                         PROTECTION ACT OF 2005

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 26, 2005

                               __________

                           Serial No. 109-55

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov





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                       COMMITTEE ON THE JUDICIARY

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
ELTON GALLEGLY, California           JERROLD NADLER, New York
BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California        ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee        SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah                   MAXINE WATERS, California
SPENCER BACHUS, Alabama              MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina           WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana          ROBERT WEXLER, Florida
MARK GREEN, Wisconsin                ANTHONY D. WEINER, New York
RIC KELLER, Florida                  ADAM B. SCHIFF, California
DARRELL ISSA, California             LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona                  CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana                  DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas

             Philip G. Kiko, Chief of Staff-General Counsel
               Perry H. Apelbaum, Minority Chief Counsel
                                 ------                                

           Subcommittee on Commercial and Administrative Law

                      CHRIS CANNON, Utah Chairman

HOWARD COBLE, North Carolina         MELVIN L. WATT, North Carolina
TRENT FRANKS, Arizona                WILLIAM D. DELAHUNT, Massachusetts
STEVE CHABOT, Ohio                   CHRIS VAN HOLLEN, Maryland
MARK GREEN, Wisconsin                JERROLD NADLER, New York
RANDY J. FORBES, Virginia            DEBBIE WASSERMAN SCHULTZ, Florida
LOUIE GOHMERT, Texas

                  Raymond V. Smietanka, Chief Counsel

                        Susan A. Jensen, Counsel

                  James Daley, Full Committee Counsel

                        Brenda Hankins, Counsel

                   Stephanie Moore, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             JULY 26, 2005

                           OPENING STATEMENT

                                                                   Page
The Honorable Chris Cannon, a Representative in Congress from the 
  State of Utah, and Chairman, Subcommittee on Commercial and 
  Administrative Law.............................................     1

                               WITNESSES

Mr. Clifford J. White, III, Acting Director, Executive Office for 
  United States Trustees, Washington, D.C.
  Oral Testimony.................................................     6
  Prepared Statement.............................................     9
The Honorable A. Thomas Small, United States Bankruptcy Judge for 
  the Eastern District of North Carolina, on behalf of the 
  Judicial Conference of the United States, Washington, D.C.
  Oral Testimony.................................................    19
  Prepared Statement.............................................    20
Mr. Travis B. Plunkett, Legislative Director, Consumer Federation 
  of America
  Oral Testimony.................................................    24
  Prepared Statement.............................................    27
George Wallace, Esq., Coalition for the Implementation of 
  Bankruptcy Reform, Washington, D.C.
  Oral Testimony.................................................    38
  Prepared Statement.............................................    41

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable Chris Cannon, a 
  Representative in Congress from the State of Utah, and 
  Chairman, Subcommittee on Commercial and Administrative Law....     3

                                APPENDIX
               Material Submitted for the Hearing Record

Letter to the Honorable F. James Sensenbrenner, Jr., House 
  Judiciary Committee, from Bruce Leonard, Chair, and John A. 
  Barrett, Chair, Board of Governors, International Insolvency 
  Institute......................................................    64
Prepared Statement of the International Insolvency Institute.....    67
Prepared Statement of Samuel K. Crocker, on behalf of the 
  National Association of Bankruptcy Trustees, submitted by the 
  Honorable Mark Green, a Representative in Congress, from the 
  State of Utah..................................................    84


    IMPLEMENTATION OF THE BANKRUPTCY ABUSE PREVENTION AND CONSUMER 
                         PROTECTION ACT OF 2005

                              ----------                              


                         TUESDAY, JULY 26, 2005

                  House of Representatives,
                         Subcommittee on Commercial
                            and Administrative Law,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:12 p.m., in 
Room 2141, Rayburn House Office Building, the Honorable Chris 
Cannon (Chairman of the Subcommittee) presiding.
    Mr. Cannon. I think we'll go ahead and begin. Thank you all 
for coming out. Quite a group. I'm a little surprised by the 
attendance here today.
    The Bankruptcy Abuse Prevention and Consumer Protection Act 
of 2005 was signed into law by President George W. Bush on 
April 20, 2005. The act represents one of the most 
comprehensive overhauls of the Bankruptcy Code in more than 25 
years, particularly with respect to its consumer bankruptcy 
reforms. These consumer bankruptcy reforms include, for 
example, the establishment of a means test mechanism to 
determine a debtor's ability to repay debts and the requirement 
that consumer debtors receive counseling prior to filing for 
bankruptcy relief.
    As we know, most of the act's provisions do not become 
effective until approximately 3 months from now on October 17, 
2005. As we also know, the act directs the Executive Office for 
United States Trustees and the Judicial Conference to perform 
various tasks to facilitate the act's implementation. These 
responsibilities include the formulation and issuance of 
various rules, forms, guidelines, and procedures.
    The purpose of today's hearing is to provide an opportunity 
for our Subcommittee to see how the Executive Office and the 
Conference are progressing toward fulfilling these critical 
responsibilities. For example, we are particularly interested 
in hearing how the Executive Office will ensure that only 
qualified credit counseling agencies and financial management 
course providers are approved. Unfortunately, some players in 
this industry have engaged in abusive practices and other 
wrongful behavior.
    With respect to the act's means test reforms, which 
establish an income/expense screening mechanism for the purpose 
of determining a consumer debtor's ability to repay debts, the 
act requires the Executive Office to proactively identify 
abusive bankruptcy cases and to conduct random audits of cases, 
as directed by the act. We would like to know how the United 
States Trustee Program will implement these responsibilities.
    With respect to small business debtors, the act requires 
the United States trustee to conduct an initial debtor 
interview before the creditors for the purpose of investigating 
the debtor's viability and its business plan, among other 
matters. In addition, the act authorizes the United States 
trustee to inspect the debtor's business premises for the 
purpose of reviewing the debtor's books and records and 
verifying that the debtor has filed his tax returns. The 
methods by which the initial debtor interviews and inspections 
are of interest to us.
    Like the Executive Office, the Judicial Conference is 
tasked by the act to play a critical role in its 
implementation. Much of the bankruptcy practice is guided by 
official rules and forms that are prescribed by the United 
States Supreme Court, subject to congressional disapproval or 
amendment.
    The Supreme Court, in this endeavor, is largely guided by 
the Judicial Conference, which typically engages in a very 
prudential and public process from which draft rules and forms 
are proposed and finalized. Specifically, with respect to the 
development of bankruptcy rules and forms, the Conference 
receives guidance from the Advisory Committee on Bankruptcy 
Rules.
    An integral part of the act's means test provisions is the 
requirement that a Chapter 7 debtor to file a statement setting 
forth his or her current monthly income and the calculations 
that determine whether a presumption of abuse based on the 
debtor's ability to repay arises. To implement this 
requirement, section 1232 of the act requires the Supreme Court 
to prescribe an official form for the income/expense disclosure 
statement and to promulgate general rules on the content of 
such statement. These rules and forms must be finalized and 
made available to the public by the act's effective date, 
namely, October 17, 2005.
    Accordingly, we're very interested to learn about the 
process by which these rules and forms will be promulgated, 
whether the process will be completed in time to meet this 
deadline, and whether the public will have an opportunity to 
participate in this process. In addition, we would like to know 
the extent, if any, to which the court system will make the 
Internal Revenue expense standards and Census Bureau income 
statistics readily available to the public.
    Another area of interest to us is the act's provision 
authorizing a court to waive the Chapter 7 filing fee for an 
individual and certain other fees under certain circumstances. 
In light of the fact that $45 of the Chapter 7 trustee's fee is 
paid out of this filing fee, we would like to know how 
Conference will treat the payment of trustee compensation in 
cases where the payment of the filing fee is waived.
    Finally, the act requires certain personal information, 
such as the names of a debtor's minor children, and tax returns 
filed with the court to be safeguarded from public disclosure. 
We would like to know how the court system will ensure that 
this information does not fall into the wrong hands.
    I now turn to my colleague Mr. Watt, who I suspect will 
have a statement for the record. We may recognize him later, 
when he arrives.
    Without objection, any statement by him or other Members of 
the Committee will be placed in the record. Hearing no 
objection, so ordered.
    [The prepared statement of Mr. Cannon follows:]
 Prepared Statement of the Honorable Chris Cannon, a Representative in 
    Congress from the State of Utah, and Chairman, Subcommittee on 
                   Commercial and Administrative Law
    The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 
was signed into law by President George W. Bush on April 20, 2005. The 
Act represents one of the most comprehensive overhauls of the 
Bankruptcy Code in more than 25 years, particularly with respect to its 
consumer bankruptcy reforms. These consumer bankruptcy reforms include, 
for example, the establishment of a means test mechanism to determine a 
debtor's ability to repay debts and the requirement that consumer 
debtors receive credit counseling prior to filing for bankruptcy 
relief.
    As we know, most of the Act's provisions do not become effective 
until approximately three months from now on October 17, 2005. As we 
also know, the Act directs the Executive Office for United States 
Trustees and the Judicial Conference to perform various tasks to 
facilitate the Act's implementation. These responsibilities include the 
formulation and issuance of various rules, forms, guidelines, and 
procedures.
    The purpose of today's hearing is to provide an opportunity for our 
Subcommittee to see how the Executive Office and the Conference are 
progressing toward fulfilling these critical responsibilities. For 
example, we are particularly interested in hearing how the Executive 
Office will ensure that only qualified credit counseling agencies and 
financial management course providers are approved. Unfortunately, some 
players in this industry have engaged in abusive practices and other 
wrongful behavior.
    With respect to the Act's means test reforms, which establish a 
income/expense screening mechanism for the purpose of determining a 
consumer debtor's ability to repay debts, the Act requires the 
Executive Office to proactively identify abusive bankruptcy cases and 
to conduct random audits of cases, as directed by the Act. We would 
like to know how the United States Trustee Program will implemented 
these responsibilities.
    With respect to small business debtors, the Act requires the United 
States Trustee to conduct an initial debtor interview before the 
meeting of creditors for the purpose of investigating the debtor's 
viability and its business plan, among other matters. In addition, the 
Act authorizes the United States Trustee to inspect the debtor's 
business premises for the purpose of reviewing the debtor's books and 
records and verifying that the debtor has filed its tax returns. The 
methods by which the initial debtor interviews and inspections are of 
interest to us.
    Like the Executive Office, the Judicial Conference is tasked by the 
Act to play a critical role in its implementation. Much of bankruptcy 
practice is guided by official rules and forms that are prescribed by 
the United States Supreme Court, subject to Congressional disapproval 
or amendment. The Supreme Court, in this endeavor, is largely guided by 
the Judicial Conference which typically engages in a very prudential 
and public process from which draft rules and forms are proposed and 
finalized. Specifically, with respect to the development of bankruptcy 
rules and forms, the Conference receives guidance from the Advisory 
Committee on Bankruptcy Rules.
    An integral part of the Act's means test provisions is the 
requirement that a Chapter 7 debtor to file a statement setting forth 
his or her current monthly income and the calculations that determine 
whether a presumption of abuse based on the debtor's ability to repay 
arises. To implement this requirement, section 1232 of the Act requires 
the Supreme Court to prescribe an official form for the income/expense 
disclosure statement and to promulgate general rules on the content of 
such statement. These rules and forms must be finalized and made 
available to the public by the Act's effective date, namely, October 
17, 2005. Accordingly, we are very interested to learn about the 
process by which these rules and forms will be promulgated, whether the 
process will be completed in time to meet this deadline, and whether 
the public will have an opportunity to participate in this process. In 
addition, we would like to know the extent--if any--to which the court 
system will make the Internal Revenue expense standards and Census 
Bureau income statistics readily available to the public.
    Another area of interest to us is the Act's provision authorizing a 
court to waive the chapter 7 filing fee for an individual and certain 
other fees, under certain circumstances. In light of the fact that $45 
of the Chapter 7 trustee's fee is paid out of this filing fee, we would 
like to know how Conference will treat the payment of trustee 
compensation in cases where the payment of the filing fee is waived.
    Finally, the Act requires certain personal information, such as the 
names of a debtor's minor children, and tax returns filed with the 
court to be safeguarded from public disclosure. We would like to know 
how the court system will ensure that this information does not fall 
into the wrong hands.

    Mr. Cannon. Without objection, the Chair will be authorized 
to declare recesses of the hearing at any point. Hearing none, 
so ordered.
    I ask unanimous consent that Members have 5 legislative 
days to submit written statements for inclusion in today's 
hearing record.
    At this time, I would like to offer into the record, on 
unanimous consent, a statement from the International 
Insolvency Institute concerning the transitional insolvency 
provisions to be codified in new Chapter 15 of the Bankruptcy 
Code. I believe a copy of this statement is included in the 
Members' packets.
    [The material referred to is located in the Appendix.]
    Mr. Cannon. In addition, on behalf of my colleague, Mr. 
Green, I would like to offer for submission into the record, a 
statement on behalf of the National Association of Bankruptcy 
Trustees.
    As you all know, Mr. Green has been a staunch advocate for 
the bankruptcy trustees over the years. Although he personally 
wanted to be here to make this offer, his scheduling did not 
permit him to attend this afternoon's hearing.
    A copy of this statement was distributed earlier today. It 
is also included in the Members' packets. Accordingly, I seek 
on Mr. Green's behalf unanimous consent that the statement be 
included in the record. Without objection, so ordered.
    [The material referred to is located in the Appendix.]
    Mr. Cannon. I am now pleased and honored to introduce the 
witnesses for today's hearing. Our first witness is Clifford 
White, who is the acting director of the Executive Office for 
United States Trustees. Over the course of his 25 years of 
public service in the Federal Government, Mr. White served as 
an assistant United States trustee and a deputy assistant 
attorney general within the Department of Justice. In addition, 
he was an assistant general counsel at the U.S. Office of 
Personnel Management. He is an honors graduate of George 
Washington University and the George Washington University Law 
School.
    Our next witness is Judge Thomas Small, who appears on 
behalf of the Judicial Conference of the United States. Since 
1982, Judge Small has served as a bankruptcy judge for the 
Eastern District of North Carolina. He received his 
undergraduate degree from Duke University and his law degree 
from Wake Forest University School of Law.
    From 2000 until last year, Judge Small chaired the Judicial 
Conference's Advisory Committee on Bankruptcy Rules. He 
currently serves as the bankruptcy judge representative to the 
Conference. Judge Small was the president of the National 
Conference of Bankruptcy Judges from 2000 to 2001.
    Our third witness is Travis Plunkett, who is the 
legislative director of the Consumer Federation of America. He 
appears today on behalf of the Consumer Federation of America, 
the National Consumer Law Center, and the U.S. Public Interest 
Research Group.
    The Consumer Federation is a nonprofit association of 300 
organizations that promotes consumer interests through advocacy 
and education. It has a defined membership of 50 million 
Americans. The National Consumer Law Center, is a nonprofit 
organization that specializes in consumer issues on behalf of 
low-income people. The U.S. Public Interest Research Group 
serves as a national lobbying office for State public interest 
research groups.
    As the Federation's legislative director, Mr. Plunkett 
focuses primarily on financial issues, including credit 
reporting, bankruptcy, credit counseling, consumer privacy, and 
insurance. Mr. Plunkett previously served as the New York State 
legislative representative of the American Association of 
Retired Persons and the association legislative director of the 
New York Public Interest Research Group. He is a graduate of 
the University of Denver and served in U.S. Army Intelligence 
and Security Command.
    Our final witness is George Wallace, who appears today on 
behalf of the Coalition for the Implementation of Bankruptcy 
Reform. Mr. Wallace has testified about the act's legislative 
predecessors on several occasions.
    Welcome back. We also understand that you interrupted your 
vacation so that you could join us today, and we are most 
appreciative of your efforts to accommodate us on your 
schedule.
    Mr. Wallace began his career as a law professor, teaching 
and writing about bankruptcy and consumer issues for 15 years 
at Tulane, Iowa, Virginia, Stanford, and Rutgers Universities. 
During this time, he started a legal aid clinic in Davenport, 
Iowa; testified in favor of the FTC's credit practices rule; 
was the principal draftsman of the Iowa consumer credit code; 
and handled various bankruptcy matters.
    In 1982, he entered the full-time practice of law, where he 
represented lenders and debtors in commercial and consumer 
bankruptcy cases. From 1997 onward, his practice included 
representation of the Coalition for Consumer Bankruptcy Reform 
and its successors during the development and legislative 
refinement of the act. Currently, Mr. Wallace is the executive 
director of the Center for Statistical Research in Alexandria, 
Virginia. The center specializes in analyzing issues involving 
consumer credit, housing, and wealth distribution.
    Mr. Wallace received his law degree from the University of 
Virginia Law School, where he was a member of the Order of the 
Coif and the Law Review. He received his undergraduate degree 
from Yale University, cum laude.
    I extend each of you my warm regards and appreciation for 
your willingness to participate in today's hearing. In light of 
the fact that your written statements will be included in the 
hearing record, I request that you limit your oral remarks to 5 
minutes. So feel free to summarize them.
    And I may tap a pencil or something inconspicuous because 
we don't want you to just cut off, but to be aware of the time. 
I think we'll have several Members of the Committee here today, 
and they will all want the opportunity to ask questions. And 
so, you'll have an opportunity to expand.
    You have before you a lighting system that starts with a 
green light. After 4 minutes, it turns to yellow and then turns 
to red. And that will work for your 5 minutes as well as other 
Members. I would be a little more strict with Members' timing 
on their questions so that all Members will have an opportunity 
to ask questions if they wish.
    After you have presented your remarks, the Subcommittee 
Members in the order they arrive will be permitted to ask 
questions of the witnesses. And pursuant to the directive of 
the Chairman of the Judiciary Committee, I ask the witnesses to 
please stand and raise your right hand to take the oath.
    [Witnesses sworn.]
    Mr. Cannon. The record will reflect that all of the 
witnesses answered in the affirmative. You may be seated.
    And Mr. White, we'd be pleased if you would proceed with 
your testimony.

TESTIMONY OF CLIFFORD J. WHITE, III, ACTING DIRECTOR, EXECUTIVE 
      OFFICE FOR UNITED STATES TRUSTEES, WASHINGTON, D.C.

    Mr. White. Good afternoon, Mr. Chairman and Members of the 
Subcommittee. I appreciate the opportunity to appear before you 
to discuss the work of the U.S. Trustee Program, our plans for 
implementing the Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2005, and the fiscal year 2006 budget request 
that will provide the necessary resources for us to accomplish 
our goals.
    During the past year, the U.S. Trustee Program has made 
substantial progress in achieving its mission to promote the 
integrity and the efficiency of the bankruptcy system. 
Beginning in April, our focus necessarily turned to 
implementing the new bankruptcy reform statute. Most provisions 
of the law become effective on October 17, and many of its key 
features will be enforced by the U.S. Trustee Program. We are 
currently engaged in a major effort to develop and to 
communicate the necessary policies and systems to effectively 
carry out our new duties.
    Turning first to our major activities and achievements over 
the past year, I can report that combating fraud and abuse in 
the bankruptcy system has remained a key priority. The 
cornerstone of this effort has been our National Civil 
Enforcement Initiative, which addresses fraud and abuse and 
enhances protections for consumer debtors.
    Although the ultimate goal of enhancing the integrity of 
the bankruptcy system does not lend itself easily to a 
quantitative measure, some numbers do help describe the 
magnitude of our success. In fiscal year 2004, the program took 
more than 52,000 civil enforcement and other actions that 
yielded more than $520 million in debts not discharged, 
penalties, and other monetary remedies.
    Criminal enforcement is another key component of our 
strategy to combat fraud and abuse. Our 2-year-old Criminal 
Enforcement Unit, which is largely staffed by veteran career 
Federal prosecutors, has directly assisted United States 
attorneys in numerous prosecutions. Importantly, the unit has 
provided extensive training to program staff, private trustees, 
and Federal law enforcement personnel.
    In my written statement, I also describe many other major 
activities of the program.
    These efforts provide a helpful springboard as we launch 
new initiatives to implement and enforce bankruptcy reform. 
Currently, our foremost responsibility is to implement the new 
statute. We've met with staff and trained staff at different 
levels in the organization and can report a very high level 
throughout the organization in energy, professionalism, and 
commitment to getting the job done.
    Let me briefly highlight just two major areas of interest. 
First, in means testing. Congress prescribed new objective 
criteria for determining an individual debtor's eligibility for 
bankruptcy relief. The U.S. Trustee Program will be the primary 
enforcer to help ensure that debtors seeking Chapter 7 relief 
are not abusing the system.
    It's critical that debtors file with the court new forms 
containing the information necessary to evaluate their 
eligibility. The U.S. Trustee Program is working closely with 
the courts to develop data-enabled, ``smart'' forms, which may 
be issued by the courts. Standardized, automated forms will 
enhance accuracy, timeliness, and cost efficiency for the 
benefit of debtors, creditors, the courts, and the U.S. 
Trustee.
    Second, I'd like to highlight credit counseling and debtor 
education. The new law seeks to ensure that debtors are made 
aware of their options prior to filing bankruptcy and are 
equipped with more knowledge to avoid future financial 
difficulties before they exit bankruptcy. Under the law, the 
U.S. Trustee must approve eligible credit counseling agencies 
and debtor education courses.
    As recently reported by a congressional Committee and 
elsewhere, some agencies within the credit counseling industry 
have engaged in abusive practices. To the maximum extent 
possible, we must screen out unscrupulous counselors without 
erecting unnecessary barriers that would limit the number of 
qualified providers who can assist debtors.
    In June, we issued application forms for providers that we 
believe strike the appropriate balance. We may modify 
application requirements in the future as we learn from 
experience.
    The new law also imposes many other duties on the U.S. 
Trustee Program. And, as the Chairman stated in his opening 
remarks, we will be taking on new responsibilities in areas 
such as small business Chapter 11 cases, debtor audits, and 
conducting numerous studies. We're moving forward with alacrity 
to carry out each of these mandates.
    To continue our work and to implement bankruptcy reform in 
fiscal year 2006, the President's amended budget contains a 
request to fund the U.S. Trustee Program in the amount of 
$222.6 million. This proposal includes an increase of $37.2 
million to fund our new bankruptcy reform responsibilities. The 
additional requested appropriations are within the revenue 
amounts that were provided under the recently enacted 
supplemental appropriations bill, which will add $241 million 
to the U.S. Trustee System Fund over the next 5 years.
    Again, I thank the Subcommittee for the opportunity to 
testify. With adequate resources as contemplated by the new 
bankruptcy reform statute, the program looks forward to 
achieving its mission and successfully carrying out bankruptcy 
reform. I would be pleased to answer any questions from the 
Subcommittee.
    [The prepared statement of Mr. White follows:]
              Prepared Statement of Clifford J. White, III




















    Mr. Cannon. Thank you, Mr. White.
    Judge Small?

   TESTIMONY OF THE HONORABLE A. THOMAS SMALL, UNITED STATES 
BANKRUPTCY JUDGE FOR THE EASTERN DISTRICT OF NORTH CAROLINA, ON 
    BEHALF OF THE JUDICIAL CONFERENCE OF THE UNITED STATES, 
                        WASHINGTON, D.C.

    Judge Small. Thank you, Mr. Chairman and Members of the 
Subcommittee. I'm pleased to have this opportunity this 
afternoon to advise you of the extraordinary efforts the 
judiciary has made to implement the Bankruptcy Abuse Prevention 
and Consumer Protection Act of 2005.
    I'm happy to report that those efforts are on schedule, and 
I anticipate that the bankruptcy system will be ready on 
October 17, when the act's major provisions become effective.
    As you know, the rule-making process under the Rules 
Enabling Act is a deliberative one, with a long period provided 
for public comment and public hearings. Bankruptcy rules must 
be approved by the Advisory Committee on Bankruptcy Rules and 
by the Standing Committee, then by the Judicial Conference of 
the United States, and finally by the United States Supreme 
Court. And after that, there is a 7-month review period by 
Congress.
    Typically, the process takes at least 3 years, and if 
everything goes according to plan, permanent rules and forms 
needed to implement the reform legislation will be in place on 
December 1, 2008. Until that date, interim rules and forms are 
needed. The judiciary has utilized interim rules in similar 
circumstances in the past, notably in connection with the 
Bankruptcy Reform Act of 1978 that became effective on October 
1, 1979.
    In mid August of '79, the Bankruptcy Rules Committee 
proposed suggested interim rules to implement the 1978 act, and 
they requested that those interim rules be adopted by each 
court as local rules. A similar approach will be followed this 
time with respect to the Reform Act of 2005. The only 
difference being that, in addition to having the approval of 
the Bankruptcy Rules Committee, the suggested interim rules and 
forms will be approved by the Standing Committee and the 
Judicial Conference as well.
    On April 21, the day after President Bush signed the reform 
act, the Chair and several members of the Bankruptcy Rules 
Committee met in Washington to devise a plan for developing 
interim rules and forms. Their goal was to have the interim 
rules approved by the Bankruptcy Rules Committee at a special 
meeting during the first week in August.
    Herculean efforts toward that goal have made--were made by 
the committee's chair, several subcommittees, the committee's 
reporter, two consultants, the administrative office staff, the 
Federal Judicial Center staff, and the Executive Office of the 
United States Trustee. And as a result, drafts of 40 to 50 
interim rules and forms are almost ready. And as soon as those 
drafts are finalized, sometime this week, they will be 
submitted to all Members of the Bankruptcy Rules Committee, and 
they will also be posted on the Web site of the United States 
courts.
    The full Committee will vote on those interim rules at its 
2-day public meeting next week in Washington on August 3 and 4. 
When the suggested interim rules and forms have been approved 
by the Bankruptcy Rules Committee, they will be sent first to 
the Standing Committee and then to the Judicial Conference for 
expedited consideration.
    After the Judicial Conference approves the interim rules, 
probably in mid August, each local court will be asked to adopt 
them. The interim forms will be temporary forms, but pursuant 
to Bankruptcy Rule 9009, they will be official forms required 
for use by all courts until they are replaced by permanent 
official forms, which will have been adopted after the 
extensive public comment and public hearing process.
    As I said before, the task force--the task before the 
Bankruptcy Rules Committee over the past 100 days has been 
formidable. And I can hardly overstate how much arduous work 
the committee has devoted to developing proposed interim rules 
and forms. But implementing the new law has involved much more 
than just rules and forms. Countless working groups of judges, 
clerks, deputy clerks, the staff of the administrative office, 
and the Federal Judicial Center have diligently been preparing 
for the coming changes on October 17.
    Compliance with the new law requires extensive modification 
of the court's operating procedures, also demands complete 
reprogramming of the court's case management electronic case 
filing system. A particular challenge has been devising a 
reliable method for complying with the notice requirements of 
new Bankruptcy Code Section 342. And another necessity, and 
obviously a high priority, is the training of everyone involved 
in carrying out the provisions of the new act, especially 
judges, clerks, deputy clerks, case administrators.
    Furthermore, bankruptcy administrators in the District of 
Alabama and North Carolina are preparing to assume their new 
responsibilities under the act, and the administrative office 
is working hard to find the space and facilities for the new 
and urgently needed bankruptcy judges. Getting ready hasn't 
been easy, but with an impressive ongoing effort, the judiciary 
will be ready on October 17, when the new law goes into effect.
    [The prepared statement of Judge Small follows:]
              Prepared Statement of Judge A. Thomas Small
    Mr. Chairman and members of the subcommittee, I am A. Thomas Small, 
judge of the United States Bankruptcy Court for the Eastern District of 
North Carolina. I appear today on behalf of the Judicial Conference of 
the United States, the policy-making arm of the federal courts, to 
report on the actions taken by the federal judiciary to implement the 
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 [the 
``Act''], particularly the development of necessary new rules and 
forms. I serve as the bankruptcy judge representative to the Judicial 
Conference and am the immediate-past chair of the Advisory Committee on 
Bankruptcy Rules, having served in that capacity from 2000 to 2004. The 
present committee chair, Judge Thomas S. Zilly, is unable to attend 
because of pressing court business.
    I appreciate this opportunity to share with you details of the hard 
work that the Judicial Conference and its committees have done so far 
in reviewing, understanding, and implementing this massive and 
complicated legislation within such a brief period of time. The Act 
exceeds 500 pages in length and affects virtually every aspect of 
bankruptcy cases. Among other things, it introduces the concept of a 
means test as a requirement of eligibility for chapter 7 relief, adds 
an entirely new chapter to the Code (chapter 15 governing cross border 
insolvencies), and creates new categories of debtors and cases (small 
business cases and health care businesses). The provisions of the Act 
generally take effect on October 17, 2005. Implementing the legislation 
on a timely basis presents a tremendous challenge for the judiciary.
    I will address the actions taken by the Advisory Committee on 
Bankruptcy Rules [the ``Advisory Committee'' or ``committee''] to 
develop rules and forms implementing the Act, which I understand is one 
of the subcommittee's principal concerns. Later, I will briefly discuss 
the measures taken by other Judicial Conference committees and the 
Administrative Office of the United States Courts to implement the Act 
generally.
    On April 21, 2005, (one day after the Act's enactment) the Advisory 
Committee held an organizational meeting here in Washington to devise a 
plan to carry out the Act's rules-related provisions. The Advisory 
Committee represents a wide spectrum of views and consists of 16 
members appointed by the Chief Justice, who are well experienced and 
expert in bankruptcy law. The committee includes six article III 
judges, four bankruptcy judges, three private-sector attorneys, two law 
professors, and an official from the Department of Justice. In 
addition, the Director of the Executive Office for the United States 
Trustees and a bankruptcy clerk of court regularly attend and 
participate in the committee's meetings. The committee has been working 
closely and very productively with the Executive Office for the United 
States Trustees to develop the means testing form, a primary component 
of the Act. At the organizational meeting, the committee's chair tasked 
three subcommittees to address the business, consumer, and forms issues 
arising from the Act. Later, the chair tasked three additional 
subcommittees to address the Act's provisions on cross-border 
insolvencies, health care, and direct appeal provisions.
    The Consumer Subcommittee met separately on May 6 and June 14; the 
Business Subcommittee met on May 5 and June 13; and the Forms 
Subcommittee met on May 6 and June 15. All the subcommittees have also 
conducted lengthy conference calls, usually lasting more than three 
hours. Their work product has been reviewed by a style subcommittee for 
clarity and consistency. The full Advisory Committee is holding a 
public meeting in Washington on August 3-4, 2005. At the meeting, the 
committee will consider approximately forty new or amended rules and 
changes to virtually all the Official Forms.
    The groundwork for much of the Advisory Committee's work had been 
prepared and considered by the committee at its meetings in 2001 and 
2002, when earlier versions of the Act appeared to be nearing passage 
in Congress. The committee worked on amendments to about thirty rules 
and changes to about twenty forms. Many of these earlier proposals 
remain largely unchanged or slightly refined and are part of the 
package now under consideration. Along with the committee's more recent 
consideration of the rules and forms, these records provide a rich 
source of information for anyone interested in the development of the 
rules and forms.
    In accordance with established Judicial Conference procedures, all 
rules-related records are available to the public on request. 
Consistent with these procedures, the drafts of rules and forms 
considered by the committee at its earlier meetings, as well as all 
current draft rules and forms, have been and continue to be available 
to the public on request. The public may obtain a copy of any draft 
rule or form simply by contacting the Administrative Office. Likewise, 
all meetings of the full Advisory Committee are open to the public. 
Minutes of each meeting of the full Advisory Committee are posted on 
the judiciary's internet web site.
    At the Advisory Committee's April organizational meeting, it was 
decided that a two-track process would be necessary to implement the 
Act because its impending effective date did not provide sufficient 
time to proceed under the regular rulemaking process, which ordinarily 
takes three years. The first track was to: (1) identify which rules-
related provisions in the Act require an immediate response; and (2) 
develop interim rules and forms addressing these time-sensitive 
provisions well before the October 17 deadline so that the courts have 
adequate time to implement them. The second track will be to monitor 
the courts' experiences with the interim rules and forms, 
simultaneously proceeding with the regular rulemaking process and 
inviting public comment beginning in August 2006 on converting the 
interim rules to permanent federal rules. At the same time, the 
committee would also publish for comment additional proposed rule 
amendments not included as part of the time-sensitive interim rules 
package.
    Under the first track, interim rules will be circulated in mid-
August 2005 to the courts with a recommendation that they be adopted 
without change as part of a standing or general order. The Advisory 
Committee considered, but rejected, recommending model local rules 
implementing the Act because many of the model local rules would 
necessarily conflict with existing federal Bankruptcy Rules, which are 
based on pre-Act law. Local rules cannot be inconsistent with the 
federal rules. Any amendment of local rules will have to await 
amendment of the federal rules through the regular rulemaking process, 
which cannot be accomplished in time to meet the Act's effective date. 
The committee concluded that the best vehicle to accomplish the Act's 
objectives was to develop interim rules and urge the courts to adopt 
them, while simultaneously monitoring the courts' experiences and 
working on permanent changes to the federal rules. The same process was 
followed on three separate occasions in the past when the Bankruptcy 
Code was amended in 1978, 1986, and 1994, and interim rules 
contemporaneous with the Act's effective date were issued. On each 
occasion, the courts uniformly adopted the committee's interim rules 
recommendations. I am confident that the courts will continue this 
tradition and adopt the interim rules now under consideration.
    As a practical matter, the courts' discretion in adopting the 
amended and new rules is limited, because many of the Act's rules-
related provisions will be implemented by amended or new Official 
Forms, which work in tandem with the interim rules and often are based 
on them. Unlike the recommended interim rules, however, the Judicial 
Conference itself authorizes the Official Forms, which courts must 
``observe'' under Bankruptcy Rule 9009. Thus, courts will have a real 
incentive to adopt the recommended interim rules in order to facilitate 
compliance with the mandatory Official Forms.
    Courts will require several weeks to train staff and make 
appropriate arrangements to implement the interim rules and forms. 
Major modifications must be made to the Case Management/Electronic Case 
Filing software, which has now been deployed in virtually all the 
bankruptcy courts. The judiciary must quickly accomplish many other 
time-consuming and burdensome tasks, which I later describe, all of 
which require significant lead time. In addition, legal publishing 
firms require at least 60 days to make appropriate software changes and 
arrangements to mass-produce amended or new Official Forms. To meet 
these demands, the Advisory Committee has been working on an expedited 
timetable that expects the interim rules and forms to be completed and 
circulated to the courts by mid-August 2005. Achieving this ambitious 
goal has imposed enormous burdens not only on the Advisory Committee, 
but on the Committee on Rules of Practice and Procedure [the ``Standing 
Committee''] and the Judicial Conference, all of which must review and 
approve these actions. Then the ninety bankruptcy courts and their 
administrative staff will have to adopt all the changes in their local 
systems. Carrying out this legislation has severely strained the 
judiciary, which is already under enormous pressure to cope with its 
day-to-day responsibilities in the administration of justice. 
Nevertheless, the judiciary is committed to fully and faithfully 
execute the Act's provisions.
    Recommending interim rules and authorizing Official Forms without 
going through the regular Rules Enabling Act rulemaking process is an 
unavoidable expedient compelled by the Act's fast-approaching effective 
date. To meet the Act's deadline, the Advisory Committee has devoted 
substantial time and effort in developing interim rules and forms that 
faithfully implement the Act. It has worked closely with the Executive 
Office for the United States Trustees. It has consulted with experts 
who participated in the legislation, who at times disagreed among 
themselves over the meaning of particular provisions in the Act, making 
the committee's job all the more difficult. It has reached out to many 
corners of the bar for assistance. It has relied on its members' varied 
experiences, including members who represent creditors and others who 
represent debtors in their private practice. All these efforts have 
been undertaken in an open fashion to ensure that the process remains 
transparent, a hallmark of the rulemaking process.
    The Advisory Committee's work product is outstanding. But the 
committee recognizes the inherent limitations of its abbreviated review 
process. Any shortfalls in the committee's work will be identified and 
corrected beginning in August 2006, when the interim rules and the 
amended and new Official Forms will undergo the exacting scrutiny of 
the regular rulemaking process. The Rules Enabling Act rulemaking 
process is a painstaking and time-consuming process that ensures that 
the best possible rules are promulgated. Permanent changes to the 
Federal Rules of Bankruptcy Procedure and forms to implement the Act 
will take place during the second track in accordance with the 
rulemaking process as described below.
    The Rules Enabling Act rulemaking process is set out in 28 U.S.C. 
Sec. Sec. 2071-2077. In accordance with the regular process, the 
Advisory Committee will review the experiences of the bench and bar 
with the interim rules and forms with a view toward proposing permanent 
amendments to the Federal Rules of Bankruptcy Procedure and 
recommending any additional appropriate revisions to the Official 
Forms. At its spring 2006 meeting, the committee is expected to approve 
and transmit the interim rules as proposed amendments to the federal 
rules, with or without appropriate revisions, to the Standing Committee 
at its June 2006 meeting with a recommendation that it approve 
publishing them for public comment. In addition, the committee will 
request that the package include an opportunity for the public to 
comment on the forms authorized in 2005. If approved, the interim rules 
and forms will then be published in August 2006 for a six-month period. 
Hearings will be scheduled at which the public can testify on timely 
request.
    The Advisory Committee's reporter will summarize all comments and 
statements submitted on the proposed rules and forms. The committee 
will meet in spring 2007 and consider any changes to the proposed rules 
and forms in light of the public comment. If approved, the committee 
will transmit the proposed rules and forms to the Standing Committee in 
June 2007 with a recommendation that they be approved and submitted to 
the Judicial Conference at its September 2007 session. If approved by 
the Standing Committee and the Conference, the proposed rules will then 
be submitted to the Supreme Court for its consideration. Changes to the 
Official Forms, however, do not have to be approved by the Court and 
will take effect on a date designated by the Conference. The Court has 
until May 1, 2008, to prescribe the rules and transmit them to 
Congress. The rules then would take effect on December 1, 2008, unless 
Congress acts otherwise.
    At each stage of the rulemaking process, the proposed rule 
amendments and forms will be subjected to exacting scrutiny. 
Participation of the bench, bar, and public in the rules process 
ensures that the procedural rules implementing the Act will be the best 
that we can conceive. The rules committees have completed a remarkable 
amount of first-rate work, yet much remains to be done. These 
accomplishments are all the more impressive because they represent the 
work of volunteers, many of whom incur substantial monetary sacrifices 
in terms of lost income and all of whom sacrifice enormous amounts of 
time for the public good.
    I have alluded in earlier parts of my statement to many other 
projects that the judiciary has undertaken to implement the Act. I now 
turn to address some of these important matters.
    Members of the judiciary, including members of several Judicial 
Conference committees, judges, clerks, and staff at the Administrative 
Office of United States Courts [the ``AO''] and the Federal Judicial 
Center [the ``FJC''], have worked tirelessly to implement the Act by 
its general effective date. This work involves a cross-section of 
disciplines within the judiciary that require expertise in such areas 
as rules and forms, clerk's office procedures, bankruptcy 
administration, budget and accounting, information technology, 
statistics, training, human resources, and judicial education.
    Information on the Act was quickly transmitted to the courts and 
clerks as soon as the law was enacted. Thereafter, judges, clerks, and 
other members of the judiciary were kept informed of issues that arise 
from the changes to the Bankruptcy Code, and given reports of progress 
on the judiciary's implementation of the Act. In addition to memoranda 
to the courts, the AO and the FJC have established web sites where 
information and analyses of the Act are posted for review and study by 
members of the judiciary. In order to implement the Act in an orderly, 
methodical, and coordinated fashion, Director Mecham determined that 
the AO's Office of Judges Programs would coordinate the multi-faceted 
implementation work.
    Implementing the new law has required substantial on-going 
coordination with the Executive Office for the United States Trustees 
and meetings or exchanges with other such agencies as the Internal 
Revenue Service, the Department of Health and Human Services, and the 
Census Bureau. Additionally, the AO has called upon many individuals 
and groups for assistance, including members of the Judicial 
Conference, article III and bankruptcy judges, clerks of court, and 
deputy clerks. Ad hoc working groups were created, new Judicial 
Conference subcommittees were formed, and a special advisory group of 
judges and clerks was called upon to help develop new policies and 
procedures for bankruptcy clerks' offices.
    The implementation process is progressing according to projected 
time tables. At this point, we expect to meet all deadlines, although 
it will be a struggle to do so. It is not possible to provide a 
detailed recitation of all of the work in progress in this short 
testimony, but I can provide you an overview of some of the other major 
initiatives beyond the rules process.
                    changes in operating procedures
    Significant changes to the courts' operating procedures are 
underway. First, careful analyses of the Act to determine all the 
changes required in the courts' operating procedures were conducted. 
Thereafter, revised practices and procedures were developed to meet the 
requirements of the Act. Once a broad outline of the requirements and 
revised procedures were in place, significant changes were initiated to 
reprogram the judiciary's Case Management/Electronic Case Filing 
system. Additionally, the judiciary is developing guidelines and 
procedures to address various new procedures added by the Act, such as 
allowing in forma pauperis chapter 7 filings, handling copies of 
debtor-tax returns filed with the court, and instituting procedures for 
nationwide noticing for creditors.
                                training
    The FJC and the AO have planned and begun training for bankruptcy 
judges, bankruptcy clerks and bankruptcy administrators, and court 
staff, including case administrators in the clerks' offices who will 
use the revised CM/ECF system. Training occurs nationally at 
specifically designated seminars, at conferences, and via the ``FJTN,'' 
the FJC's closed-circuit television broadcast channel. Many other 
groups have reached out to the AO for assistance or participation in 
their training plans.
                    bankruptcy administrator program
    The AO is working directly with the six bankruptcy administrator 
offices in the states of Alabama and North Carolina to prepare them to 
assume all the new duties and responsibilities required of them under 
the Act. First, careful analysis of the Act was conducted to pinpoint 
all the new duties, whether they are explicitly imposed on bankruptcy 
administrators by the Act or are needed to maintain parallel treatment 
with new duties imposed on United States trustees. The bankruptcy 
administrator offices must be educated as to the changes in the law, 
changes in the courts' operating procedures, and changes to the 
bankruptcy administrators' own duties and responsibilities, such as 
overseeing means testing and small business chapter 11 cases certifying 
consumer credit counseling and financial management courses, and taking 
on new audit and reporting responsibilities. The AO is in contact with 
each bankruptcy administrator office, and an inclusive seminar is 
planned for them well before the effective date of the Act. In 
addition, current bankruptcy administrator procedures and manuals will 
have to be revised substantially, and changes will have to be made to 
their automated case management systems.
                               statistics
    Major changes will be needed in the judiciary's statistical 
systems, both to adjust to the many changes in the bankruptcy system 
required in the Act generally and to comply with section 601 of the 
Act, which requires the AO to gather information and produce a whole 
new set of reports on consumer debtor cases. The AO has worked hand in 
hand with the Executive Office for the United States Trustees and with 
bankruptcy clerks to redesign the data input forms, reprogram the case 
management systems, design extraction programs, and build a whole new 
enterprise data system capable of receiving and processing the data.
                         additional judgeships
    Authorization of additional bankruptcy judgeships by the Act was 
effective upon enactment. The Judicial Conference has notified all 
affected circuits, including those that did not receive the bankruptcy 
judgeships recommended by the Conference to Congress in early 2005. 
Some circuits have begun the appointment process, advertising their new 
vacancies and receiving applications for the positions. The AO is 
working to identify adequate space and facilities for these new judges 
and chambers staff.
    We share a common interest in ensuring that the bankruptcy system 
as a whole is prepared on October 17, 2005, when most of the provisions 
of the Act are effective. The amount of work required of the judiciary 
to implement the Act is immense and costly, especially considering the 
short time frame available to accomplish the extensive revisions 
required of the existing systems. The work to date has been impressive 
and remarkable, and we are confident that the deadlines will be met. 
Thank you.

    Mr. Cannon. Thank you, Judge Small.
    Mr. Plunkett, you are now recognized for 5 minutes.

TESTIMONY OF TRAVIS B. PLUNKETT, LEGISLATIVE DIRECTOR, CONSUMER 
                     FEDERATION OF AMERICA

    Mr. Plunkett. Good afternoon, Mr. Chairman, Ranking Member 
Watt, and Members of the Committee.
    I'm Travis Plunkett. I'm the legislative director of the 
Consumer Federation of America, and I appreciate the 
opportunity to offer our comments and those of the National 
Consumer Law Center and the U.S. Public Interest Research Group 
today.
    As you may know, our organizations opposed the Bankruptcy 
Abuse Prevention and Consumer Protection Act because we viewed 
it as an unbalanced law that erects dozens of new barriers that 
will likely keep many Americans who need a fresh start in 
bankruptcy from receiving it. However, since the law has yet to 
take effect, I would like to focus my comments on two new 
provisions in the law on which important implementation 
decisions are being made as we speak.
    One has already been talked about. It requires consumers to 
receive credit counseling before filing for bankruptcy and then 
again before being discharged. The second requires broad 
disclosure of tax returns by debtors, which raises significant 
privacy concerns.
    First, on credit counseling. Our organizations support 
credit counseling if it's properly administered, but this is a 
very dangerous time to be requiring over a million new 
consumers to see credit counselors. As you've heard, there have 
been serious problems in the industry affecting a number of 
agencies involving deceptive acts and practices, excessive 
cost, and abuse by these agencies of their nonprofit status. 
And a host of Federal and State agencies and regulators are 
investigating this industry.
    Unless the shady operators and substandard agencies in the 
industry are completely shut out of offering credit counseling 
under this law, Congress could be creating a situation in which 
it has forced consumers into the hands of unscrupulous 
agencies. So I would strongly urge this Subcommittee to 
exercise vigorous oversight of the implementation of this 
requirement in the next year.
    I would say that the Executive Office of the U.S. Trustees 
is working very hard, from what we could tell, to keep bad 
agencies from being approved. But they've got a monumental task 
before them. Let me point to four specific issues.
    First, it's not at all clear that there is adequate 
capacity of quality credit counseling to meet the requirements 
of the law. So we're in a bind because, as you've heard, the 
Executive Office of the U.S. Trustees is working hard to ensure 
that there is adequate capacity.
    We would hate to see a situation where, because of the 
demands of the law, inferior or unscrupulous agencies are 
approved. Conversely, we want to make sure, obviously, that 
adequate capacity exists not just for in-person counseling, 
which is allowed under the law; not just for telephone 
counseling, which is allowed under the law; or Internet 
counseling as well, but for all three throughout the country. 
That is a difficult task.
    So we urge this Committee and the Executive Office of the 
U.S. Trustees to work hard to assure that, first, standards are 
applied to ensure that no substandard agencies or agencies that 
might cause harm are approved. And second, that adequate 
capacity for all three delivery channels--consumers need a 
choice here--is provided.
    Second issue, affordability. Obviously, folks on the brink 
of bankruptcy are not in good financial shape. We know from 
much research that average incomes for Chapter 7 filers are in 
the low 20's. For Chapter 13 filers, in the high 20's.
    It would be a mistake to assume that the ability to pay 
much, if anything, for credit counseling is significant here. 
So it's going to be up to the Executive Office of the U.S. 
Trustees to take affirmative steps to ensure that the law's 
requirements that the fees be reasonable are met and that 
appropriate fee waivers are provided for low-income consumers 
so that they don't have to pay anything for this service.
    The executive office has not done that yet, and it's 
important that they lay out requirements for those fees, cap 
them, and ensure that a sliding scale is available based on 
ability to pay.
    Third big issue, credit counselors and creditors need to do 
more to ensure that credit counseling actually works, that it's 
actually a viable alternative to bankruptcy. The key here is 
that they need to provide a significant break for consumers who 
enter credit counseling debt management plans on what they owe. 
Right now, creditors don't provide a break at all in the 
principal that is owed.
    The law actually has a provision that we urge the Executive 
Office of the U.S. Trustees to enforce that requires the 
creditors offer--that provides an incentive, I should say, for 
creditors to offer a real break on what is owed on principal. 
And we urge the Executive Office of the U.S. Trustees to look 
hard at that provision and to ensure that creditors and credit 
counseling agencies are doing that.
    Finally, let me say that privacy is going to be a major 
issue regarding the new law's requirements that tax forms be 
disclosed as part of the bankruptcy process by those filing. 
This is a huge potential privacy issue. The law clearly vests 
with the Administrative Office of the U.S. Courts the ability 
to restrict access to creditors who are allowed access upon 
request.
    And the important--the most important thing here is that 
creditors should not be allowed carte blanche access for any 
reason that they choose based on filing of one form with the 
court to this tax information. They should be required by the 
courts to show cause. Otherwise, we could have very significant 
potential security breaches or the inappropriate uses of the 
extremely sensitive information on these tax forms.
    I have a lot of detail on the specific steps we urge the 
Administrative Office to take to protect the privacy of tax 
forms, especially regarding creditors in my testimony, and I'll 
leave it at that.
    Thank you.
    [The prepared statement of Mr. Plunkett follows:]
                Prepared Statement of Travis B. Plunkett






















    Mr. Cannon. Thank you, Mr. Plunkett.
    Mr. Wallace?

     TESTIMONY OF GEORGE WALLACE, ESQ., COALITION FOR THE 
     IMPLEMENTATION OF BANKRUPTCY REFORM, WASHINGTON, D.C.

    Mr. Wallace. Good afternoon, Chairman Cannon, Ranking 
Member Watt, and Members of the Subcommittee.
    My name is George Wallace. It's my pleasure to appear 
before you today to discuss the important topic of implementing 
the Bankruptcy Abuse Prevention and Consumer Protection Act of 
2005.
    I am testifying on behalf of the Coalition for the 
Implementation of Bankruptcy Reform, which is comprised of 
major trade associations and companies that represent the full 
range of consumer credit businesses interested in bankruptcy 
reform.
    The coalition is fully committed to working with all 
interested parties to ensure that the act is implemented as 
Congress intended. Our most important objective is to ensure 
that an improved bankruptcy process enables consumers to fully 
and efficiently obtain bankruptcy relief. At the same time, 
this improved process should afford a meaningful opportunity 
for consumers who can resolve their financial difficulties 
through counseling or other means to do so.
    My remarks today are focused upon implementation of the 
consumer bankruptcy provisions of the act. Although the act 
brings much needed fundamental change to this area, it must be 
appropriately and efficiently implemented to fully accomplish 
its goals. Let me now discuss some of the most significant 
elements of the consumer bankruptcy implementation process. I 
have approximately six points to make.
    The act, with regard to credit counseling, which has been 
discussed before, the act requires consumers to obtain credit 
counseling, of course, before they file bankruptcy from a 
nonprofit budget and credit counseling agency approved by the 
United States trustee. This is one of the most important 
consumer benefits included in the act. For this provision to be 
effective, only counseling agencies of the highest quality can 
be approved by the United States trustee.
    In our view, the United States Trustee Program has taken 
important steps to achieve this goal. We urge, however, 
consideration of two modifications to its current draft 
requirements. First, the proposed bonding requirements may be 
given excessive--may be excessive, given the limited resources 
of many of the nonprofit counseling agencies. One possible 
solution would be to cap bonding requirements based on a 
variety of factors, including the resources of the counselor 
and other bonds and fidelity insurance it already has in 
place--for example, under State law requirements. We under the 
U.S. Trustee Program is already reviewing its requirements in 
this regard.
    Second, counselors are appropriately required to properly 
identify consumers when they seek counseling. But how is that 
done when the counseling is conducted remotely, such as by 
Internet or phone? One solution would be to require that when 
the consumers seek counseling remotely, the consumers need to 
be verified by comparing information the consumer provides to 
information in a consumer report or similar document.
    The second issues is needs-based bankruptcy. An essential 
component of the reforms that are needs-based is the form 
system. Congress designed the needs-based process so that it 
could be implemented efficiently without imposing undue burdens 
on those who administer the bankruptcy process. In order for 
the clerks, United States trustees, and bankruptcy 
administrators, the Chapter 7 trustees to perform their 
required functions efficiently, the needs-based bankruptcy 
forms must be properly crafted.
    The forms should be simple and easy for consumers to 
understand, court officials to use, and creditors to review, 
and should provide a clear indication whether the presumption 
of repayment capacity is triggered. Section 1232 of the act 
requires no less. Development of this and other forms to 
implement the act is delegated in the first instance of the 
Judicial Conference. The first Advisory Committee on Bankruptcy 
Rules meeting will be held August 3 of this year, and the steps 
then proposed will permit us to evaluate how well this 
important task is being performed.
    In addition, whenever a trustee determines that the 
presumption is triggered, a motion to dismiss the case should 
be filed unless special circumstances required by the act are 
clearly demonstrated. It is important to note that any 
deviations from the means test enacted by Congress are 
unnecessary because Congress already built into the needs-based 
test sufficient flexibility in the repayment thresholds and 
through the special circumstances provisions.
    Thirdly, with regard to audits, the act requires the 
attorney general and Judicial Conference to establish an audit 
program to determine the accuracy, veracity, and completeness 
of petitions, schedules, and other information that the debtor 
required--is required to provide in individual bankruptcy 
cases. These audit functions are an extremely important part of 
the proper implementation of the act because the information 
filed by individuals in a bankruptcy case is essential for the 
proper working of the new bankruptcy process. Without 
appropriate audits, the lack of reliability Congress found to 
exist during the enactment process will continue unabated.
    Fourthly, information filed with the bankruptcy case. As 
part of the efforts to address the unreliability of information 
filed in bankruptcy cases, the act requires that individual 
debtors must file tax returns and pay stubs in Chapter 7 and 
Chapter 13 cases. In order to ensure that congressional intent 
is implemented, the trustees must make sure that procedures are 
in place to ensure that creditors in the case are able to 
access the tax return and other information efficiently.
    Fifthly, reaffirmation agreements. The act includes new 
provisions clearly defining and standardizing process for 
reaffirming a debt. While the act sets out verbatim the 
specific disclosures that must be made in connection with the 
reaffirmation agreement, it would be very helpful in ensuring 
uniform nationwide implementation if the Administrative Office 
of the United States Courts, which now provides a nonmandatory 
form for reaffirmations, would promptly revise and publish a 
new form, faithfully following the new statutory requirements.
    And last, improving bankruptcy statistics. Section 601 of 
the act requires the clerk of the court to collect statistics 
regarding debtors or individuals with consumer debts seeking 
relief under Chapters 7, 11, and 13. In addition, the attorney 
general must issue rules requiring uniform forms for final 
reports by trustees in cases under Chapters 7, 12, and 13. And 
then there is a provision for the collection of this 
information and reporting it.
    It is critical that these data collection tasks be fully 
implemented. In future years, the resulting data will provide a 
solid information basis on which to build constructive 
bankruptcy policy.
    Conclusion. I have highlighted some of the most important 
implementation tasks, but I have hardly been exhaustive. The 
act's reforms require cooperation by several separate 
governmental and quasi-governmental agencies if the 
legislation's goals are to be promptly realized.
    The Bankruptcy Rules must be revised in several respects, 
and since the formal process to do so takes some time, uniform 
interim rules that can be adopted by each local bankruptcy 
court should be proposed. Forms and procedures must be 
developed. Issues, as they arise, must be resolved. Many 
entities have important functions to perform, either in 
cheerfully making the new system work or examining how well it 
does work.
    We appreciate the interest the Subcommittee has shown in 
overseeing the process and encouraging the involved parties to 
work together in good faith to implement the legislation. I 
would like to thank the Subcommittee for the opportunity to 
appear before you today to discuss this important topic. I 
would be happy to answer any questions you may have.
    [The prepared statement of Mr. Wallace follows:]
                  Prepared Statement of George Wallace












    Mr. Cannon. Thank you, Mr. Wallace.
    As Chair, let me suggest the following order for questions. 
If someone has a commitment and would like to be recognized out 
of this order, we'd appreciate hearing about it now. But first 
of all, Mr. Gohmert, then Mr. Watt, then Mr. Franks, Mr. 
Delahunt, Mr. Chabot, and then Mr. Nadler. And if there is 
anything left to ask, I will follow up with questions.
    Mr. Gohmert? You are recognized for 5 minutes.
    Mr. Gohmert. Thank you, Mr. Chairman.
    Mr. Plunkett, let me ask you a question. You had indicated 
that we should be involved in significant oversight to help--
these weren't your words--but basically to keep the charlatans 
out of the consumer counseling business. What amendments, if 
any, do you think would help make that possible?
    Mr. Plunkett. Well, at this point, it appears to be a 
question of implementation. The standards laid out in the law 
for quality, although quite general, are fairly good. For 
example, it----
    Mr. Gohmert. Well, but I'm just asking--my question is, do 
you see any amendments that would help keep charlatans out of 
the consumer counseling business?
    Mr. Plunkett. At this point, I would suggest that what's 
needed is really tough oversight.
    Mr. Gohmert. Okay. You'll go back to my original question.
    Mr. Plunkett. Yes.
    Mr. Gohmert. Besides oversight. So listen to me. Besides 
oversight, what amendments, if any, do you think would help 
keep charlatans out of consumer counseling?
    Mr. Plunkett. I wouldn't recommend anything at this point. 
As I mentioned, the standards are fairly good. However, if it's 
not properly implemented, we're still going to have the 
charlatans offering credit counseling.
    Mr. Gohmert. Okay. Thank you. And you also mentioned that 
you want to protect basically tax information from creditors 
unless they were to show cause before they got it. And it's 
been years, before I ever went on the bench as a judge that I'd 
been in bankruptcy court with clients, but--and that was 
usually from an FDIC standpoint.
    Is it currently required that debtors file any tax 
information?
    Mr. Plunkett. It will be under this act.
    Mr. Gohmert. No, but I mean right now. There is no 
requirement like that. Is that correct?
    Mr. Plunkett. Not that I know of.
    Mr. Gohmert. All right. What, in your opinion, would be 
good cause to require the furnishing of the tax information?
    Mr. Plunkett. There needs to be either a cause showing that 
the trustee, which is allowed access to the tax information, 
can't adequately verify the income and expense information 
required by the law. General verification of accuracy is the 
issue, and it needs to be a creditor, for instance, that is 
requesting this tax information needs to show that the trustee 
can't do that verification, first and foremost.
    Second, the creditor needs to show a particular need based 
on the specifics of the individual's, that is the debtor's, 
problem. This should not be a form request for all cases that 
the creditor is a party and interest to. That is, it needs to 
be an individualized decision. We have no problem, of course, 
because the law requires it, with the requirement that where 
there is cause that creditors have access to this information.
    But that is going to--the issue is----
    Mr. Gohmert. Well, the question was, though, what cause? 
Thank you.
    Mr. White--and I'm sorry to be sharp in cutting off when it 
is not germane to the question, but our time is so limited. Mr. 
White, you know, you've--well, Mr. Plunkett in his written 
testimony had indicated that given the ongoing problems in the 
credit counseling industry, and I think most of us would 
acknowledge there have been some, this is a very dangerous time 
to be requiring over a million new consumers to see credit 
counselors. What would be your response to that?
    Mr. White. I'd look at it in two ways, Congressman. First, 
in terms of the possibilities for salutary effect, it's quite 
significant because what's being done here, in many respects, 
is a consumer protection provision that will ensure that 
debtors will come into the system after first receiving 
counseling services so they know what their options are to go 
into bankruptcy or to develop other budget or alternative 
repayment methods. That can be very salutary.
    But, as all of us know, there have been significant 
problems in the industry. We, at the end of June, just a few 
weeks ago, issued for the first time the application materials 
under the standards set forth in the statute. What we tried to 
do was to strike the appropriate balance, and we'll be 
learning. We've learned a lot since April. We'll learn a lot as 
we go along and adjust standards as necessary. But what we have 
done is we've put forth applications for providers to come to 
us to show that they are qualified and in such areas as, for 
example, qualifications. Are the counselors certified?
    Bonding requirements, which some have suggested and Mr. 
Wallace did in his statement. Perhaps he believes they are a 
bit too stringent. There are certain background check 
requirements for those who are handling money or giving advice 
to debtors on what to do with their money. We also are 
requiring----
    Mr. Gohmert. But as far as the background check, who does 
that?
    Mr. White. That would have to be performed by the provider. 
So when they hire employees, certain employees whom we define 
would have to have a background check. If it is a debt 
management plan provider----
    Mr. Gohmert. So, in other words, you'd be looking only to 
the four corners of what they provide, what information they 
provide to determine whether or not they are legitimate, should 
be doing consumer counseling. Is that fair?
    Mr. White. We've set out certain requirements, and they 
would file certifications with this instant backup 
documentation. Yes, sir.
    Mr. Gohmert. But you're still looking only to what they 
provide. You do no background investigation yourself?
    Mr. White. We do not do the background checks. No, sir.
    Mr. Gohmert. So if they can fill out a form and do it in 
such a way that they sound good on paper, then they're in?
    Mr. White. Well, the applications will be signed under 
penalty of perjury, yes.
    Mr. Gohmert. And we all know that keeps everybody from 
perjuring themselves.
    Mr. White. Right. The point----
    Mr. Cannon. The gentleman's time has expired. Does the 
gentleman----
    Mr. Gohmert. Thank you. Thank you, Mr. Chairman.
    Mr. Cannon. Thank you. The Chair recognizes the gentleman 
from Massachusetts for 5 minutes.
    Mr. Delahunt. Yes, I really enjoyed the line of questioning 
by my friend from Texas. Speaking about signing under the pains 
and penalties of perjury, just for my information, how many 
cases have been referred for criminal prosecution in the course 
of the past year, 2 years, 5 years?
    Mr. White. I believe in fiscal year 2004, it may have been 
in the neighborhood of 700 cases. I can provide for the 
record----
    Mr. Delahunt. Out of how many, approximately?
    Mr. White. Out of how many cases being filed nationally? 
About 1.5 million or more cases were filed nationally.
    Mr. Delahunt. So that's a very small percent. I bet--I bet 
that former judge down there in Texas that he could have 
found--you let him loose, he could have done a lot more than 
700. I dare say that it's not very reassuring to me that the 
only protection in terms of quality control is, you know, 
within the four corners of an application form.
    Mr. White. Well, if I may say, Mr. Delahunt, if I said that 
is all we are doing or will do, then I've misspoken. What I'm 
saying is that we have an application; we do not perform 
background checks. The application says that the provider will 
perform and certify. It performs background checks, and we set 
out requirements.
    We can get continuing information on an annual basis and, 
in addition, as to monitoring that is done between. The 
approval period is for 1 year. We have not determined what 
monitoring can feasibly be done during the 1-year period. We 
are still putting together all of our implementation plans.
    But what we did issue in a very short period of time were 
application materials that set forth the standards consistent 
with what is in the statute and requiring documentation that 
would allow us to make a reasoned decision to see whether there 
is documentation to support the certifications that the 
standards set forth in statute have been met, that the provider 
is qualified and should be approved and, therefore, be able to 
provide the services and issue the certificates to debtors.
    Mr. Delahunt. Mr. White, what's the price tag for this 
legislation?
    Mr. White. Well, for the U.S. Trustees----
    Mr. Delahunt. No. The whole enchilada?
    Mr. White. I don't have a number.
    Mr. Delahunt. You don't have a number?
    Mr. White. I don't.
    Mr. Delahunt. Has CBO scored it different ways? Judge 
Small?
    Judge Small. I don't know. I don't have a number.
    Mr. Delahunt. Mr. Wallace, it's good seeing you back here 
again.
    Mr. Wallace. Nice to see you, sir.
    Mr. Delahunt. Good to see you. Mr. Plunkett?
    Mr. Plunkett. Don't know.
    Mr. Delahunt. You know, there was considerable testimony--I 
remember, Mr. Chairman--about $500 million, possibly $1 
billion. But none of you panelists have a figure. Mr. White?
    Mr. White. Mr. Delahunt, with regard to what the costs are 
to--direct costs to Government agencies and any loss to the 
Treasury through the----
    Mr. Delahunt. Yes, give me that.
    Mr. White.--filing fees we'll provide for the record. In 
the supplemental appropriation recently enacted, there were 
filing fee increases that were designed to address the funding 
needs of the U.S. Trustee Program, the court system, and any 
other loss from the Treasury.
    Mr. Delahunt. What was the percentage of increase in the--
--
    Mr. White. It was a significant percentage. Maybe, in the 
filing fee for Chapter 7, maybe in the nature of 25 or 30 
percent. The U.S. Trustee cost over 5 years, at least as 
reflected in our budget request, is for an additional $37 
million for fiscal year 2006. That's what our budget request 
is.
    The filing fees enacted by Congress, the increase, the 
allocation to the U.S. Trustee Program is, over a 5-year 
period, $241 million.
    Mr. Delahunt. $241 million. To get to the issue of creditor 
access to tax returns, the proposal put forth by Mr. Plunkett, 
what's your--what's your opinion of his suggestion?
    Mr. White. I don't have any instant reaction. We're talking 
with our trustees with regard to new responsibilities they'll 
have under the Code. So, for example, with regard to the tax 
returns, I think there is an assumption in Mr. Plunkett's 
testimony, perhaps, that the trustees will retain tax returns 
in all cases. I don't know that that's the case at all.
    The trustees who we oversee--we appoint and oversee--will 
receive tax returns for purposes of verifying information. But 
certainly, any privacy concerns with regard----
    Mr. Delahunt. But you wouldn't----
    Mr. White. I am not endorsing----
    Mr. Delahunt. Do you share his concern about creditors 
receiving that information?
    Mr. White. The bankruptcy bill contains on balance, 
including in those provisions, many consumer protections and 
other salutary provisions. I'm not suggesting any changes at 
this time.
    Mr. Delahunt. I'm not asking you that. I'm asking you 
whether you share----
    Mr. Cannon. Would the gentleman like to ask an additional--
unanimous consent for an additional 2 minutes?
    Mr. Delahunt. Yes, I would, Mr. Chairman.
    Mr. Cannon. Without objection.
    Mr. Delahunt. Mr. White, I am asking you a concern about 
the privacy implications as it relates to tax returns. Do you 
share his concern?
    Mr. White. I think I would share a concern that private 
information that is provided on debtors ought to be addressed 
in the U.S. Trustee's implementation, and our oversight of the 
trustees ought to be foremost in our minds. And that is why, 
for example, in the bankruptcy bill there are numerous other 
privacy provisions: to ensure that private information is not 
put out into the public domain.
    Section 107 of the Bankruptcy Code was changed, and there 
were other provisions. So, there are very important policy 
considerations. I don't----
    Mr. Delahunt. But----
    Mr. White. Go ahead.
    Mr. Delahunt. But there is no--as I understand it, it's my 
understanding that there's no provision in terms of the release 
of tax returns to creditors. There is no privacy protection 
incorporated into the act as passed. Is that--is that a fair 
statement?
    Mr. White. I would want to go back before I gave you a firm 
answer, but I am not offhand aware of what the restrictions are 
that a creditor would have.
    Mr. Delahunt. Judge Small?
    Judge Small. Well, I think you're right. It is a huge and 
important concern, and the director of the Administrative 
Office is coming up with guidelines. It is a huge and important 
consideration, and the director of the Administrative Office is 
coming up with guidelines to help protect the privacy.
    There are privacy provisions. There's a privacy policy that 
personal information should be redacted from documents that are 
filed with the court, and also the court system is trying to 
devise a system where if a document is filed, it's not 
available to anybody.
    Mr. Delahunt. Would you agree with Mr. Wallace that the 
creditor should have access to the IRS return?
    Judge Small. I think the law requires that.
    Mr. Delahunt. And is it your opinion, Mr. Plunkett, that 
the law requires that?
    Mr. Plunkett. It's my opinion that the law requires it. The 
law also says specifically that the Administrative Office of 
the U.S. Courts, and I am quoting here, ``Shall establish 
procedures for safeguarding the confidentiality of any tax 
information provided'' and--quote--``shall include restrictions 
on creditor access.''
    So what I'm commenting on are the kinds of restrictions 
that I think the Administrative Office should be placing on 
creditor access.
    Mr. Delahunt. Okay. Mr. Wallace, I'd feel remiss if I 
didn't ask you a question.
    Mr. Wallace. I was waiting for you, sir. If I could comment 
on this last one, I'd appreciate it.
    Mr. Delahunt. No, because I think I know your answer there.
    Mr. Cannon. Without objection, the gentleman is recognized 
for an additional 1 minute.
    Mr. Delahunt. Just one final question. Thank you. What can 
we expect in terms of interest rate reduction from the major 
credit card companies as a result of the passage of this act?
    Mr. Wallace. I'm not----
    Mr. Delahunt. Or the correct implementation of it?
    Mr. Wallace. That will be handled by the market, sir. And 
the marketplace presumably will take into account the savings 
that occurs, and competition will lower prices as appropriate 
if, in fact, lower prices are justified.
    Mr. Delahunt. Right. I don't think I'm too hopeful. But 
thank you. I expected that answer, Mr. Wallace.
    I yield back.
    Mr. Cannon. Thank you.
    Mr. Franks? The gentleman is recognized for 5 minutes.
    Mr. Franks. Thank you, Mr. Chairman.
    Mr. White, I know that there are sometimes people who are 
called on in this world to be implementers. And you have a 
great challenge in front of you, and I'm sure that, at this 
point, you have done more than a cursory analysis of the 
legislation that you have to implement. And again, I don't envy 
your job because, you know, people who make legislation in 
theory, and then you have to turn around and try to turn it 
into reality.
    Having said that, did we goof anywhere? Are there any areas 
that you feel like are going to especially be challenging in 
the logistical implementation?
    Mr. White. We have no specific--excuse me. We have no 
specific suggestions to make to Congress at this time. If, as 
we go forward in the implementation we find there are, we 
certainly would discuss that with the Department and provide 
them to Congress.
    But you're absolutely right, and I appreciate the 
sentiment. There is a great deal of work for the U.S. Trustee 
Program, and if I just may say that there has been a great deal 
of professionalism and enthusiasm on the part of the staff, the 
1,100 people of the U.S. Trustee Program, to move forward with 
our implementation plans.
    We've just finished a round of three regional training 
sessions, 2-day programs, with our senior managers going over 
the major provisions of the statute and the outlines of our 
implementation. And, in a few weeks, we'll embark upon 10 
sessions, reaching almost all members of the U.S. Trustee 
Program to ensure that they are thoroughly familiar with the 
provisions of the law and those responsibilities Congress has 
given to us to implement and enforce the law.
    Mr. Franks. Let me just, if you had to point to any one 
aspect of the legislation as the biggest challenge you had, no 
matter what your opinion of it is, what do you think is the 
biggest logistical challenge that you have?
    Mr. White. Well, there are two major challenges, and they 
have been pointed out by the Members and in the statements 
we've heard. Cornerstone issues for us, among others, are means 
testing, because there is a significant volume of work, and 
credit counseling. I do not wish to minimize for one moment the 
importance of us eventually being able to strike that right 
balance in ensuring that we are protecting debtors from scam 
operations or abusive operations, but setting rules that do not 
unnecessarily create barriers because we do want the capacity 
in the system to serve the debtors.
    We've taken our initial effort. We've issued those 
applications in June, and we are going to be watching that very 
carefully. But we are new to this area, and it is a major 
challenge, and we'll keep it at the top of our attention.
    Mr. Franks. Well, thank you, sir.
    And to that point, Mr. Plunkett, you gave us a couple of 
statistics related to I think the majority of the Chapter 7 
bankruptcies being for those with a median income of--or an 
income of under $20,000.
    Mr. Plunkett. Just around.
    Mr. Franks. And then the rest of them for Chapter 13, under 
$30,000. Is that correct?
    Mr. Plunkett. Yes.
    Mr. Franks. You mentioned that part of the protocol is that 
the creditors, under some type of consumer credit counseling 
process, would hopefully offer incentives to the debtor. It 
doesn't sound like any incentives are actually required. If not 
required, what incentive would be the one that you would call 
for if you were writing the regulation that might follow the 
legislation?
    Mr. Plunkett. New Section 502(k) of the Code provides an 
incentive for creditors to actually reduce the principal that 
is owed for people who enter credit counseling debt management 
plans. I'm going to summarize here, but it essentially says 
that a 60 percent--or a 40 percent reduction, 60 percent of 
what you owe, would be deemed a reasonable repayment plan. And 
the incentive is that if the creditor doesn't offer such a 
repayment plan and the consumer ends up in bankruptcy, they can 
seek a 20 percent reduction in what is owed.
    So it's an attempt to incent creditors to offer more in the 
way of reductions in credit counseling. Right now all they 
offer, and it's fairly minimal for many creditors, is a break 
in interest, not in principal.
    The reason more people don't use credit counseling is 
because creditors typically have been fairly stingy in offering 
these breaks. So if they do better, then more people will 
choose credit counseling as an alternative. If it's not 
financially viable for them to do so, they'll end up in 
bankruptcy.
    Mr. Franks. So if I understand, those creditors that did 
not offer an incentive to the debtor would be diminished in 
their position in an actual bankruptcy?
    Mr. Plunkett. That's the idea behind the provision.
    Mr. Franks. Thank you, Mr. Chairman.
    Mr. Cannon. I thank the gentleman.
    Mr. Nadler, would you seek recognition?
    Mr. Nadler. Yes, I do.
    Mr. Cannon. The gentleman is recognized for 5 minutes.
    Mr. Nadler. Thank you, Mr. Chairman.
    Mr. Wallace, I want to follow up on Mr. Delahunt's 
question. We heard for any number of years prior to the passage 
of this bill that every adult or maybe it was every family, I 
forget which, in the United States paid a $400 premium in 
higher interest costs because of the cheating that was going 
on, which this bill would eliminate. And we heard that from 
you, among others, I think.
    So would you agree that we ought to see now a $400 
reduction in interest costs per family or per individual if 
this bill is properly implemented?
    Mr. Wallace. In the event that--although those statistics 
were developed back in the early period of the act, yes, I 
would assume that on the whole, there would be that kind of 
savings develop----
    Mr. Nadler. And if we don't see it--and if we don't see it, 
then we would assume either that the bill is not being properly 
implemented or that the bill was fallacious?
    Mr. Wallace. I think implementation is going to be a real 
challenge, but I think it can be done well. And if it is done 
well, then there will be substantial improvement in the 
bankruptcy system that will----
    Mr. Nadler. I didn't ask about substantial improvement. I 
asked about a lowering of interest rates.
    Mr. Wallace. Well, there needs to be an improvement in the 
bankruptcy system in order for there to be a lowering to cost.
    Mr. Nadler. But you are saying that there will be that 
lowering of costs?
    Mr. Wallace. If the implementation is effective and as full 
as----
    Mr. Nadler. And if we don't see it, we can assume that 
either the implementation was ineffective in ways that we could 
point out or that the bill was defective in some way?
    Mr. Wallace. On the whole, that should be the case. Yes.
    Mr. Nadler. Okay. Thank you.
    Mr. White, when we were considering the legislation, some 
Members of the Committee--myself included, former Chairman 
Hyde--were concerned that a debtor who was found ineligible for 
Chapter 7--he flunked the means test--but who could not confirm 
or complete a plan in Chapter 13. In other words, he might be--
would be ineligible for relief under any chapter. In other 
words, colloquially, too rich for Chapter 7, too poor for 
Chapter 13.
    Mr. Wallace, among others, assured this Committee these 
concerns were unfounded. What guidance will the executive 
office provide to ensure that the discretion it has under the 
legislation will be used so as to make Mr. Wallace's 
predictions not untrue? In other words, to make sure that 
nobody is too rich for Chapter 7, too poor for Chapter 13.
    Mr. White. You are very correct, Mr. Nadler, that although 
we are dealing with a formula under the Code with regard to the 
presumption on the means test that, in fact, the U.S. Trustee 
has a responsibility to exercise some level of discretion in 
deciding whether to file a motion or if it doesn't file a 
motion to dismiss in Chapter 7, to provide reasons for that.
    We've been studying those issues, and we will be working 
with our field to try to ensure that all appropriate factors 
are taken into account. The Congress has clearly made a change 
in the standard. It is also indicated clearly in the statute 
that even if the means test shows disposable income, if the 
reasons for that were catastrophic medical issues, military 
service, and so forth, that should not be the basis for 
pursuing a motion based upon a presumption.
    I don't have a precise answer to your question----
    Mr. Nadler. But I understand that, and I appreciate that. 
I'm concerned sort of about the further application of that. In 
other words, if someone has enough income so that he doesn't 
meet the means test, then you would direct him to Chapter 13 
rather than Chapter 7. But he has too much income to be able to 
confirm a plan under--not too much income. The Chapter 13, 
there are requirements in the law that say that the plan, that 
any plan that is confirmed must enable him to pay certain 
things, and it may very well be that the income is not 
sufficient to enable him to pay those things. So you couldn't 
confirm Chapter 13.
    How can you make sure that he isn't directed to Chapter 13 
when you can't confirm a plan because the means test is just as 
rigid in Chapter 13 as it is in Chapter 7?
    Mr. White. There is no formula we can then issue to our 
field to say that we can take care of all particular 
circumstances in every case. Every case, before a motion is 
filed, should be the basis of a reasoned judgment by an 
attorney looking at the totality of circumstances in a case.
    Mr. Nadler. But before you file a motion, what I am really 
asking is before you file a motion under Chapter 7, could you 
look at whether that means test applied to both Chapter 7 and 
Chapter 13 would allow a plan to be confirmed under Chapter 13? 
If the answer is no, not file the objection to go into Chapter 
7.
    Mr. White. I'm not going to suggest that in every Chapter 7 
case that we are going to do a hypothetical 13 plan and run it 
through to the Nth degree.
    Mr. Nadler. Why not? Why not?
    Mr. White. I don't think that's a feasible alternative. I 
am saying, Mr. Nadler, that you are absolutely correct that we 
should not be filing a motion based strictly upon a formula 
that doesn't take into account what the statute tells us to 
take into account, which are appropriate factors and the debtor 
also having an opportunity to rebut.
    I just don't want to commit that we can come up with some 
formula or some magic wand to say that in all cases that we'll 
have properly taken into account all factors and done it right 
100 percent of the time the first time around. You are correct. 
And we believe, and we've talked to our attorneys. We'll 
continue to counsel them and watch the performance in the field 
to ensure that we are exercising prudent discretion.
    And a debtor in some cases, for example, sir, who perhaps 
doesn't qualify for 13 might--and I can not anticipate all 
circumstances--might be able to confirm an 11 plan. There are 
all kinds of possibilities out there. There is no way we can 
reduce it to a simple formula.
    Mr. Nadler. I must say, if you can't afford a 13, I can't 
imagine how you can do an 11.
    Let me ask one quick question to Mr. Small--or to Judge 
Small, excuse me. Judge Small, for debtors who fit into one of 
the safe harbors, that is debtors not subject to the means test 
or whose cases cannot be dismissed under the means test, will 
the forms and schedules reflect this fact? Or will debtors be 
required to bear the paperwork burden of the means test even if 
they're exempt from it?
    Judge Small. Well, as I understand the forms, and Mr. White 
can answer this as well, I believe that if it's shown that 
their income is below the median income, that would be the end 
of it. They wouldn't have to go forward and fill out the rest 
of the means test because the means test just simply wouldn't 
apply to them.
    Mr. Nadler. Okay. That applies, I assume, to some of the 
other----
    Mr. Cannon. Would the gentleman like to ask unanimous 
consent for an additional minute or two?
    Mr. Nadler. I would like to ask unanimous consent for an 
additional 30 seconds. That's all I think I require.
    Mr. Cannon. Without objection.
    Mr. Nadler. My only other question was that there are a 
number of safe harbors. And your answer, I assume, applies to 
the other safe harbors, not just the means test?
    Judge Small. If the means test is not applicable to them, I 
don't see why they should have to fill out the rest of the 
means test.
    Mr. Nadler. Thank you. I yield back.
    Mr. Cannon. The gentleman yields back. Mr. Watt?
    Mr. Watt. Am I the last one on the horizon?
    Mr. Cannon. More or less.
    Mr. Watt. Oh, next to you. I'm sorry.
    First of all, let me just apologize to the witnesses for 
being in and out. Unfortunately, there are a number of other 
things going on in the world at the same time.
    So I saw some estimates, when we were considering this 
bill, that suggested that the amount of paperwork and 
administrative obligation to administer this new system was 
going to be fairly high. Do you all remember what those 
projections were or have an estimate of what the additional 
cost of administering our bankruptcy system is likely to be 
compared to what it was before this reform?
    Mr. White, maybe?
    Mr. White. In answering a similar question before, I do not 
know the overall number. In the recent supplemental 
appropriations bill, Congress has changed the filing fee 
structure to provide additional funding for the courts and the 
U.S. Trustee. We will get an additional $241 million over 5 
years, and the President has requested $37 million for us in 
the next fiscal year to implement bankruptcy reform.
    Mr. Watt. And what part of that is it anticipated will be 
covered by the filing fees?
    Mr. White. All of the costs of the U.S. Trustee Program 
will be fully covered by filing fees, just as all of the costs 
of our previous budgets have been covered by filing fees.
    Mr. Watt. So you anticipate that, basically, this will just 
be a pass-through then. The appropriation and the income that 
comes from filing fees should pay for the entire bankruptcy 
system?
    Mr. White. Well, the budget we have out, it will have 
revenues that will at least match what we expect it will cost 
us to administer bankruptcy reform next year. Yes, Mr. Watt.
    Mr. Watt. Next year and going forward or----
    Mr. White. Well, the President's budget is for fiscal year 
2006. With regard to any out-years, all I can say is that there 
is the $241 million in the filing fee increase. So we are being 
given growth revenues, growth by 20 percent or more because of 
bankruptcy reform.
    Mr. Watt. Okay. How many new additional bankruptcy judges 
do you anticipate will be necessary to administer the reform 
part of this?
    Mr. White. We don't have any estimates on that. The growth 
of our staff will be approximately 320 additional staff.
    Mr. Watt. Judge Small?
    Judge Small. Well, I think the Judicial Conference 
projected 47 judges would be needed, and I know 28 were 
included in the bill. So I think there is a need for more 
judges.
    Mr. Watt. And the cost of those judges will be offset by 
the filing fees also, do you anticipate?
    Judge Small. I can't answer that question.
    Mr. Watt. Mr. White, do you anticipate the cost of the 
judges will be covered by the filing fees also?
    Mr. White. That is not a matter within, sir, my knowledge.
    Mr. Watt. Mr. Plunkett or Mr. Wallace, have any idea about 
that?
    Mr. Wallace. No, sir.
    Mr. Watt. Okay. The supply of credit counseling agencies--
well, before I get to the supply, let me just try to figure out 
who is paying for that cost. Anybody care to venture an answer 
for that? Mr. Plunkett, you seem like you were about to say 
something.
    Mr. Plunkett. Well, the cost will be borne by debtors and 
potentially by agencies. There are two requirements in the law. 
Fees must be reasonable, but agencies are not allowed to turn 
away debtors because of inability to pay.
    What I've said in my testimony is that we anticipate that a 
significant number of those who are required to go to credit 
counseling will have little ability or an inability to pay. And 
so, that presents a whole series of problems. For the agencies, 
some of them may have to bear that cost if they are properly 
complying with the law. If they aren't, they may be doing what 
we call cherry-picking. That is finding sophisticated ways to 
provide counseling to people they believe can pay whatever fee 
it is that they're charging while subtly turning away people 
who can't. And that presents a problem.
    Mr. Watt. I ask unanimous consent for 2 additional minutes.
    Mr. Cannon. Without objection, so ordered.
    Mr. Watt. I'm looking at a newspaper article from the 
Seattle Times, dated July 24, 2005, Mr. Plunkett, in which you 
estimated 2 million to 9 million additional credit counselors 
or credit counselors who would be needed. Am I misreading what 
you estimated?
    Mr. Plunkett. Those are the broad estimates that have been 
made over the last few years about how many people seek 
assistance.
    Mr. Watt. Oh, that is how many people seek assistance from 
credit counselors.
    Mr. Plunkett. From credit counseling agencies.
    Mr. Watt. Before the bankruptcy reform?
    Mr. Plunkett. Correct. Now if we look at the number of 
people who filed for bankruptcy last year, Chapter 7 or Chapter 
13, that would be just under 1.5 million. We assume that some 
portion of those people will have already met at least the 
first requirement, that they receive a credit counseling 
briefing within 6 months of filing.
    One can safely assume that somewhere around a million 
people, maybe a little more, maybe a little less, are going to 
be new to the system.
    Mr. Watt. So I'm bankrupt, and then I seek credit 
counseling. That's supposed to do something good for me, I 
presume. I mean, is your experience with credit counselors that 
they can perform those Houdini reversals, or what is your 
experience with credit counseling? Maybe I shouldn't lead the 
witness. Judge Small is saying I'm leading the witness.
    Mr. Plunkett. Well, we've looked at the industry hard for 
the last 5 years, and our experience is that if credit 
counseling is delivered at the right time by a reputable agency 
that provides good quality counseling, it can help some people. 
But if they----
    Mr. Watt. Okay. Well, let's evaluate the components of 
that. What is the right time?
    Mr. Plunkett. Well----
    Mr. Watt. What is the capable person, and what are the some 
people?
    Mr. Plunkett. Okay. The right time is early. That is 
probably before the person is on the brink of bankruptcy to the 
point where they are actually considering bankruptcy. And those 
are many of the people that will be seen by credit counselors 
right now.
    So I'm not sure that this requirement is going to work as 
those who drafted it think it will because I think many people 
are simply going to view the credit counseling requirement as a 
college student would a required class that they have to sit 
through. They are too far gone financially to benefit from what 
counseling can do.
    Who are the ``some people?'' Well, if their secured debts 
aren't too high and their unsecured debts, creditors offer a 
reasonable repayment plan on unsecured debt, a debt management 
plan, a credit card consolidation plan over 3 to 5 years can 
give those people enough breathing room to pay down their 
unsecured debts and start to work their way back away from the 
financial brink. That's some people, but that's not many people 
who are on the brink of bankruptcy.
    Mr. Watt. Just one final question, Mr. Chairman. Now does 
the credit counseling requirement apply to people above the 
means test and below, or just to people----
    Mr. Plunkett. It applies to everyone.
    Mr. Watt. Everybody. Okay.
    All right. Thank you, Mr. Chairman.
    Mr. Cannon. The gentleman yields back.
    Is there a more compelling voice than that sotto voce that 
we just heard asking insightful questions? I am trying to learn 
from the Ranking Member to speak more slowly and carefully 
myself.
    Without objection, the record will be kept open for 5 
additional days for any follow-up questions for the witnesses.
    Mr. Watt. Would the Chairman consider extending that to 7?
    Mr. Cannon. Oh, sure. Without objection, the record will be 
kept open for 7 legislative days for follow-up questions for 
the witnesses.
    Mr. Watt. Thank you.
    Mr. Cannon. And so ordered.
    One concern I have is privacy, and so I'm going to ask a 
question to the whole panel, and I hope that you can all 
comment. But principally for those organizations that are 
involved in overseeing this, what organizational steps are you 
taking--and this will be both for you, Mr. White, and for you, 
Judge Small--how are you creating a function to evaluate and to 
continue evaluating issues of privacy?
    And then, Mr. Plunkett and Mr. Wallace, if you could 
comment on those comments, and we'll come back for a final 
follow-up from the two of you, if you could? Thank you, Mr. 
White.
    Mr. White. Mr. Chairman, the responsibility in that matter 
that falls to us would generally be in the nature of the 
oversight of the trustees who would look at the tax returns. 
And so we have been discussing and will continue to discuss 
with the trustees the protocols for their handling. And it may 
well be that the trustees, who need the tax returns primarily 
for purposes of verification, should not, in most instances, 
retain the tax returns. They should return them at the 341 
table or destroy them.
    But we're very cognizant of the delicacy of that matter, 
and I believe our appointed trustees are as well, and we will 
continue to develop the appropriate protocols with them.
    Mr. Cannon. Will you have someone assigned to do that in 
the structure of your office?
    Mr. White. We hadn't decided that that was necessary, but 
that is a point well taken.
    Mr. Cannon. Let me suggest that for both the Department of 
Homeland Security now and the recent reauthorization of the 
Department of Justice, we have created a privacy officer. We've 
learned a great deal about that. I think Kelly O'Connor, who 
has done that job at DHS, has done a remarkable job in 
improving the way the whole department works. And this is an 
area where I see the potential for a huge problem.
    So without a legislatively mandated officer, it may be good 
to think in terms of having a person or a place where the 
responsibility lies because, over time, you are going to see 
new ways of abuse, new permutations of the problem, and 
evolution of forms. And so, to have someone to come back and be 
responsible to go through a process, saying how does this 
affect privacy, might be a good idea.
    Did you have anything you wanted to add to that, Mr. White?
    Mr. White. No. Point is well taken, Mr. Chairman. I 
appreciate it.
    Mr. Cannon. Judge Small?
    Judge Small. The director of the Administrative Office has 
the statutory duty to come up with some guidelines to protect 
the privacy, and I can give you those guidelines in about 2 
weeks. The Judicial Conference is going to approve those 
guidelines.
    Mr. Cannon. But my concern is not the guidelines so much, 
but the person who would be looking at those guidelines over 
time to say are these adequate? Given the changes in what is 
happening, are we doing an adequate job? In other words, some 
person--it could be a part-time position--somebody who exists 
there to occasionally come back and look at privacy.
    Judge Small. I don't know that there is a specific person 
other than the director. And the director's staff has the 
obligation to do these guidelines, and I assume that he'll be 
constantly reviewing them as we go along.
    Mr. Cannon. As you create those guidelines, it might be 
good to keep in mind that a place with a job description with 
that element of the job description might actually be helpful.
    Judge Small. I'll mention that to the director.
    Mr. Cannon. Thank you. Mr. Plunkett?
    Mr. Plunkett. Mr. Chairman, your point is well taken. I 
know under the privacy act, Federal agencies have to have such 
a privacy officer, and I think it would help ensure that as 
changes are made and as the situation develops that the courts 
can respond very quickly.
    Just so you know, some of the other steps we're urging the 
Administrative Office to take, starting with the obvious, tax 
returns and transcripts shouldn't be put on the Internet or 
placed in public files. But also there needs to be a system of 
transparent record-keeping by interested parties that receive 
these tax returns. And they should be able--they should be 
required to disclose upon request exactly who has access and 
has seen this information. That is a fairly inexpensive way of 
ensuring compliance.
    We also think interested parties should be completely 
forbidden from redistributing this information in any fashion 
unless it's approved by the court. What we want to avoid is a 
situation, either through sloppiness or intent, where this 
information is lying in files or in a database somewhere where 
it can be accessed inappropriately. We certainly don't want 
creditors to be tempted to include any of this information in 
their internal databases.
    Mr. Cannon. I suspect, Mr. Plunkett, that you would 
actually like to have somebody in the oversight process looking 
at privacy so that your groups could contact and say, hey, here 
is a thing you ought to look at and maybe you ought to 
consider?
    Mr. Plunkett. I think that would be very helpful.
    Mr. Cannon. Mr. Wallace, did you have any comments?
    Mr. Wallace. Oh, yes, sir. On the whole, I think that this 
discussion assumes that creditors have no interest in seeing 
those tax returns, and that's not the case. We approach this 
from a history in which despite the good interests and the good 
intentions of both the trustees--the Chapter 7 trustees and the 
U.S. Trustee--there has not been enforcement of the means test 
which was in the old act. That is the substantial abuse 
standard under 707(b).
    For a number of years, creditors were basically left 
holding the bag. And therefore, the bill specifically, the act 
specifically provided that creditors could enforce, under 
certain circumstances, the means test. And they can also raise 
with by reporting to the United States trustee or to a trustee, 
a Chapter 7 trustee, if they think that there is an abusive 
case for appropriate action to be taken, regardless of whether 
the means test is triggered.
    In order to perform that function, which is an important 
enforcement function and vital to their interests as well as 
the society as a whole in keeping the system honest, they need 
to have access to those tax returns. And that's important. 
That's an important function, a governmental function, which 
the bill recognized. Those provisions were contested. These 
issues were fully debated during the enactment process. The 
privacy concerns with regard to the tax returns were always an 
issue, and the compromises were made as described.
    Now the bill says creditors have access to those tax 
returns. They need to have access to them. It's an important 
function for them to do that. They are subject to the Gramm-
Leach-Bliley Act, which once--this is personal, private 
information. Once they get that information, there is a whole 
host of Federal regulations that are triggered in, that apply 
to this information.
    They cannot pass it on. They can't disseminate it. There is 
no such thing as putting this stuff on a Web site. Nobody is 
suggesting that kind of an approach. That would be ridiculous.
    So everybody is very sensitive to this information, but 
there is a vital function that the creditors have, and this act 
preserved the ability of the creditor to do this because 
Government had failed, year in and year out, in the enforcement 
of 707(b).
    Mr. Cannon. Thank you. Let me just say that I think 
everybody concurs that there's going to be a problem with 
privacy, that we need to watch it, that there needs to be input 
from outside groups. And having somebody responsible I think 
will be very, very important.
    Mr. Wallace. And we agree with that, sir.
    Mr. Cannon. Yes, in particular, you guys want a system that 
will work and be above reproach. So absolutely.
    The Ranking Member is recognized for an additional 5 
minutes.
    Mr. Watt. No, I don't need 5 minutes. I just wanted to 
inquire about one thing, which was the increased filing fee. 
What was the cost of the filing fee for bankruptcy under the 
old system, under the current system, and what is the projected 
cost under the new system?
    Mr. White. I'm afraid I don't have right at the tip of my 
tongue all of the exact numbers. I think the filing fee for 
Chapter 7--all fees put together, filing fees and other fees 
that must be paid at filing--is in the neighborhood of $275 for 
Chapter 7. It's somewhat less for Chapter 13.
    Under the bill, the fee went up for 7. It went down for 13.
    Mr. Watt. You mean we set the fee, the new filing fee in 
the bill?
    Mr. White. You did, and that----
    Mr. Watt. As opposed to you all doing it administratively?
    Mr. White. Yes. And the supplemental appropriations bill 
made further adjustments in the filing fee structure and 
allocation of the filing fees between the court, U.S. Trustee, 
and general treasury.
    Mr. Plunkett. Mr. Watt, the current fee is $209. It will 
rise to $274. So that is a $65 increase.
    Mr. Watt. Okay. Thank you, Mr. Chair.
    Mr. Cannon. As long as we keep it under $210 and under 
$275, I guess that is okay, right?
    I want to thank the panel for being here. This is an 
important area. We look forward to having input in the future 
on this matter. We will continue to oversee it carefully.
    And I want to thank the Ranking Member and other members of 
the panel who have been here today, and with that, we're 
adjourned.
    [Whereupon, at 3:36 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

 Letter to the Honorable F. James Sensenbrenner, Jr., House Judiciary 
Committee, from Bruce Leonard, Chair, and John A. Barrett, Chair, Board 
            of Governors, International Insolvency Institute






      Prepared Statement of the International Insolvency Institute


































       Prepared Statement of Samuel K. Crocker, on behalf of the 
National Association of Bankruptcy Trustees, submitted by the Honorable 
    Mark Green, a Representative in Congress, from the State of Utah
    On behalf of the National Association of Bankruptcy Trustees 
(NABT), I would like to thank the Subcommittee for the opportunity to 
comment on the implementation of the Bankruptcy Abuse Prevention and 
Consumer Protection Act of 2005 (the ``ACT''). NABT represents the 
interests of over 1,200 private panel Trustees who administer cases 
filed under Chapter 7. Panel Trustees will have an important role in 
the administration of the new provisions of the Act and we are 
committed to making the Act work. Our comments today are focused on 
issues relating to the implementation of the Act.
    First let me say that Chapter 7 panel Trustees are committed to 
implementing the changes to the Code which have been proscribed by 
Congress. As the ``gatekeepers'' of the bankruptcy system, we will 
always utilize the tools provided us to help honest but unfortunate 
Debtors get the relief intended them, while being ever vigilant for 
fraudulent and abusive filings. The NABT is committed to maintaining 
the effectiveness of the system, and to that end we believe there are 
several areas of the law that Congress may want to look at with an eye 
toward implementation, which may effectively allow us to do what was 
intended.

1.
   Notification of Child Support Claimants

   NABT is at work developing methods to implement the new 
Sec. 704(a)(10), through which child support claimants will be notified 
of their rights as creditors in Chapter 7 cases of Debtors from whom a 
support obligation is due. We envision that this provision will, with 
the cooperation of the EODST, be effectively implemented through a 
series of procedures and notices provided by the panel Trustee 
throughout the case. We believe that, through this process, claimants 
owed domestic support obligations can and will be made aware of the 
options available to them to enforce Court-ordered support.

2.
   Additional Information Required of Debtors

   NABT believes that the additional information which is required to 
be furnished to the Trustee (and others), prior to the first meeting of 
creditors, will aid in the identification and liquidation of assets for 
the benefit of creditors. We are actively working on methods of 
delivery which will allow us to effectively utilize the volume of 
information which will be provided to us by each Debtor. Additionally, 
we will attempt to insure that this information will remain 
confidential, and be used solely for the purposes intended by the 
statute.

   Review of this required information will serve to insure that all 
assets are disclosed and, where appropriate, applied to the payment of 
creditors' claims. It will also, in many cases, more adequately define 
the Debtors' circumstances, which will allow the panel Trustee to 
perform the job more effectively.

3.
   Waiver of Filing Fee

   Amended 28 U.S.C. Sec. 1930(f)(1) provides for the waiver of Chapter 
7 case filing fees for individuals with ``income less than 150 percent 
of the income official poverty line'' if the Court determines the 
individual is unable to pay the fee in installments.

   Trustees are paid compensation of $60.00 for administering cases in 
which no assets are available for liquidation. The funding for these 
fees is derived from the Chapter 7 case filing fee [see 11 U.S.C. 
Sec. 330(b)(I)] and Miscellaneous Bankruptcy Court Fees prescribed by 
the Judicial Conference of the United States [see 11 U.S.C. 
Sec. 330(b)(2)].

   The Act makes no provision for payments to Trustees in those cases 
where the filing fees are waived. Some have even suggested that the 
statutory language as drafted may prevent Trustees from being paid for 
services in such cases. This apparent oversight needs to be corrected, 
and a system established to provide adequate funding for payment of 
Trustee fees in these cases.

4.
   Protecting Patient Records

   The Act adds a new Sec. 351 to the Code that provides a procedure 
for notification and disposal of patient records in cases where the 
Trustee does not have sufficient funds to pay for the storage of 
records in the manner required under applicable federal or state laws. 
The Act fails to take into account that in some circumstances Trustees 
will lack sufficient funds to comply with the procedure established 
under Sec. 351. For example, under Sec. 351 Trustees are required to 
undertake various costly actions including: storing records for one 
year; publishing a notice in one or more appropriate newspapers; 
notifying every patient and appropriate insurance carrier by mail; 
communicating by certified mail with each appropriate federal agency; 
and destroying the records. It is estimated that these costs could 
range anywhere from $3,500.00 in smaller cases (500 or fewer patients) 
to $35,000.00 in medium cases (10,000 patients) and higher in large 
cases (up to 100,000 patients and more). If Trustees do not have the 
funds to pay for the storage and notices required in Sec. 351, patient 
records may not be administered properly and could be lost.

   The problem can be corrected by allowing a court in no asset or 
limited asset cases, upon motion of the Trustee, to direct the person 
or persons responsible for maintaining, storing or disposing of patient 
records under state law, prior to the appointment of the trustee, to 
resume the responsibility of preserving the records. In such 
circumstances, the responsible party would be directed, by court order, 
to perform the functions required under Sec. 351.

5.
   Payment in Converted Cases

   The Act was intended to provide a mechanism and payment schedule for 
Chapter 7 Trustees to receive compensation in cases converted or 
dismissed pursuant to 707(b). The Act included changes to Sec. 1326(b) 
of the Code specifying the payment schedule to be applied if Trustees 
are allowed compensation due to the conversion or dismissal of case 
under Sec. 707(b). These changes are inadvertently ineffective, 
however, unless Sec. 326 of the Code is also modified to provide for 
Trustee compensation in converted or dismissed cases. Under current 
judicial interpretations of Sec. 326, Trustees have been denied 
compensation in cases converted or dismissed under Sec. 707(b) because 
Trustees have not actually disbursed or turned over moneys to parties 
in interest in such cases (which that statute requires as a 
prerequisite).

   The problem can be corrected by adding a new subsection (e) to 
Sec. 326 to provide that the Court may allow reasonable compensation 
for services rendered by the Trustee, if the Trustee in a Chapter 7 
case commences a motion to dismiss or convert under Sec. 707(b) and 
such motion is granted, or if the case is converted from Chapter 7 to 
another chapter, and the actions or positions of the Chapter 7 Trustee 
were a factor in the conversion of the case. Since cases are most often 
converted from Chapter 7 to 13 without the processing of a formal 
Sec. 707(b) motion (a threat of a motion is often sufficient), Trustees 
should be allowed compensation if their actions or positions were a 
factor in the conversion of the case.

   Trustees have and will continue to drive those Debtors who have an 
ability to repay some or all of their debts into a Chapter 13 repayment 
plan. It was the intent of Congress to reward us for these efforts, and 
encourage the continued vigilance.

6.
   Avoiding Automatic Dismissal in Asset Cases

   The Act modifies Sec. 521 of the Code to compel an automatic 
dismissal of cases where certain information is not timely provided. If 
a Debtor does not reaffirm or surrender collateral within 45 days after 
the first meeting of creditors, the automatic stay under Sec. 362(a) is 
terminated and the property ``shall no longer be property of the 
estate'', even if there is equity in that property for the benefit of 
the estate.

   The automatic dismissal language raises concerns insofar as it 
renders valuable property ``no longer property of the estate'' and 
places it beyond the reach of the trustee or the court. Trustees may 
not be able to determine whether there are unencumbered non-exempt 
assets to administer by the deadlines imposed under Sec. 521, in part, 
because debtors who are dilatory in reaffirming/surrendering are often 
unresponsive to trustees. Although trustees may ask for extensions of 
the Sec. 521 deadlines, circumstances may prevent the trustee from 
having sufficient information to support a motion for an extension of 
time.

   Terminating the stay under Sec. 326(a) is adequate to allow a 
creditor to take action with respect to property as permitted under 
applicable law. This would also serve to avoid decreeing that the 
property is ``no longer property of the estate'' and ensure that 
valuable property will not be lost to the estate and its creditors in 
some cases.
7.
   Increase in ``No Asset Fee''

   Under the present law, Trustees receive $60.00 for administering 
Chapter 7 cases in which no assets are liquidated. The last increase in 
this Trustee compensation occurred in 1996, when the fee was raised 
from $45.00 to $60.00.

                                 
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