[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                    UNITED STATES TRUSTEE PROGRAM: 
                        WATCHDOG OR ATTACK DOG?

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   COMMERCIAL AND ADMINISTRATIVE LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 2, 2007

                               __________

                           Serial No. 110-161

                               __________

         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

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
MAXINE WATERS, California            DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
ROBERT WEXLER, Florida               RIC KELLER, Florida
LINDA T. SANCHEZ, California         DARRELL ISSA, California
STEVE COHEN, Tennessee               MIKE PENCE, Indiana
HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio                   STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
BRAD SHERMAN, California             TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota

            Perry Apelbaum, Staff Director and Chief Counsel
                 Joseph Gibson, Minority Chief Counsel
                                 ------                                

           Subcommittee on Commercial and Administrative Law

                LINDA T. SANCHEZ, California, Chairwoman

JOHN CONYERS, Jr., Michigan          CHRIS CANNON, Utah
HANK JOHNSON, Georgia                JIM JORDAN, Ohio
ZOE LOFGREN, California              RIC KELLER, Florida
WILLIAM D. DELAHUNT, Massachusetts   TOM FEENEY, Florida
MELVIN L. WATT, North Carolina       TRENT FRANKS, Arizona
STEVE COHEN, Tennessee

                     Michone Johnson, Chief Counsel

                    Daniel Flores, Minority Counsel


                            C O N T E N T S

                              ----------                              

                            OCTOBER 2, 2007

                                                                   Page

                           OPENING STATEMENT

The Honorable Linda T. Sanchez, a Representative in Congress from 
  the State of California, and Chairwoman, Subcommittee on 
  Commercial and Administrative Law..............................     1
The Honorable Chris Cannon, a Representative in Congress from the 
  State of Utah, and Ranking Member, Subcommittee on Commercial 
  and Administrative Law.........................................     2

                               WITNESSES

Mr. Clifford J. White, III, Director, Executive Office for United 
  States Trustees, United States Department of Justice, 
  Washington, DC
  Oral Testimony.................................................     4
  Prepared Statement.............................................     6
The Honorable A. Jay Cristol, Judge, United States Bankruptcy 
  Court, Southern District of Florida, Miami, FL
  Oral Testimony.................................................    15
  Prepared Statement.............................................    17
Mary Powers, Esquire, former United States Trustee Program Trial 
  Attorney, Amherst, NY
  Oral Testimony.................................................    93
  Prepared Statement.............................................    94
The Honorable Eugene R. Wedoff, Judge, United States Bankruptcy 
  Court, Northern District of Illinois, Chicago, IL
  Oral Testimony.................................................    96
  Prepared Statement.............................................    99
Paul M. Uyehara, Esquire, Community Legal Services Language 
  Access Project, Philadelphia, PA
  Oral Testimony.................................................   104
  Prepared Statement.............................................   106

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Questions submitted by the Honorable Linda T. 
  Sanchez, Chairperson, Subcommittee on Commercial and 
  Adminsitrative Law to Clifford J. White, III, Director, 
  Executive Office for United States Trustees, United States 
  Department of Justice..........................................   186


         UNITED STATES TRUSTEE PROGRAM: WATCHDOG OR ATTACK DOG?

                              ----------                              


                        TUESDAY, OCTOBER 2, 2007

              House of Representatives,    
                     Subcommittee on Commercial    
                            and Administrative Law,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 1:06 p.m., in 
room 2237, Rayburn House Office Building, the Honorable Linda 
Sanchez (Chairwoman of the Subcommittee) presiding.
    Present: Representatives Sanchez, Johnson, and Cannon.
    Staff present: Susan Jensen, Majority Counsel; Stewart 
Jeffries, Minority Counsel; and Adam Russell, Majority 
Professional Staff Member.
    Ms. Sanchez. This hearing of the Committee on the 
Judiciary, Subcommittee on Commercial and Administrative Law, 
will now come to order.
    I will recognize myself for a short statement.
    This past May, the Subcommittee conducted an oversight 
hearing focusing on the implementation of the 2005 amendments 
to the bankruptcy code. Critics noted that these so-called 
reforms were particularly problematic with respect to how they 
impacted consumer debtors.
    Bankruptcy, which once served as a safety net for the 
honest, but unfortunate, debtor is now a minefield, as 
exemplified by the 2005 amendment's new means testing and 
credit counseling requirement.
    To satisfy the means test, a chapter 7 debtor must now 
complete official Form 22, consisting of 57 sections. This 
complex form requires the debtor to supply extensive financial 
information and supporting documentation.
    And even the GAO found that while credit counseling was 
generally a useful tool, there were several shortcomings 
regarding the implementation of the credit or counseling 
requirement.
    We are putting people through a bureaucratic maze while 
they are trying desperately to regain their financial footing. 
This is why Congressman Brad Miller and I, as part of our 
legislation to address the subprime mortgage crisis, included 
provisions alleviating some of these barriers to the bankruptcy 
process.
    As highlighted at our hearing in May and subsequently 
underscored at a hearing in the Subcommittee held last month, 
recent developments in the subprime mortgage industry have 
brought to light additional problems.
    After being lured into easy mortgage refinancing 
arrangements with teaser interest rates, more and more American 
homeowners find that they are unable to make their monthly 
mortgage payments. As a result, many attempt to enter into 
bankruptcy to avoid losing their homes to foreclosure.
    However, the new rules prevent many of them from doing so 
because of the difficulty in navigating the bankruptcy process.
    According to a recent survey of bankruptcy attorneys by the 
National Association of Consumer Bankruptcy Attorneys, 81 
percent agreed that it is more difficult for people facing 
foreclosure to obtain bankruptcy relief since the 2005 
amendments were enacted.
    There may yet be another contributing factor to the 
problems presented by the 2005 amendments. Earlier this year, 
the Appropriations Committee expressed concern that the United 
States Trustee Program is expending excessive resources to 
dismiss consumer bankruptcy cases for insignificant filing 
defects and that as a result of these efforts, the program was 
imposing additional burdens on the judicial system and debtors.
    The Committee also asserted that the program was making 
burdensome requests for debtors to provide documentation that 
has no material effect on the outcome of bankruptcy cases. Such 
actions, according to the Appropriations Committee, are making 
the bankruptcy process more costly and, therefore, less 
available for those who truly need it.
    More importantly, the Committee recommended reducing the 
program's appropriations by approximately $30 million. These 
are very serious allegations by the Appropriations Committee, 
particularly in light of the fact that it plays a primary role 
in controlling the program's purse strings.
    In an effort to help us get to the bottom of these 
allegations, I sent a series of questions to the Executive 
Office for United States Trustee last August. Copies of those 
questions and the answers, which were received yesterday 
evening, are included in your hearing materials.
    It is my hope that today's hearing provides an opportunity 
for us to get to the bottom of these allegations. As you know, 
the Commercial and Administrative Law Subcommittee has primary 
jurisdiction for the program.
    Accordingly, if there are any legislative reforms that we 
conclude are necessary as a result of today's hearing, I intend 
to recommend them to the full Judiciary Committee for 
consideration.
    I very much look forward to today's hearing and to 
receiving testimony from all of our witnesses.
    At this time, I would now like to recognize my colleague, 
Mr. Cannon, the distinguished Ranking Member of the 
Subcommittee, for his opening remarks.
    Mr. Cannon. Thank you, Madam Chair. I would like to submit 
my full written statement for the record, but make a couple of 
comments at the outset.
    In the first place, we have talked in many of these 
hearings about how bankruptcy is complex, the fact that it is a 
maze, or can be characterized as a maze, for a debtor is not 
inappropriate, given the benefits that come out of the process.
    The question of our Committee is are we making reasonable 
requirements and how is that being implemented. It was my 
policy, as Chairman of this Committee, and it continues to be 
my policy in support of the Chair of this Committee, to assert 
our jurisdiction directly, and I think the nature of the 
Appropriations Committee and their actions, whatever they may 
be, are not well founded, because they don't have the 
understanding of the program that this Committee has.
    So I find their conclusions remarkably unpersuasive and, to 
the degree they have drawn conclusions and wielded the 
political bat of an appropriation process, is not very 
meaningful to me and, in fact, I hope that what we do here is 
push back with clarity.
    And that doesn't mean that I am taking any side on this 
issue, and we have worked very hard to come to a balance in the 
Reform Act, and I want to know if those things work.
    We had questions on both sides of the aisle, bipartisan, 
and it is complex. And so I think the point is what is working 
and what is not working and how do we make it better. And to 
the degree that the appropriators disagree, let's help them get 
educated on the issue.
    Thank you, Madam Chair. I yield back.
    Ms. Sanchez. I thank the gentleman for his opening 
statement.
    Without objection, other Members' opening statements will 
be included in the record.
    Without objection, the Chair will be authorized to declare 
a recess of the hearing at any point.
    I am now pleased to introduce the witnesses for today's 
hearing. Our first witness is Clifford White, III. Mr. White is 
the director of the Executive Office for United States 
Trustees. He has served in the Federal Government for 27 years, 
including previous service as an assistant United States 
Trustee and a deputy assistant attorney general within the 
Department of Justice, and as assistant general counsel at the 
U.S. Office of Personnel Management.
    Mr. White was recognized with a Presidential Rank Award for 
Meritorious Executive in 2006 and the Attorney General's Award 
for Distinguished Service in 2003.
    Welcome, Mr. White.
    Our second witness is the Honorable Jay Cristol. In 1985, 
after 25 years of law practice, Judge Cristol left his position 
as senior partner in a firm he founded to accept an appointment 
to the Federal bench. He serves as chief judge emeritus in the 
southern district of Florida.
    Prior to his appointment, he served as Special Assistant 
Attorney General of Florida during the 1959, 1961, 1963 and 
1965 sessions of the Florida legislature. Judge Cristol is an 
adjunct professor, teaching at the University of Miami School 
of Law.
    Welcome to you.
    Our third witness is the Honorable Eugene Wedoff. Judge 
Wedoff was appointed for a 14-year term of office and continues 
to serve the bankruptcy court of the northern district of 
Illinois. He is the co-chair of the American Bankruptcy 
Institute's Consumer Bankruptcy Committee and the associate 
editor of the American Bankruptcy Law Journal.
    We want to welcome you.
    Our fourth witness is Paul Uyehara. Mr. Uyehara is a senior 
staff attorney in the Language Access Project of Community 
Legal Services, Incorporated of Philadelphia, where he focused 
on language rights advocacy, improving program accessibility 
for language minority clients and representing limited English 
proficient clients with consumer problems, particularly 
mortgage foreclosure and bankruptcies.
    Mr. Uyehara has over 25 years of experience at Philadelphia 
Legal Assistance, CLS and Delaware County Legal Assistance, 
both as a paralegal and a lawyer. Mr. Uyehara also worked as an 
assistant city solicitor for the city of Philadelphia and a law 
clerk in the Federal district court.
    Thank you for being here.
    Our final witness is Mary Powers, the rose among our panel. 
Ms. Powers is a former trial attorney for the Department of 
Justice, Office of the United States Trustee. In that capacity, 
she reviewed cases for bankruptcy fraud and abuse, drafted 
motions, pleas and briefs in connection with presentation and 
litigation of cases under the bankruptcy code and conducted 
hearings and trials.
    Prior to that position, Ms. Powers was in private practice, 
representing debtors, creditors and credit committees in all 
aspects of bankruptcy proceedings.
    Thank you all for your willingness to participate in 
today's hearing. Without objection, your written statements 
will be included in their entirety into the record. So we are 
going to ask that you limit your oral statements to 5 minutes.
    You will note that we have a lighting system. When your 
time begins, the light will turn green. When you are 4 minutes 
into your testimony, the light will turn yellow as a warning 
that you have a minute to wrap up your testimony and, at the 
end of the 5 minutes, the light will turn red, warning you that 
your time has expired.
    If you are mid-sentence when your light turns red, please 
feel free to complete your final thought, so that we may move 
on to our next witness.
    After each witness has had an opportunity to present his or 
her testimony, Members of the Subcommittee will be permitted to 
ask questions, subject to the 5-minute limit.
    So with the ground rules underway, I am going to invite Mr. 
White to begin.

TESTIMONY OF CLIFFORD J. WHITE, III, DIRECTOR, EXECUTIVE OFFICE 
    FOR UNITED STATES TRUSTEES, UNITED STATES DEPARTMENT OF 
                    JUSTICE, WASHINGTON, DC

    Mr. White. Thank you, Madam Chairwoman, Ranking Member 
Cannon, Members of the Subcommittee. I thank you for the 
opportunity to discuss the activities of the U.S. Trustee 
Program.
    We are the component of the Justice Department with the 
responsibility, with the mission, of both the integrity and the 
efficiency of the bankruptcy system. Over the past 2 years, our 
focus has been on implementing substantial new responsibilities 
given to the program by the Congress under the Bankruptcy Abuse 
Prevention and Consumer Protection Act of 2005.
    In performing our duties, we are guided by a simple 
principle--to faithfully carry out the law, as written by the 
Congress, and to do so with prudence, with discretion and with 
sound legal judgment.
    We balance many factors in every case. We vigorously 
enforce the law, but we recognize that not every technical 
violation merits an enforcement action. We work to combat fraud 
and abuse committed by debtors, as well as violations committed 
against debtors who are vulnerable to exploitation because of 
their financial situation.
    One of our major challenges is the litigation of issues of 
first impression. It is our duty to clarify the many new and 
sometimes complex provisions of BAPCPA by bringing issues 
before the bankruptcy and the appellate courts to promote the 
coherent, the uniform and the prompt development of case law.
    Another important and continuing part of our strategy that 
makes the new law work effectively has been an enormous 
outreach effort with other constituencies in the bankruptcy 
system. We have regularly consulted with Government agencies, 
consumer advocates and debtor bar, creditor organizations, 
private trustees, the courts and others to gain a broader 
perspective on our new duties.
    Objective evidence demonstrates that we are achieving our 
mission and this is due to the extraordinary efforts of the 
staff of the U.S. Trustee Programs around the country.
    My testimony outlines our activity in a number of areas. 
Let me now, if I may, highlight just three here.
    First, means testing. BAPCPA requires means testing to 
determine if debtors with incomes above their State median have 
sufficient disposable income to repay all or part of their 
debt. Chapter 7 cases of those who have the ability to repay 
are deemed or presumed abusive.
    The U.S. Trustee is required to file a statement indicating 
if a case is presumed abusive and, if it is, then we must file 
a motion to dismiss or an explanation of why we are not filing 
a motion.
    Data compiled thus far show that only about 9 percent of 
chapter 7 debtors are subject to the complete means test. Of 
those, only about one out of ten is presumed abusive under the 
statutory formula.
    Significantly, the U.S. Trustee declines to file a motion 
to dismiss in about 30 percent of all presumed abuse cases that 
don't voluntarily convert or dismiss. Reasons for declination 
include loss of employment or continuing high medical expenses, 
among other reasons, and we prevail in 97 percent of the cases 
in which we seek dismissal.
    Thus, the U.S. Trustee Program, I would suggest, has 
successfully enforced the new means testing law, but has done 
so with discretion and with restraint.
    Second, the new law requires the U.S. Trustees to approve 
qualified credit counselors who are authorized to issue 
certificates that debtors must obtain prior to filing for 
bankruptcy.
    As confirmed in a report issued last April by the 
Government Accountability Office, the U.S. Trustee Program has 
put into place an effective mechanism to screen applicants to 
ensure that only qualified counseling agencies are approved. 
Those agencies have adequate capacity to serve debtors in a 
timely fashion, and they waive or they reduce the standard $50 
fee in about one out of every three cases.
    In addition, we are making much progress in serving limited 
English proficient debtors. Credit counseling services are 
available in about 150 languages by telephone and in many 
languages at more than 350 in-person locations.
    Third, in chapter 11 cases, we also have new 
responsibilities in many areas that are designed to enhance the 
accountability of management of bankrupt companies. Among other 
things, we enforce the new section 503(c), which restricts the 
ability of companies to pay bonuses to senior executives 
through key employee retention plans.
    Through the beginning of August, we filed approximately 40 
objections to executive bonus plans and have prevailed in 
almost 70 percent of these cases. In addition, we have 
successfully negotiated with debtors and modified compensation 
schemes to avoid an objection even before the bonus plan is 
filed.
    The U.S. Trustee Program, we suggest, has compiled a 
substantial record of accomplishment. Compliance with the new 
law has presented significant challenges to the U.S. Trustees, 
to debtors, to creditors, attorneys and others.
    The entire bankruptcy system is in a time of transition. 
The program will continue its efforts to work cooperatively 
with all components of the system to satisfy our obligations to 
enforce and implement the law with fairness, with efficiency 
and effectiveness, for the benefit of all stakeholders.
    I would be happy to answer any questions you may have.
    [The prepared statement of Mr. White follows:]

              Prepared Statement of Clifford J. White, III

    Madam Chairman, Ranking Member Cannon, and Members of the 
Subcommittee:
    Thank you for the opportunity to appear before you today to discuss 
the activities of the United States Trustee Program (USTP or Program). 
We are the component of the United States Department of Justice whose 
mission it is to promote the integrity and efficiency of the bankruptcy 
system.\1\ Our duties, which are set out primarily in titles 11 and 28 
of the United States Code, range from consumer bankruptcy cases to 
large corporate reorganizations.
---------------------------------------------------------------------------
    \1\ The USTP has jurisdiction in all judicial districts except 
those in Alabama and North Carolina. In addition to specific statutory 
duties and responsibilities, United States Trustees ``may raise and may 
appear and be heard on any issue in any case or proceeding under this 
title but may not file a plan pursuant to section 1121(c) of this 
title.'' 11 U.S.C. Sec. 307.
---------------------------------------------------------------------------
    Over the past two years, our focus necessarily has been on 
implementing the substantial new responsibilities given to the Program 
by the Congress in the Bankruptcy Abuse Prevention and Consumer 
Protection Act of 2005 (BAPCPA). We are now responsible, for example, 
for conducting a more transparent and objective test to determine a 
consumer debtor's eligibility for chapter 7 relief, scrutinizing 
applications by credit counselors and debtor educators to ensure that 
only qualified providers are approved to offer these services to 
debtors, supervising audits of chapters 7 and 13 cases, and enforcing 
new provisions to hold corporate managers more accountable after their 
companies file for bankruptcy relief. These have been daunting tasks, 
but objective evidence suggests that we are meeting the challenges. We 
understand that our work to effectuate the BAPCPA is far from over, and 
every day we strive to refine our efforts and to improve upon our 
performance for the benefit of all stakeholders in the bankruptcy 
system.
    In carrying out the BAPCPA and other statutory mandates, the 
Program is guided by a simple principle: to faithfully carry out the 
law as written by Congress, and to do so with prudence, discretion, and 
sound legal judgment. We balance many factors in every case and, while 
we vigorously enforce the law, we recognize that not every technical 
violation merits an enforcement action. Further, we work to combat both 
fraud and abuse committed by debtors, as well as violations committed 
against debtors who are vulnerable to exploitation because of their 
financial situation.
    One of the major challenges we have faced has been the litigation 
of numerous cases on issues of first impression. It is our duty to help 
clarify the many new and complex provisions of the BAPCPA by bringing 
issues before the bankruptcy and appellate courts to promote the 
coherent, uniform, and prompt development of case law.
    The Program's success in fulfilling the broad responsibilities 
assigned to it in the BAPCPA is a result of the extraordinary efforts 
of staff in the Executive Office and in our field offices. Prior to the 
effective date of the BAPCPA, teams of employees from around the 
country were assembled to develop policies and procedures to ensure the 
effective and efficient implementation of the new law. These teams also 
conducted comprehensive training for all employees in the Program, as 
well as for the private trustees and members of the bar. As we retooled 
our internal operations, we engaged in an enormous outreach effort with 
other constituencies in the bankruptcy system. We have regularly 
consulted with government agencies, the consumer bar, consumer 
advocates, creditor organizations, the courts, and others to gain a 
broader perspective on our new duties. Both internal analyses and 
external outreach are a continuing part of our strategy to enhance our 
ability to make the BAPCPA work for all stakeholders in the bankruptcy 
system.
    The following highlights some of the most significant activities of 
the Program over the past year.

       CIVIL ENFORCEMENT, MEANS TESTING, AND CONSUMER PROTECTION

Civil Enforcement
    One of the core functions of the USTP is to combat bankruptcy fraud 
and abuse. This is reflected both in our statutory mandate and in our 
track record over the past 20 years. In launching a Civil Enforcement 
Initiative in 2002, the Program adopted a balanced approach to address 
wrongdoing both by debtors and by those who exploit debtors. The 
Program combats fraud and abuse by debtors by seeking denial of 
discharge for the concealment of assets and other violations, by 
seeking case dismissal if a debtor has an ability to repay debts, and 
by taking other enforcement actions. We protect consumer debtors from 
wrongdoing by attorneys, bankruptcy petition preparers, creditors, and 
others by pursuing a variety of remedies, including disgorgement of 
fees, fines, and injunctive relief.
    In the first three quarters of Fiscal Year (FY) 2007, the Program 
took more than 55,000 civil enforcement and related actions, including 
actions not requiring court resolution, with a monetary impact of more 
than $651 million in debts not discharged, fines, penalties, and other 
relief. Since we began tracking our results in 2003, we have taken more 
than 270,000 actions with a monetary impact in excess of $3.2 billion.
Means Testing
    A major new aspect of our civil enforcement efforts is the 
implementation of the means test that was established under the 
bankruptcy reform law. The new section 707(b) and other provisions 
replaced the former subjective ``substantial abuse'' standard with more 
transparent and objective criteria to determine whether a case is 
``presumed abusive'' and potentially subject to dismissal. Under the 
means test, all individual debtors who have above median income are 
subject to a statutorily prescribed formula to determine disposable 
income. The formula is partially based on allowable expense standards 
issued by the Internal Revenue Service for its use in tax collection. 
The primary purpose of the means test is to help determine eligibility 
for chapter 7 bankruptcy relief.
    The Judicial Conference of the United States promulgated the 
official means test forms that debtors are required to complete. It is 
important to note that the means test calculation of disposable income 
applies only to debtors with income above their state median level. For 
more than 90 percent of chapter 7 debtors and nearly three-quarters of 
chapter 13 debtors, the means test is abbreviated to an income 
calculation without consideration of expenses.
    The BAPCPA requires the United States Trustee to file a statement 
with the court within 10 days after the section 341 meeting of 
creditors indicating if the case is ``presumed abusive'' under the 
statutory formula. Within 30 days thereafter in ``presumed abusive'' 
cases, the United States Trustee is required to file either a motion to 
dismiss or a statement explaining why filing such a motion would not be 
appropriate. We have endeavored to implement these mandates in a manner 
that allows us to identify cases of abuse and also to exercise our 
discretion to ensure that dismissal is sought only in meritorious 
cases.
    Between October 1, 2006, and June 30, 2007, approximately nine 
percent of chapter 7 debtors had income above their state median. Of 
those cases filed by above median income debtors, approximately 10 
percent were ``presumed abusive.'' However, after consideration of 
special circumstances, such as a job loss, reduction in income, or 
medical condition, we exercised our statutory discretion to decline to 
file motions in about 30 percent of the ``presumed abusive'' cases that 
did not voluntarily convert or dismiss.
    Despite the high rate of declinations, we are filing motions to 
dismiss at nearly three times the rate prior to enactment of the 
BAPCPA. Notably, the United States Trustee has prevailed in nearly 97 
percent of the cases that were either adjudicated by the bankruptcy 
court or voluntarily dismissed or converted under the ``presumed 
abuse'' standard contained in 11 U.S.C. Sec. 707(b)(2). For example, in 
a recent case in the Northern District of Texas, an investigation by 
the United States Trustee's office revealed that a married couple had 
under-reported their income by more than $5,000 per month and had over-
reported their mortgage expense. When the means test was adjusted to 
align with the facts, it reflected that the debtors had over $1,000 per 
month in disposable income, as opposed to the minus $18 they had 
initially claimed. In response to the United States Trustee's motion to 
dismiss, the debtors converted their case to chapter 13 and will repay 
nearly $62,000 to unsecured creditors.
    It is important to note that even if a case is determined not to be 
``presumed abusive'' under the means test calculation, the reform law 
does not preclude the USTP from taking action when it finds it to be 
abusive under a ``totality of the circumstances'' or bad faith 
analysis. The following examples illustrate this point.

          Despite annual income exceeding $125,000, a debtor in 
        the Western District of Washington attempted to discharge 
        $642,181 in unsecured debt in order to retain what he described 
        as his $810,000 ``dream home'' with a $7,200 monthly mortgage 
        payment. Although the case was not ``presumed abusive'' under 
        the means test because his large monthly payments to secured 
        creditors reduced his current monthly income, the United States 
        Trustee successfully argued for dismissal under the totality of 
        the circumstances of the debtor's financial situation.

          The United States Trustee obtained case dismissal for 
        bad faith against debtors in the District of Massachusetts who 
        earned nearly $10,000 per month; owned real estate valued at 
        almost $1 million; and owned or leased a Jaguar, a Mercedes 
        Benz, and a vintage 1965 Mustang. They incurred significant 
        debt on numerous credit cards to purchase luxury goods and 
        withdrew large cash advances against the cards within one year 
        before filing bankruptcy. The dismissal prevented the chapter 7 
        discharge of $300,775 in unsecured debt.

    Congress mandated that the Director of the Executive Office report 
on the impact of the use of the IRS standards in the means test 
calculation. The Program contracted with the RAND Corporation to 
collect data and to perform related research. Based on that research, 
in July of this year, the Program issued its report to the Congress. 
The most significant finding was that the IRS standards generally allow 
chapter 13 debtors to deduct expenses in an amount above their actual 
expenses, with the greatest advantage realized by above median chapter 
13 debtors with lower income. The IRS standards allow above median 
debtors, on average, $490 in expenses above the amount that debtors 
report they actually spend. As income rises, the differential becomes 
smaller. This means that the IRS standards have a progressive impact on 
above median debtors, such that those with lower income are treated 
more favorably than those with higher income. Further research using a 
larger sample size is necessary to determine any long-term trends. 
Unfortunately, the inability to extract data electronically from court 
forms necessitates the use of manual data entry, which makes further 
research cumbersome and expensive.
Consumer Protection
    An important component of the Program's civil enforcement efforts 
has been to protect consumer debtors. These enforcement efforts often 
involve actions against debtors' counsel, non-attorney bankruptcy 
petition preparers (BPPs), or other third parties. In the first nine 
months of FY 2007, the Program took 394 formal actions against debtors' 
counsel and 184 actions against petition preparers.
    Among the most egregious schemes are those perpetrated upon 
consumers facing foreclosure on their homes. In a recent case in the 
Western District of Pennsylvania, the bankruptcy court entered a 
default judgment against a BPP following an adversary proceeding filed 
by the Office of the United States Trustee. The out-of-state BPP 
contacted several Pittsburgh area residents faced with foreclosure by 
mailing a postcard which guaranteed the BPP could help them keep their 
homes. In exchange for fees ranging from $250 to $2,100, the BPP 
provided the homeowners with skeletal chapter 13 petitions to file to 
stay foreclosure. The debtors' bankruptcy cases were ultimately 
dismissed. The court fined the BPP $72,000, ordered the disgorgement of 
fees in the amount of $8,200, and permanently enjoined it from acting 
as a BPP and offering legal advice or otherwise engaging in the 
unauthorized practice of law in the district.
    Regrettably, debtors sometimes are also exploited by their 
bankruptcy lawyers. In a recent case in the District of Rhode Island, 
the bankruptcy court approved an order in which a debtor's attorney 
consented to a 36-month suspension from the practice of bankruptcy law 
and agreed to disgorge $2,726 in fees to three former clients. The 
order resulted from an investigation by the United States Trustee's 
Providence office into numerous complaints that the attorney engaged in 
professional malfeasance when handling consumer bankruptcy cases.
    The Program also has a duty to redress violations by creditors, 
particularly when the abuse is systemic or multi-jurisdictional. In 
many cases, creditor abuse is best addressed by the private case 
trustees we appoint who object to claims, or by debtors' lawyers who 
dispute loan agreement terms. But sometimes, the integrity of the 
system as a whole is at stake, and it is important for the Program to 
take direct enforcement action.
    In one ongoing case in the Southern District of Texas involving the 
conduct of a large national mortgage servicer and its counsel, the 
Program has invested substantial resources. USTP attorneys deposed more 
than 20 witnesses, reviewed nearly 10,000 pages of documents, and 
completed five full days of trial. In another case, the bankruptcy 
court sanctioned the law firm of that same national mortgage servicer 
for making inaccurate representations to the court. In his opinion, the 
bankruptcy judge noted that creditor's counsel ``complained bitterly 
about the participation of the U.S. Trustee in this matter.'' The court 
concluded, however, that the United States Trustee's participation 
``assured presentation of a complete factual and legal case'' and 
``provided an invaluable benefit to the case and to the process by his 
professional participation.''
    The Program also has been active in enforcing 11 U.S.C. 
Sec. 363(o), which is a less publicized consumer protection measure 
added under the BAPCPA. Section 363(o) prohibits bankrupt lenders from 
selling loan portfolios or other interests ``free and clear'' of the 
rights of their customers to assert claims or defenses provided under 
the Truth in Lending Act or other consumer protection laws. The United 
States Trustee's role to enforce section 363(o) is paramount because 
consumer borrowers may not receive notice of the intended sale of their 
loans. Even if they receive notice, they may not have the financial 
means to object to the sale or request the sale provisions contain 
section 363(o) safeguards to preserve their rights. To date, United 
States Trustees have filed pleadings to enforce section 363(o) in at 
least a dozen cases in which bankruptcy sales by lenders did not 
provide the required and appropriate consumer protection.
    The BAPCPA created 11 U.S.C. Sec. Sec. 526-528 to protect consumer 
debtors by regulating the conduct of debt relief agencies (DRA), as 
defined in the Bankruptcy Code, that provide bankruptcy-related 
services. Approximately 20 cases have raised statutory challenges to 
the DRA provisions, including challenges to the application of the 
provisions to attorneys, to the requirement that a DRA provide certain 
written disclosures to consumer debtors, to the constitutionality of 
the prohibition on advising debtors to incur additional debt in 
contemplation of filing bankruptcy, and to the constitutionality of the 
required disclosure in advertisements touting bankruptcy assistance.
    The Program has worked closely with the Department's Civil 
Division, which has taken the lead in defending the DRA provisions in 
cases brought in United States bankruptcy and district courts. The 
majority of these cases have been resolved, with several cases being 
dismissed. Appeals are pending in the Second, Fifth, Eighth, and Ninth 
Circuits, all of which involve constitutional challenges. In addition, 
arguments on similar issues have been fully briefed in two district 
court cases.

                          CRIMINAL ENFORCEMENT

    Criminal enforcement is another key component of the Program's 
efforts to uphold the integrity of the bankruptcy system. We recently 
issued our first annual report to the Congress on criminal referrals by 
the Program. We reported that in FY 2006, the Program made 925 
bankruptcy and bankruptcy-related criminal referrals. We are on track 
to exceed that number for FY 2007.
    Under the leadership of our Criminal Enforcement Unit (CrEU), 
consisting primarily of career federal prosecutors, we have enhanced 
the Program's work in this critical area. The CrEU has conducted 
extensive training for federal prosecutors and law enforcement 
personnel, USTP staff, private trustees, and others; published internal 
resource documents and a training video for use by Program personnel 
involved in the criminal referral process; and established a bankruptcy 
fraud Internet ``hotline'' that became operational at the beginning of 
FY 2007. In addition, approximately 25 of the Program's attorneys have 
been cross-designated as Special Assistant United States Attorneys to 
assist in the prosecution of bankruptcy fraud.
    The following examples demonstrate the wide array of bankruptcy 
fraud prosecutions that address both debtor fraud and criminal 
violations by those who exploit debtors:

          On April 13, 2007, in the District of Minnesota, 
        husband and wife debtors were convicted on eight counts and 
        nine counts, respectively, including false declaration in 
        bankruptcy, concealment of assets, and money laundering. In 
        their bankruptcy case, the couple did not disclose their 
        interests in an Individual Retirement Account (IRA) and 
        substantially understated the value of their house. When the 
        chapter 7 trustee discovered the IRA, valued at approximately 
        $208,000, the debtors liquidated the asset, cashed the check, 
        and concealed the cash from the trustee. After the trustee 
        learned of the true value of the debtors' interest in their 
        house, the house burned down and the couple received a check 
        for the insurance proceeds from the loss. The debtors cashed 
        the check, which was property of their bankruptcy estate, and 
        carried $244,535 in currency from the bank. The insurance 
        proceeds have not been recovered by the trustee. The United 
        States Trustee's Minneapolis office referred the case and 
        assisted in the investigation, and a member of CrEU assisted in 
        the preparation of the indictment.

          A ``foreclosure rescue'' operator was sentenced on 
        August 8, 2007, in the District of Arizona to 33 months in 
        prison, fined $5,000, and ordered to pay $86,409 in 
        restitution, based on his guilty plea to two counts of false 
        declaration in bankruptcy. The operator sought out individuals 
        who were losing their homes to foreclosure and prevailed upon 
        them to transfer their homes to him to avoid having a 
        foreclosure on their credit reports. To stay foreclosure, he 
        filed bankruptcy petitions in the homeowners' names without 
        their knowledge. While the cases were pending, he collected 
        rental income on the properties. The United States Trustee's 
        Phoenix office referred the matter, conducted the 
        investigation, and provided assistance to the United States 
        Attorney's office.

                 CREDIT COUNSELING AND DEBTOR EDUCATION

    One of the key elements of the bankruptcy reform law is financial 
education. Individual debtors must now receive credit counseling prior 
to filing and education on personal financial management prior to 
discharge. These new requirements are designed to ensure that debtors 
know what their options are before entering bankruptcy and have the 
tools to avoid future financial catastrophe when they exit bankruptcy.
    The primary responsibility of the United States Trustees is to 
approve providers who meet statutory qualifications to offer credit 
counseling and debtor education services to debtors. In light of the 
troubled history of the credit counseling industry, our priority was to 
design an application screening and approval process that would protect 
debtors from unscrupulous providers. We developed our approval and 
monitoring criteria with assistance from the Internal Revenue Service 
and the Federal Trade Commission.
    There are currently 161 approved credit counseling agencies and 297 
approved debtor education providers. Approximately 41 percent of all 
initial credit counseling applications and 28 percent of initial debtor 
education applications were either rejected or withdrawn. In recent 
months, the Program launched a schedule of on-site Quality Service 
Reviews. This mechanism for post-approval monitoring will permit the 
Program to interview provider staff, review records on-site, and 
observe counseling sessions. These reviews will strengthen the 
Program's efforts to ensure that debtors receive quality services from 
approved providers.
    Approximately 37 percent of debtors receive credit counseling by 
telephone, 52 percent by Internet (which also may have a telephone 
component), and 11 percent in person. From October 1, 2006, to June 30, 
2007, credit counseling agencies issued 801,024 counseling 
certificates. Interestingly, during the first nine months of FY 2007, 
approximately 14 percent fewer bankruptcy cases were filed than credit 
counseling certificates were issued. We will need time series data to 
determine if this difference is probative of the question of whether 
credit counseling is assisting debtors in identifying alternatives to 
bankruptcy.
    Another ongoing concern of the Program is the provision of credit 
counseling and debtor education for limited English proficient debtors. 
The Program has approved two national providers that offer interpreter 
services without charge to their clients in more than 150 languages. In 
addition, other approved national and local providers offer Internet, 
telephonic, or in-person counseling in a total of 30 languages. 
Approved providers are required to report to the Program on their 
language capabilities, and the USTP Web site provides information on 
the language capability of all providers on a district-by-district 
basis.
    The USTP also monitors compliance with the Congressional mandate 
that approved providers offer services without regard to a debtor's 
ability to pay. Available information suggests that fees charged for 
services appear to be reasonable and that providers are waiving or 
reducing fees in appropriate cases. Fees charged by credit counseling 
agencies and debtor education providers generally are about $50. Fees 
are waived by credit counseling agencies in 15 percent of all cases, 
and are offered at a reduced rate in about another 14 percent of the 
cases. Similarly, debtor education providers are waiving fees in 14 
percent of cases and reducing fees in approximately 21 percent of 
cases. This means that about one out of every three debtors is 
receiving the required counseling and education services at no cost or 
at a reduced cost.
    In a report issued in April 2007, the Government Accountability 
Office (GAO) credited the Program with developing a comprehensive, 
timely, and effective process for the approval of eligible credit 
counselors and debtor educators. GAO found few issues with the 
competence, integrity, and performance of providers approved by the 
USTP. Additionally, GAO found that debtors receive services within a 
reasonable time frame and at a reasonable fee that is waived for 
inability to pay. GAO did make two recommendations for further action 
which the Program endorses.

          The USTP should ``develop a mechanism that would 
        allow the Program or other parties to track outcomes of 
        prefiling credit counseling, including the number of 
        individuals issued counseling certificates who then file for 
        bankruptcy.'' In addition to refining efforts already made in 
        comparing certificates with bankruptcy filings, we also will 
        pursue recommendations made in a recent report prepared for the 
        Program by the RAND Corporation. Among others things, RAND 
        recommended that we develop outcome measures based upon results 
        from the Quality Service Reviews of approved providers that we 
        began to conduct this year. The scope and timeliness of our 
        research may be determined, in part, by our level of 
        appropriations in FY 2008.

          The Program should ``issue formal guidance on what 
        constitutes `ability to pay' . . . [and] examine the reasons 
        behind the significant variation among providers in waiving 
        fees.'' We are preparing formal fee waiver guidance in a 
        rulemaking which we hope to issue for public comment in the 
        near future. We also will collect and analyze data from 
        providers so that we can enhance our ability to compare the 
        number of fee waivers granted by providers and the criteria 
        they used in making their decisions.
    Section 105 of the BAPCPA requires the Program to develop and 
evaluate the effectiveness of a financial management training 
curriculum and materials. After consulting with a wide range of 
individuals who are experts in the field of debtor education, including 
chapter 13 trustees, a curriculum was developed and pilot tested. The 
study is nearing completion and a report will be submitted to Congress 
by the end of this calendar year.

                             DEBTOR AUDITS

    The BAPCPA mandated a new regimen of debtor audits for consumer 
cases filed on or after October 20, 2006. Audits must be conducted in 
at least one out of every 250 consumer cases filed in a judicial 
district, and in cases where income or expenses deviate from a 
statistical norm. Each audit will verify the accuracy of the financial 
information provided in a debtor's schedules and statement of financial 
affairs. The audits are designed to assist the Program in identifying 
cases of fraud, abuse, and error; to enhance deterrence; and to provide 
baseline data to gauge the magnitude of fraud, abuse, and errors in the 
bankruptcy system.
    In FY 2007, the USTP contracted with six accounting firms to 
perform the audits. By statute, debtors are required to cooperate with 
the auditors, and a debtor's discharge may be revoked for failing to 
adequately explain either a lack of cooperation with the auditor or a 
material misstatement reported by the auditor. Before an audit firm 
reports a material misstatement, it is required to offer the debtor an 
opportunity to provide a written explanation. The Program also is 
required to report annually to Congress on the results of the audits.
    As of August 31, 2007, 3,344 cases had been selected for audit and 
2,575 audits had been concluded. There are three potential outcomes for 
a debtor audit: (1) no material misstatements reported, (2) at least 
one material misstatement reported, or (3) issuance of a report of no 
audit. About 27 percent of the audits concluded thus far have 
identified at least one material misstatement, and an additional 10 
percent were closed without audit completion generally because the 
debtor did not respond to the audit notification letter, the debtor did 
not provide a sufficient response to the audit firm's request for 
information, or the case was dismissed before a sufficient response was 
received.
    When a debtor audit identifies a material misstatement, the Program 
reviews the case to determine if enforcement action is appropriate. In 
a recent case in the Eastern District of California, an audit revealed 
that a debtor had under-reported several bank and financial accounts, 
and had failed to disclose pre-petition transfers to insiders and 
creditors. Based on these facts, the United States Trustee's Sacramento 
office filed a complaint against the debtor, who agreed to forego the 
discharge of $4.2 million in unsecured debt rather than proceed to 
trial.

                           CHAPTER 11 ISSUES

    The Program carries out significant responsibilities in business 
reorganization cases. These responsibilities include such matters as 
the appointment of official committees of creditors and equity security 
holders, objections to the retention and compensation of professionals, 
the review of disclosure statements, and the appointment of trustees 
and examiners where warranted. The BAPCPA reformed chapter 11 practice 
in many important respects, including the imposition of new deadlines 
for reorganization in small business cases; the USTP appointment of 
privacy and patient care ombudsmen to protect the rights of customers, 
patients, and other third parties affected by chapter 11 cases; and the 
addition of other requirements to enhance management accountability. 
Because business reorganization cases often raise highly complex 
questions of law and require sophisticated financial analysis, such 
cases can be time intensive for United States Trustee staff.
    In the first nine months of FY 2007, the Program filed 1,717 
motions to convert or dismiss chapter 11 cases. The grounds for such 
motions often involved debtors' failure to file financial reports or 
debtors' dissipation of estate assets without a reasonable likelihood 
of rehabilitation. In addition, the Program filed objections to 
professional fees in 460 cases and obtained nearly $17 million in fee 
reductions. An additional $11 million in reductions in 578 cases were 
obtained through out-of-court resolution. It is not possible to 
calculate other reductions voluntarily taken by professionals on 
account of USTP scrutiny of compensation applications.
    One recent case illustrates the USTP's role in the review of 
professional compensation. In the case of Northwest Airlines in the 
Southern District of New York, debtor's counsel was paid $35.5 million 
and requested an additional bonus of $3.5 million due to ``exceptional 
results achieved, the quality of work performed and the efficiency with 
which the services were rendered'' in the case. The Program, along with 
the flight attendants' union and a former member of the Ad Hoc 
Committee of Certain Claims Holders, objected to the success fee. The 
United States Trustee argued that debtor's counsel was well compensated 
at market rates and provided no specific evidence of exceptional 
results that were not adequately compensated by such rates. The court 
ruled that the requirements for a fee enhancement were not met and 
denied the success fee.
    The Program also reviews applications for the retention of 
professionals to ensure compliance with section 327 conflict of 
interest prohibitions. During FY 2007, three courts of appeals upheld 
objections by the USTP to the proposed retention of professionals who 
had interests adverse to the estate, were not disinterested, or failed 
to disclose connections that created potential and actual conflicts of 
interest.
    Another recent case demonstrates the important role of the United 
States Trustee when management does not properly exercise its fiduciary 
obligations to the estate and comply with the law. The United States 
Trustee's Brooklyn office sought dismissal of a chapter 11 case due to 
the debtor's failure to provide proof of insurance, cooperate with the 
United States Trustee, meet disclosure and financial reporting 
obligations, and otherwise demonstrate an ability to reorganize. On the 
date the debtor filed its bankruptcy petition, it owned an apartment 
building that had more than 1,400 uncorrected housing code violations 
and was about to be sold through a HUD regulatory foreclosure. The 
United States Trustee's motion to dismiss the case was supported by 
HUD, the City of New York, and an informal committee of tenants. The 
Bankruptcy Court for the Eastern District of New York dismissed the 
case on September 6, 2007, with a six-month bar to refiling a 
bankruptcy petition. The bar to refiling will allow HUD to proceed with 
the foreclosure and transfer the property to a responsible owner who 
will cure the housing code violations.
    As noted, the BAPCPA added numerous provisions designed to enhance 
management accountability and to provide greater protections to 
creditors, shareholders, and the public. For example, Congress added 
section 1104(e) to the Bankruptcy Code, which requires the United 
States Trustee to seek to oust management if there are ``reasonable 
grounds to suspect'' that current management participated in fraud, 
dishonesty, or other criminal acts in the debtor's management or public 
financial reporting. In addition, corporate debtors are under stricter 
time deadlines to confirm a plan of reorganization. Under new 11 U.S.C. 
Sec. 503(c), companies are also restricted in their ability to pay 
bonuses to senior executives through Key Employee Retention Plans 
(KERPs). Since enactment of section 503(c) through the beginning of 
August 2007, United States Trustees have filed approximately 40 
objections to executive bonus plans and have been successful in almost 
70 percent of these cases. This number does not include additional 
instances where the United States Trustee persuaded the debtor to 
modify its compensation scheme to avoid an objection. Moreover, 11 
U.S.C. Sec. 1112(b) was amended to lessen the court's discretion to 
refuse to order conversion of a case to chapter 7 if the debtor is not 
expeditiously reorganizing in accordance with the commands of chapter 
11.
    Two cases illustrate our actions to carry out the new chapter 11 
provisions:

          In the New Century TRS Holdings, Inc., subprime 
        mortgage lending case, the United States Trustee invoked 
        section 1104(e) and filed a motion for the appointment of a 
        trustee. As grounds, the motion cited New Century's admitted 
        inability to stand behind its SEC financial filings and 
        substantial issues about its internal financial controls. While 
        the court acknowledged that the United States Trustee had 
        raised serious concerns, the court granted alternative relief 
        by ordering the United States Trustee to appoint an examiner to 
        investigate the circumstances surrounding New Century's 
        inaccurate public financial filings. When New Century later 
        acknowledged that it could not stand behind its filings for a 
        prior year, the court, at the United States Trustee's request, 
        expanded the investigation to encompass that year as well.

          In the case of Malden Mills, the debtor, having 
        failed to rehabilitate its business in a previous chapter 11 
        case, filed a new petition and immediately sought court 
        approval of substantial bonuses for top management and others. 
        The bonuses were payable upon the consummation by the debtor of 
        a pre-negotiated sale of assets. Unsecured creditors were to 
        receive nothing in the case, and most employees lost their 
        jobs. The United States Trustee objected to the excessive 
        bonuses, and the debtor withdrew the bonus proposal.

                       PRIVATE TRUSTEE OVERSIGHT

    One of the core functions of the United States Trustees is to 
appoint and supervise the private trustees who administer consumer 
bankruptcy estates and distribute dividends to creditors. The Program 
also trains trustees, evaluates their overall performance, reviews 
their financial accounting, and ensures their prompt administration of 
estate assets.
    In the first nine months of FY 2007, approximately 530,000 consumer 
and other non-business reorganization cases were filed under chapters 
7, 12, and 13 of the Bankruptcy Code in the 88 judicial districts 
covered by the Program. The United States Trustees oversee the 
activities of the approximately 1,400 private trustees appointed by 
them to handle the day-to-day activities in these cases. With 
distributions by these trustees of about $7.9 billion last fiscal year, 
the Program's effectiveness in this area is critical. The Program has 
continued to strengthen its partnership with the private trustee 
organizations to address areas of mutual concern and enhance the 
operation of the bankruptcy system.
    In implementing bankruptcy reform, the Program worked closely with 
the trustees and provided extensive training, with a particular focus 
on their new responsibilities with regard to serving as employee 
benefit plan administrators and the handling of debtor tax returns. We 
also have initiated the rulemaking process to issue uniform trustee 
final reports, which will enhance consumer bankruptcy case 
administration by improving access to case data and allowing for 
greater analysis of the bankruptcy system.

                     INFORMATION TECHNOLOGY EFFORTS

    To the maximum extent possible, the USTP has leveraged its 
resources by utilizing information technology. In addition to enhancing 
existing automated systems that help manage caseloads and measure 
Program activity (e.g., the Automated Case Management System, 
Significant Accomplishments Reporting System, Criminal Enforcement 
Tracking System, and Professional Timekeeping System), the USTP has 
developed a number of new systems. These include a Means Test Review 
Management System, a Credit Counseling/Debtor Education Tracking 
System, a Credit Counseling/Debtor Education Certificate Issuance 
System, and a Debtor Audit Management System.
    Notwithstanding the addition of these systems, the Program's 
ability to achieve efficiencies and maximize data collection has been 
hampered by an inability to electronically extract data from bankruptcy 
petitions and schedules. As suggested in Congressional Appropriations 
Committee Reports, we have been working with the Administrative Office 
of the U.S. Courts (AOUSC) for more than two years to have a data-
enabled form standard made mandatory, subject to appropriate privacy 
and access concerns. ``Data tags'' in a data-enabled form permit the 
computer system to automatically extract and aggregate financial and 
other information from bankruptcy filings. Such forms would make the 
USTP's implementation of the new bankruptcy law vastly more time and 
cost efficient in several key areas such as calculating the means test 
to determine eligibility for chapter 7 relief and identifying cases for 
audit under statutory case selection standards. They would also save 
case trustees significant time and expense in the filing of final 
reports in hundreds of thousands of no-asset consumer cases where 
considerable new information is required under the BAPCPA. In addition, 
data tags could aid the courts in performing administrative functions 
and would assist policymakers and researchers in analyzing the 
effectiveness of the bankruptcy system (by, for example, providing 
better data on the relationship between medical expenses and bankruptcy 
filings). Discussions with the courts on this critical issue are 
continuing.

                FISCAL YEAR 2008 APPROPRIATIONS REQUEST

    The USTP is entirely self-funded through user fees paid by 
bankruptcy debtors. All revenues are deposited into the United States 
Trustee System Fund. The Program may expend funds as appropriated by 
Congress. In FY 2007, approximately 50 percent of the funding was 
derived from quarterly fees in chapter 11 reorganization cases. The 
balance of the funds was derived from filing fees paid in chapters 7, 
11, 12, and 13, as well as interest earnings and miscellaneous 
revenues.
    For FY 2007, Congress appropriated $223.1 million for the USTP. 
This amount provided funding for operations, including the Executive 
Office and 21 regions consisting of 95 field offices. The Program 
employs approximately 1,300 attorneys, financial analysts, and support 
staff. The USTP covers more than 300 sites where bankruptcy judges 
conduct proceedings and more than 450 administrative hearing sites 
(i.e., section 341 meeting rooms).
    For FY 2008, the President requested appropriations of $231.9 
million for the USTP. This amount would provide a current services 
budget. The Senate Appropriations Committee approved the President's 
budget. The House of Representatives passed legislation that would 
satisfy the President's request, subject to collections. The Program 
and the Department have re-estimated the level of receipts that are 
expected to be collected in 2008. The Attorney General has addressed 
the issue of the USTP funding in his appeal to the Appropriations 
Subcommittee, pointing out that the U.S. Trustee System Fund has a 
sufficient surplus to fully fund the FY 2008 request.

                               CONCLUSION

    The United States Trustee Program has assembled a substantial 
record of accomplishment since enactment of the BAPCPA. Compliance with 
the comprehensive changes to the Bankruptcy Code has presented 
significant challenges to the United States Trustees, the courts, 
debtors, creditors, attorneys, and others. The bankruptcy system is in 
a period of transition. The USTP will continue its efforts to work 
cooperatively with all components of the system to satisfy our 
obligations to implement the law with fairness, efficiency, and 
effectiveness for the benefit of all stakeholders.

    Ms. Sanchez. Thank you. Judge Cristol?

TESTIMONY OF THE HONORABLE A. JAY CRISTOL, JUDGE, UNITED STATES 
   BANKRUPTCY COURT, SOUTHERN DISTRICT OF FLORIDA, MIAMI, FL

    Judge Cristol. I am proud of the bankruptcy system of the 
United States and believe it is the most compassionate and, at 
the same time, most effective system in the world, because it 
goes beyond the archaic concept of looking only to the 
distribution of assets to creditors and offers an honest debtor 
a fresh start.
    In answer to the question, ``Watch dog or attack dog,'' the 
answer is the U.S. Trustee is not one dog. It is a pack of 
dogs. In the area of chapter 11 reorganization, the U.S. 
Trustee staff at local levels provide extremely valuable 
assistance to the courts.
    In this area, the U.S. Trustee is a beloved Lassie or a Rin 
Tin Tin. Sadly, in the area of consumers, the U.S. Trustee is a 
pit bull. The problem comes from the top. Over the tenure of 
the past two directors, Lawrence Friedman and Clifford White, 
the policies sent from Washington to the soldiers in the field 
have made the U.S. Trustee program in the consumer area a pit 
bull.
    I do not mean to make ad hominem attacks on Mr. Friedman or 
Mr. White. I respect them both as to integrity and professional 
talents. The problem is their perspective.
    Mr. White's distinguished career has been served in the 
office of the Federal prosecutor. These gentlemen seem to view 
all debtors with a suspicion through prosecutorial eyes as 
dishonest crooks trying to beat the system and perceive 
debtors' lawyers as disreputable and untrustworthy.
    Nothing is further from the truth. In my more than two 
decades on the bench, I have observed that almost all consumer 
debtors seeking relief in bankruptcy are honest, decent, 
hardworking citizens who suffered a catastrophic financial 
tragedy, seldom of their own making, such as a medical disaster 
and no health insurance, loss of employment, dissolution of a 
marriage or other financial misfortune.
    Consumer lawyers who represent them are generally competent 
and well meaning, without blemish on their character.
    The U.S. Trustee's most recent annual report boasts of the 
national civil enforcement initiative yielding millions in 
debts not discharged. There is a substantial difference between 
debts not discharged and debts collected. They offer no figures 
on debts collected.
    The old adage, ``You cannot get blood from a stone,'' is 
especially applicable here. Very little of the nondischarged 
debts are collected.
    So what has been accomplished?
    The report also claims that they have a better than 99 
percent success rate in complaints filed against debtors. It 
fails to mention how many cases are won by default.
    Think about it. A destitute, honest debtor that has 
appropriately turned over all of his or her property to the 
panel trustee, except for exempt property, which, in many 
States, is meager, is served with a lawsuit filed by the United 
States of America, represented by highly-skilled, well-paid 
lawyers.
    In these circumstances, most debtors have neither the money 
nor the will to fight. In many instances, their remaining 
exempt property will not even cover the amount of a retainer to 
a competent counsel. It is not Goliath against David. It is 
more like Goliath against an ant.
    And what is the benefit to society of most of these 
undischarged debts or denials of discharge? Without discharge 
and the fresh start it provides, these victims of the 
initiative find it difficult to get a job, get credit, or climb 
out of the financial pit in which they are trapped.
    They are denied a fresh start and the opportunity to re-
enter society as productive citizens. The mean-spirited streak 
in the new law provides draconian penalties for the most minor 
and insignificant compliance failures of even unimportant 
matters. The U.S. Trustee seems to be enamored with these harsh 
penalties.
    The new law makes it harder for consumers to save a home 
from foreclosure or a car from repossession, and the U.S. 
Trustee's policy seeks the harshest implementation of these 
provisions.
    As a result, honest people, homeless or unable to drive to 
work. If a debtor's papers contain minor discrepancies that 
have no effect on the results of the case, there is no valid 
reason to persecute them.
    The problems of consumer debtors are only exacerbated by 
the aggressive anti-consumer stance of the U.S. Trustee 
Program. The independent decisions of career personnel in local 
offices have been subordinated to central directives from a 
politicized central office.
    While spending enormous resources pursuing minor document 
defects in papers filed by consumer debtors, the U.S. Trustee 
spends little or no time on creditor wrongdoing. The U.S. 
Trustee was supposed to be a neutral monitor of the system and, 
for many years, it was. That neutrality has been maintained in 
North Carolina and Alabama under the bankruptcy administration 
system.
    A final sad example is my case In re Jean Raul Petit-Louis, 
a pauper. He did not own real estate. He did not own a car. He 
had no money and little more than the clothes on his back.
    He lost his job and could not pay his rent in public 
housing. Upon getting back to work, he was in danger of 
eviction because of a few dollars of unpaid rent. He could only 
keep a roof over his head if the debt was paid, which he could 
not do, or if he was discharged.
    Petit-Louis, Little Louis, could not speak English and 
could not obtain credit counseling in Creole, the language he 
understood. Of ten U.S. Trustee approved credit counselors in 
southern Florida, not one had a Creole-speaking counselor.
    The U.S. Trustee had not carried out its statutory 
obligation to provide credit counseling in a meaningful way.
    Nevertheless, the U.S. Trustee sought to bar Little Louis 
from bankruptcy release, and when I granted a waiver, which is 
allowed by the statute, the U.S. Trustee filed a lengthy motion 
to reconsider, followed by an appeal and a threat to Little 
Louis that the U.S. Trustee would appeal all the way to the 
Supreme Court.
    So Little Louis gave up and voluntarily dismissed his 
case--another ant smashed by the unlimited resources of the pit 
bull doing good as it sees doing good.
    I close with the words of Cicero, ``We are not those who do 
evil in the name of evil, but heaven protect us from those who 
do evil in the name of good.''
    [The prepared statement of Judge Cristol follows:]

           Prepared Statement of the Honorable A. Jay Cristol

























































































































































    Ms. Sanchez. Thank you for your testimony.
    Ms. Powers?

TESTIMONY OF MARY POWERS, ESQUIRE, FORMER UNITED STATES TRUSTEE 
              PROGRAM TRIAL ATTORNEY, AMHERST, NY

    Ms. Powers. Thank you for the opportunity to speak today.
    Quite frankly, it was a difficult decision for me to come 
here today. On the one hand, I believe the United States 
Trustee's offices are filled with intelligent, hardworking 
individuals who care about the mission of the United States 
Trustee, working to promote the integrity and efficiency of the 
bankruptcy system. Many of these people are sittin here today.
    On the other hand, it was my distinct feeling, based on my 
over 4 years employment there, that the policies and the 
practices of the United States Trustee were moving farther away 
from its mission to the integrity of the system. I felt that it 
was going to be less and less about justice, and, at some 
levels, actually served as an impediment.
    It is that experience that brings me here to testify today. 
My written testimony speaks for itself. Buffalo, in western New 
York, is a community where economic hardship is a reality and 
has been so for a number of years, most of my life, actually.
    Buffalo was recently cited as the second poorest city in 
America. Clearly, abusive bankruptcy filings were not 
prevalent. The majority of cases where inquiries had been made 
on our part, in an effort to stem any tide of abuse, there 
would be notable mitigating factors.
    The United States Trustee Program had implemented a 
reporting system. They called Significant Accomplishment 
Systems. They called it SARS. It was sort of like a report 
card, a quarterly report card. And once I started to do that 
report card every quarter, it became even more apparent, 
because it confirmed the obvious, that western New Yorkers were 
down on their luck. Entry after entry noted job loss, loss of 
medical benefits and often marital dissolution. But, 
unfortunately, that reality didn't seem acceptable in the 
climate of the current office of the United States Trustee.
    The belief was that you must not be looking hard enough if 
you don't find cases of abuse, and I recount two personal 
examples in my testimony, ones that, in my career, may seem 
minor, but they did really strike home.
    The first is when then director Larry Friedman came to town 
and he pulled one of our inquiry files. It was that of a 
retired teacher and his wife, and Mr. Friedman immediately 
asked where the boat was. We weren't sure what he meant. He 
said, ``Well, all retired teachers have boats.''
    I stated I wasn't personally aware of the connection 
between retired teachers and boats, but at his direction, we 
did a detailed document request for his review. And we 
conducted a review, and he flew back into town to conduct an 
examination of the debtors.
    Mr. Friedman found no intentional ommission of assets. The 
case was eventually converted to a 13, which would have 
happened anyway. That is what we had targeted it for.
    Now, Buffalo is a small community. Lawyers cooperate with 
one another and results can be achieved without putting all 
parties through these rigorous hoops.
    We understood that, sadly, the view from the top was that 
the debtors and their attorneys were to be looked at as the 
opposition, and that simply was not the case, at lease not in 
Buffalo, New York. And, unfortunately, the emphasis on the 
numbers only became worse after the passage of the new law.
    I left when I realized that independent judgment was not 
valued or sought after in the program.
    I recount the example of the United States Trustee in 
Region 2 inquiring about a garden variety case, one that wasn't 
abusive in any way. I immediately thought we must have missed 
something--but it reinforced my belief that it was all about 
the numbers, and about micromanaging and bureaucracy was only 
getting worse.
    It was hard for me to believe that someone at that level 
would not have something more important on her plate than that.
    And I felt, when I realized my personal credibility and my 
integrity was at risk and one well-respected attorney told me 
that the U.S. Trustee had become a known as the ``useless 
Trustee's office.''
    On a personal level, I also couldn't imagine spending the 
rest of my career looking at telephone bills and determining if 
``grandma'' was part of the household, especially when those 
endeavors meant very little in terms of monetary returns to 
individual creditors.
    It just seems to me, and the reason I am here today, is 
that the talent and dedication of the staff that I was lucky 
enough to work with in Buffalo, and that the people that I met 
from all around the country could be used to serve the system 
of justice in a much more effective manner.
    [The prepared statement of Ms. Powers follows:]

                   Prepared Statement of Mary Powers

    My name is Mary Powers and I am an attorney who for the majority of 
my twenty year legal career practiced bankruptcy law. I was fortunate 
to begin my career as confidential law clerk to the Honorable Beryl E. 
McGuire, Chief Judge for the United States Bankruptcy Court for the 
Western District of New York. After that I worked for two well 
respected Buffalo law firms, representing debtors, creditors and 
creditor committees in a variety of bankruptcy matters. In 2002, I 
applied for the position of Trial Attorney in the Buffalo office of the 
United States Trustee (``UST''). At that time, I was very happy at my 
law firm, received challenging work, was well compensated and, above 
all, was respected by my colleagues just as I respected them for their 
integrity and dedication to their clients. There was only one legal 
position which would have prompted me to leave this wonderful working 
environment and that was a position with the Department of Justice's 
United States Trustee's Office. I felt my background was ideal, but 
more importantly, I felt that it would be an honor and a privilege to 
serve the Department of Justice in its mission to promote the integrity 
and efficiency of the bankruptcy system. It was a chance, for the lack 
of a better phrase to ``wear the white hat''. I felt very fortunate to 
have been offered the position. Over time, it became clear to me 
however, that what I was doing had very little to do with ``justice'' 
and, as such, my personal passion and enthusiasm slowly eroded. In 
February 2007, not wanting to spend the remainder of my career doing 
something that I had trouble believing in, I resigned. I have never 
once regretted that decision.
    Upon my arrival, I came to understand more clearly what was meant 
by ``civil enforcement ``and that the UST was now considered a 
litigating component of the Department of Justice. I had enough 
experience at that time to realize that the Buffalo office did not have 
the resources to be a true ``litigating force'', but I was optimistic 
that I could still make a difference, elevating the level of practice 
and protecting both debtors and creditors. During my years, little 
focus or training emphasized creditor abuse. I quickly came to 
understand that ferreting out abuse by debtors was of primary 
importance. I screened numerous filings. Through inquiries of debtors 
and their attorneys, I confirmed what I could have intuitively guessed 
from being a Buffalo and Western New York native. The majority of 
filings were not abusive. Buffalo's poor economy caused loss of jobs, 
loss of medical benefits and often marital dissolution, due in large 
part to financial setbacks. These factors were at the heart of the vast 
majority of filings. This became very apparent when the UST implemented 
a reporting system (one of many) known as SARS (``Significant 
Accomplishments Reporting System''). Every action taken by staff was to 
be documented in this system. Every entry where no action was taken 
referred to a ``mitigating factor'' which obviated the need for any 
action. ``Cancer'', ``job loss'', ``divorce'' were noted frequently, 
demonstrating what I knew to be the case: that Western New Yorkers were 
down on their luck. When an abusive filing was found, dismissal or 
conversion to Chapter 13, was pursued with vigor, but always 
understanding that the judges in the Buffalo Bankruptcy Court were very 
aware of the harsh economic realities in Western New York and gave 
debtors every consideration. Initially it never occurred to me that 
those in Washington and New York would not trust the assessments of 
seasoned lawyers, those hired by them for their expertise and 
experience. I thought it was common sense and easily understood that 
regions and individual districts differed significantly in their 
bankruptcy demographics. I learned later that I was quite naive in that 
belief.
    I became aware that the debtor abuse ``numbers'' for the Buffalo 
office were low and that offices that had low numbers were perceived as 
not looking hard enough to find abuse. This became very apparent when 
then Director Lawrence Friedman on a visit to the Buffalo office pulled 
one of our ``inquiry'' files and concluded on its face that a debtor 
examination should take place and he would ``show us how it was done''. 
He told us that as the debtor was a retired teacher it was likely he 
had a boat, although none was listed. I was not familiar with the link 
between retiring teachers and boats, but I assured him I would 
investigate and do a detailed document request for his review prior to 
his return to conduct the examination of the debtors. Our independent 
investigation revealed no intentional omission of assets on the 
debtors' schedules. The examination done by Mr. Friedman also revealed 
nothing. The debtors were sincere and honest and nothing warranted the 
dismissal of their case. The case was flagged by our office for one 
more appropriately in Chapter 13 which is my recollection of what 
ultimately happened in the case. I feel certain that this result, as 
had occurred with other similar cases, would have occurred without the 
burdensome document requests and a lengthy examination of the debtors. 
Buffalo is a small community of bankruptcy practitioners and my 
experience led me to know that for many cases aggressive pursuit was 
unnecessary to achieve the same result. Unfortunately, as we did not 
conduct as many unnecessary examinations as other districts , we 
appeared less aggressive. Again, I felt that we understood the practice 
in our district best and there was no need to put the debtors and their 
attorneys through unnecessarily burdensome ``hoops'' if the same result 
could be achieved in a more timely and cost efficient manner for all 
involved. I felt that treatment of attorneys and debtors in that manner 
raised our credibility with the bench and bar, fostered cooperation and 
promoted a much more efficacious system. Unfortunately, the opinions of 
those in the ``trenches'' in the individual offices seemed to matter 
very little. Although, the same information could be easily obtained at 
a meeting of creditors, we would have gotten more ``credit'' from the 
powers that be had we engaged in costly examinations and document 
requests. Our ``SARS'' report, a seeming ``report card'', certainly 
wasn't impressive to those who measured success in terms of dismissals 
and conversions only. Unfortunately, we could not manufacture ``abuse'' 
where little existed. Even when we did obtain a conversion to Chapter 
13 and the total amount of unsecured debt deemed nondischargeable was 
entered as the result, in truth, most of that debt would be ultimately 
discharged because the majority of Chapter 13 payment plans were of a 
very low percentage. If the case was dismissed, it was likely very 
little of that debt was collectible either. We understood however, that 
it was partially these numbers that the Office of the United States 
Trustee relied upon to justify its existence and demonstrate success. 
Feeding the SARs machine at times seemed as important as practicing 
meaningful law.
    The lack of autonomy and inability to exercise discretion as well 
as the pressures to produce ``numbers'' was exacerbated after the 
passage of BAPCPA in October of 2005. Admittedly, the UST was forced to 
comply with a new law everyone was struggling to understand and 
certainly there would and should be uniformity in policies regarding 
application, but again the same pressures to produce presumed abuse 
under the ``means test'' was paramount. I remember one pivotal moment 
for me after the passage of the new bill. I, through the Assistant UST 
in the office, learned that the US Trustee in the region asked about a 
specific case. My first thought was that despite a multi-level 
screening process, something big must have been missed. When I reviewed 
the filing, I realized that the case wasn't flagged because the debtor 
was only slightly over the median and had a blended family with six 
children and all the legitimate expenses that accompany a family of 
that size. You didn't need the means test to figure that out. Common 
sense and living in the real world would have sufficed. More 
importantly, I was incredulous that someone at the level of a UST would 
not have something more important on her plate than this insignificant 
case from Buffalo. It was clear that ``babysitting'' was the order of 
the day and that the most important focus of the UST was accounting for 
``debtor abuse'' and raising the numbers for statistical purposes. It 
was that day when I knew I could not spend the rest of my career in a 
micromanaging bureaucracy. I also knew that the satisfaction that would 
arise from pouring over cell phone bills and determining if ``grandma'' 
was part of the household would be nonexistent, especially when 
ultimately it would make very little monetary difference to creditors. 
As one well respected Buffalo attorney told me, the UST had come to be 
known as the ``useless Trustee's office'', not a flattering nickname, 
but one I sadly understood.
    The most unfortunate aspect of this to me was that the Office of 
the United States Trustee employed many intelligent, hard working 
individuals all over the country, many of whom I was fortunate to work 
with and to meet. Those individuals produced many wonderful initiatives 
over the years. Many of them expressed frustrations similar to those I 
have expressed, but obviously only one who left government employment 
would feel free to speak. In closing, it is my belief that the mission 
of the Office of the United States Trustee is admirable however, the 
current execution of the mission is flawed, an impediment to the 
functioning of the system and does very little to promote the integrity 
of the system.

    Ms. Sanchez. Thank you, Ms. Powers, for your testimony.
    At this time, I would invite Judge Wedoff.

  TESTIMONY OF THE HONORABLE EUGENE R. WEDOFF, JUDGE, UNITED 
    STATES BANKRUPTCY COURT, NORTHERN DISTRICT OF ILLINOIS, 
                          CHICAGO, IL

    Judge Wedoff. I appreciate the opportunity to be here for 
the purpose of offering a different perspective on the U.S. 
Trustee Program.
    I understand the question the Committee wants to ask is 
whether the program has been administering the bankruptcy 
system in an over-aggressive manner, like an attack dog, or 
whether it has been safeguarding the integrity of the 
bankruptcy system, like a watch dog.
    I have been a bankruptcy judge for 20 years. I have been on 
a number of organizations actively that work to support the 
bankruptcy system and I have presided over big cases, like the 
United Airlines case. But the reason that I want to talk to the 
Committee today is because of the experience I have had from my 
appointment to the Advisory Committee on Bankruptcy Rules.
    When, what I will call BAPCPA, the Bankruptcy Abuse 
Prevention and Consumer Protection Act of 2005, was enacted, 
there were 6 months--180 days to enact a whole host of new 
rules and forms to implement BAPCPA, and one of the most 
difficult tasks was to implement the new means tests that were 
created to establish abuse in chapter 7 cases.
    I was appointed, as a new Member of the Committee, to a 
three-member working group to devise a means test form, to 
draft one for the Committee. The other members of that working 
group were Eric Frank, who is now a bankruptcy judge in 
Philadelphia, but he was then a longstanding consumer debtor 
attorney, and Mark Redmiles, who was then the enforcement 
coordinator for the U.S. Trustee Program.
    The three of us, over that 6-month period, spent literally 
hundreds of hours drafting, debating, revising means test 
forms, not just for chapter 7, but for chapter 13 and chapter 
11, as well. The work was necessarily complex, because the 
statute is complex.
    Our chapter 7 means test form, as you mentioned, Madam 
Chairwoman, has 57 different lines over six pages, not because 
we wanted to make it complex, but because the law required 
that.
    Obviously, over that period of time, Mark, Eric and I got 
to know one another really well, and what I want to convey to 
the Subcommittee today is the very firm impression I have that 
Mark Redmiles and the U.S. Trustee Program, throughout this 
process, not just with the means test, all of the 
considerations of the rules committee, were not out to attack 
debtors.
    To the contrary, the impression I had throughout this 
process was that they were working with integrity and fairness, 
to read the statute properly and come up with a workable 
result.
    Now, in my written testimony, I focused on two concrete 
examples that I thought would illustrate the approach of the 
U.S. Trustee Program in the rulemaking process. Both of them 
involve the implementation of the needs test and the needs test 
form, and they both have the potential to impose significantly 
greater burdens on debtors than the ones that we actually 
adopted.
    The first of these has to do with the safe harbor of 
section 707(b)(7) of the bankruptcy code. This makes it 
impossible for any means test presumption to be asserted 
against a debtor who has below median income and the impact of 
that is that the debtor's income alone immunizes the debtor 
from the means test.
    However, there is statutory language suggesting that a 
debtor might have to complete all of the calculations of the 
means test in order to comply with the reporting requirement 
and, in fact, some of the creditor organizations that promoted 
BAPCPA argued to the rules committee that regardless of income 
level, a debtor had to complete the entire form.
    It would make a huge difference if the debtor can complete 
only the income portion, 14 lines, less than a page and a half. 
If they have to complete the entire form, six pages, 57 lines.
    The U.S. Trustee Program from the beginning rejected the 
viewpoint of the creditor industry and asserted that the proper 
reading allowed only partial completion of the form by low 
income debtors.
    The second point that I brought out has to do with the 
local housing standards, local standards of the IRS. These are 
used to determine debtors' deductions in the mean test for 
housing and transportation.
    There is a number given by the IRS. The statute directs 
that the debtor's deduction for housing and transportation 
shall be the number set forth in the IRS local standards. 
Again, the creditor industry read the statute differently. They 
said that the numbers that the IRS published were only half.
    Under that view, the debtor would have to list mortgage, 
rent, utilities, insurance, all of those items separately on 
the form and then compare them to the IRS numbers. Again, the 
U.S. Trustee Program took the position that the shorter 
version, the IRS number, would be appropriate.
    What is the bottom line? In all of these--in most of these 
and other instances, the U.S. Trustee Program had the 
opportunity, had it chosen, to essentially attack debtors--the 
title of this hearing. They declined to--Instead they acted 
with integrity, with fairness, and they helped us produce a 
workable result.
    I was grateful to Mark, grateful to the U.S. Trustee 
Program, and, I have to say, heartened to learn in August that 
Mark Redmiles was named deputy director of the U.S. Trustee 
Program. I think he is taking that position in a very positive 
direction.
    [The prepared statement of Judge Wedoff follows:]

          Prepared Statement of the Honorable Eugene R. Wedoff











    Ms. Sanchez. Thank you very much for your testimony.
    The bell is ringing to vote. In the absence of anybody 
telling me that we have votes shortly, we will proceed to Mr. 
Uyehara.

TESTIMONY OF PAUL M. UYEHARA, ESQUIRE, COMMUNITY LEGAL SERVICES 
           LANGUAGE ACCESS PROJECT, PHILADELPHIA, PA

    Mr. Uyehara. Chairman Sanchez, Ranking Member Cannon, 
Members of the Subcommittee, thank you for the opportunity to 
testify today.
    I would like to clarify for the record, as indicated in my 
written testimony, that I am also testifying this afternoon as 
a member of the National Association of Consumer Bankruptcy 
Attorneys, whose members probably represent the bulk of the 
attorneys filing consumer bankruptcy cases.
    My written testimony details seven problems with U.S. 
Trustee policies and practices, but really those problems, 
those seven problems, could be summarized by the failure of the 
Executive Office for U.S. Trustees UST programs to act in a way 
that is fair, rational and reasonable. In fact, it is doing 
things in an unfair, irrational and unreasonable manner.
    As a component of the justice department, the public has a 
right to expect the executive office for U.S. Trustees to be 
fair. They are opposed to bankruptcy fraud, no one will argue.
    Rather than opposing fraud from debtors and creditors 
alike, UST programs focus almost exclusively on looking for 
alleged debtor abuse, while making little effort to root out 
abuse by creditors and their attorneys.
    On a daily basis across the country, attorneys are filing 
bogus claims on behalf of creditors. They are filing motions 
falsely claiming homeowners are behind a mortgage payment, 
backed up, in some cases, by pre-signed affidavits. Debtors are 
losing sleep, money for attorney's fees and their homes from 
fraud like this, but the EOUST acts as if only debtor fraud is 
worth fighting.
    We think fraud is fraud and fair is fair. We also think it 
unfair for EOUST to have engaged in discrimination based on 
debtors' ability to speak English, in violation of Executive 
Order 13166 and DOJ policy. They are refusing to provide 
interpreters for debtors to participate in mandatory meetings 
of creditors, telling debtors to hire their own professional 
interpreters or do without, while facing walls covered with FBI 
posters, warning of felony prosecutions for misstatements.
    EOUST has failed miserably for years in implementing 
reform. The case just mentioned by Judge Cristol is one of the 
most egregious examples, with EOUST attorneys having been 
dispatched from Washington to Miami, vowing to fight for as 
long as it took to have a Creole speaking debtor denied 
bankruptcy protection because EOUST created and manages a 
credit counseling system that is poorly equipped to assist 
debtors that don't speak English well.
    EOUST practices have made filing bankruptcy more expensive, 
more difficult and more traumatic than it already was for 
consumers. They have to manage documents from debtors that 
exceed requirements set by law and the rules, with no 
consideration of the costs and benefits and ignoring the 
relevancy of the documents in a particular case.
    One example of many in my written testimony, a single 
mother, domestic violence survivor, with two kids, two little 
kids, no child support, below median income, received a demand 
to produce proof within 11 days of all of her credit card 
purchases, without any restriction in time for how far back the 
documents had to go.
    Many routine demands by USTs are nothing more than anti-
debtor harassment. Pay stubs have been demanded of debtors who 
filed papers saying that they were unemployed. One UST faulted 
a debtor for listing herself as single, rather than divorced, 
when asked her marital status and demanded that she amend her 
paperwork.
    A U.S. Trustee moved to dismiss a case after the debtor 
erroneously took a debtor education course instead of a credit 
counseling course, even though she later took the credit 
counseling course a day later than she was required to.
    UST personnel are now being sent to routine meetings of 
creditors run by panel trustees, apparently, to protect 
creditors' interests, even though the creditors themselves 
generally do not waste their time attending these meetings.
    A UST attorney in Pennsylvania so harshly questioned an 
elderly African-American debtor about her circumstances leading 
to bankruptcy that she actually wet herself at the meeting.
    Auditors are filing documents alleging material 
misstatements, which neither will have no bearing on the case, 
other than cause trouble for the debtor.
    We brought these issues to the attention of the executive 
office of the U.S. Trustees for years, with no results apparent 
beyond delay and silence. Today, it is our hope that the U.S. 
Trustee Program can be urged to move toward policies that are 
fair, reasonable and rational.
    Thank you.
    [The prepared statement of Mr. Uyehara follows:]

                 Prepared Statement of Paul M. Uyehara







































































































































    Ms. Sanchez. Thank you, all of you, for your testimony.
    We will now begin our questioning, and I will begin by 
recognizing myself for 5 minutes.
    Judge Cristol, you cite numerous examples in which the 
program focuses on debtor abuses while ignoring creditor 
abuses. On the other hand, you note in your written testimony 
that neutrality has actually been maintained in North Carolina 
and Alabama.
    Can you explain the probable causes of that?
    Judge Cristol [continuing]. Those that have been excluded 
from the U.S. Trustee Program or the Department of Justice, 
they are operated by the judiciary, and they seem to operate 
very well and impartially, without what I regretfully say 
appears to be politicized input from Washington.
    Ms. Sanchez. Thank you.
    Ms. Powers, you stated in your testimony that during your 
time with the program, and I am quoting you here, ``little 
focus or training emphasized creditor abuse'' while you were 
employed there.
    Why do you think the program isn't focused on creditor 
abuse?
    Ms. Powers. Admittedly, it is a complex law and for the UST 
to get up to speed in terms of its oversight and its 
enforcement responsibilities, it was all encompassing.
    So in fairness to the U.S. Trustee, it would have been 
difficult during that particular time to do much else except to 
get acquainted with the new law. But even before the new law, 
it seemed as though the order of the day was debtor abuse that 
the training focused on.
    Ms. Sanchez. There is often a phrase that is used--and that 
could happen in a whole lot of ways----
    I think, to use your own words from your testimony, that 
there was micromanaging and bureaucracy going on, but why?
    Ms. Powers. I am not really certain. Again, in defense of 
the United States Trustee's Office, I think there was a lot of 
attempts to get up to speed with the new law and to have some 
uniform policies.
    So I believe that the application and the mean test and so 
forth was an obviously important focus.
    Ms. Sanchez. In your opinion, do you think that maybe there 
was an overemphasis on that--other things that could have gone 
on?
    Ms. Powers. Well, realistically, though, that was a major 
overhaul of the law. So maybe it would have been nice to focus 
on other things, but there really probably wasn't simply enough 
time.
    What I thought was problematic with the micromanaging 
aspect was the fact that I really felt as though the judgment 
of the individuals in the field offices, the people that 
understood their communities, it didn't seem as though that 
really mattered. I felt that that was my biggest problem with 
that.
    Ms. Sanchez. Mr. Uyehara, you stated in your testimony that 
the program used aggressive and wasteful questioning of debtors 
at creditors' meetings and brought dismissal of consumer 
bankruptcy cases for minor alleged errors or defects.
    Let me ask you, why do you think the program is using those 
practices?
    Mr. Uyehara. Again, Madam Chairwoman, I think this goes 
back to the approach that is being taken--the problem that 
exists in the bankruptcy system investigating fraud on behalf 
of the debtors, when, in fact, that is not really a problem in 
the system today.
    There are lots of papers that have to be filled out. It is 
possible to make mistakes, but it is not mistakes that are only 
made on one side of the game. Mistakes are made on both sides 
of the game.
    I think the point is that the system needs to be policed in 
a neutral way for all the parties.
    Ms. Sanchez. Do you think that the sort of overzealousness 
with which they are scrutinizing paperwork, for minor errors, 
single versus divorced--I am divorced. I certainly consider 
myself single, because I have been divorced for a number of 
years, and if I were asked to check that off on a form, I am 
sure that I would put single. Do you think that that is a case 
of focusing on very miniscule problems--that should better 
focus on, perhaps, creditor abuses?
    Mr. Uyehara. Yes. I know it is one of many examples listed 
in the written testimony gathered by the national membership. 
It does illustrate situations where questions are being asked 
that are insignificant. Money is being expended when a trustee 
requires a debtor or threatens a debtor that papers have to be 
re-filed to correct insignificant information, in some cases, 
that is entirely correct to begin with.
    That person is either going to stumble through it, if they 
are unrepresented, and if they do have an attorney, they are 
going to have to pay their attorney money that they can't 
afford to pay, for no purpose.
    Ms. Sanchez. Thank you. My time has expired.
    So I will now recognize the Ranking Member for his 
questions.
    Mr. Cannon. Thank you, Madam Chair.
    I was a little surprised when Judge Cristol started talking 
about the dogs, and I realized that I hadn't read the title of 
today's hearing, which is whether we have a watch dog or an 
attack dog.
    I suppose that is a conclusion one has before one comes 
into a hearing like this.
    I wanted to thank Mr. Wedoff for his work on the rules. I 
think that we started with a difficult program. We have 
implemented rules. There have been a lot of changes. And the 
focus here ought to be have we gotten to the point where this 
is working, so that we don't have these anecdotes like little 
old ladies wetting themselves because they were interrogated 
too aggressively.
    This is not about anecdotes. This is about how the whole 
system is working. And I will tell you that in the process, I 
was Chairman of this Committee for 4 years while we developed 
this program and trying to get it passed, and I was terrified 
of what it would do, until I found myself on an airplane with a 
trustee who was very interesting.
    He talked about how these things in the bill. So when I 
realized who he was, I asked him, ``How do you think it will 
actually work in practice,'' and we spent 4 hours talking about 
how it could be implemented.
    And I think, Mr. Wedoff, what you have done is the kind of 
implementation that he was talking about--and I suspect with as 
many trustees----
    But my question now is--I think the bill had the ability to 
be implemented. We have had 2 years after passage to implement 
it. And how are we doing? Not are there people that have 
problems or defects or maybe an individual here or there who 
overreached and who criticized or who required a re-filing of 
the documents because of a distinction between being single and 
being divorced.
    Those don't seem to me to be very important to this 
Committee. What seems to me to be important to this Committee 
is how are these things actually working prospectively.
    And let me direct a question to Mr. White and Mr. Wedoff. 
In your experience, and recognizing I am not talking about 
those situations where maybe somebody got up off the wrong side 
of the bed, or had too strong a cup of coffee or not enough 
coffee and, therefore, was a little rough in his interrogation. 
Do we have systems that are implementing the intention of the 
act, which is to balance the problem of people who use their 
credit cards in anticipation of bankruptcy perhaps,as opposed 
to people who have bankruptcy because they have the kinds of 
problems that Judge Cristol talked about, who tend to be honest 
people who have a problem in their lives?
    Is the system--and I expect we are going to see it from a 
couple different perspectives, but, Mr. White and Mr. Wedoff, 
could you give us an idea of how the system has evolved and is 
it actually working?
    Mr. White?
    Mr. White. Yes, Mr. Cannon. I think that the systems are in 
place to implement the statute in an effective way. Now, it is 
going to be some period of time before we have enough to data 
to know what ultimate impacts are, of course.
    But to turn to just a couple of the major areas where we do 
have some interim data--I am sorry, sir.
    Mr. Cannon. And what you are seeing is that it is an 
iterative process. You are going back and looking and looking 
and trying to improve it. I take it that is the essence of what 
you are saying.
    Mr. White. We absolutely are doing that. So for example, in 
some data that I tried to reflect in the testimony, when we 
look at the means testing system, we look to see not only are 
we filing motions, but, also, how are we exercising discretion 
in the aggregate.
    The proof is in the pudding. I cannot answer anecdotes that 
I don't have personal knowledge of that I am hearing about for 
the first time and it was a field operation of 1,300 people and 
750,000 cases. I can't guarantee you that there was nothing 
done that shouldn't have been done better.
    But I think we are doing a good job, and one indication is 
if you look at the fact that almost one out of every three 
cases that, under statutory formula, is presumed abusive, we 
stand down and don't file a motion because we find that there 
were special circumstances.
    So we have tried to take the discretion Congress has given 
us so that we bring only meritorious cases.
    Credit counseling, which has received some attention, I 
recall at the last hearing where I appeared, at a general 
oversight for this Subcommittee, there was a lot of concern 
with regard to protecting debtors and, in part, because we all 
knew that the credit counseling industry was a troubled 
industry.
    Congress, for example, conducted numerous hearings, finding 
abuses. So the last thing we wanted to do was to have the 
justice department give an imprimatur, an approval, of credit 
counselors who would then scam the very debtors they were 
designed to assist.
    So what have we found? The Government Accountability Office 
gave us a very favorable report last April with regard to the 
fact that we had an effective screening mechanism. It also 
helped identify a future research agenda so we can continue to 
look at outcomes and results.
    Also, though, in that report, it looked at limited English 
proficient debtors and are we making progress in addressing 
those needs and gave the U.S. Trustee Program very high marks.
    So virtually every indicator I can see now, we continue to 
need to reevaluate what we are doing at all times. We need to 
look at the data. We need to conduct oversight of what we are 
actually doing in the field on a day-to-day basis.
    But when you stand back and you look at the forest through 
the trees, you see that there are systems in place, there are 
reasonable mechanisms, and the horror stories with regard to 
means testing and the terrible effects, we have ameliorated, I 
think, those concerns a great deal and also with credit 
counseling.
    I could go down a number of other areas, as well. And I 
would also just mention, not to take up all of your time, but 
in chapter 11, we have substantial responsibilities with 
business reorganization cases where we have enforced the law 
vigorously there, too, sought independent examiners, trustees, 
to oust management in cases where there is suspected wrongdoing 
and we have been very aggressive in enforcing those provisions, 
as well, all of which make demands on our resources.
    So I would suggest that the people of the U.S. Trustee 
Program deserve a pat on the back for the job that they have 
done particularly in the field to make the system work. It was 
a Herculean effort and we have had substantial success.
    Ms. Sanchez. The time of the gentleman has expired, but I 
will allow Judge Wedoff to respond. If you could do so briefly, 
I would appreciate it.
    Judge Wedoff. I think I can, Madam Chairwoman.
    The question really has two parts. One is, are we 
implementing effectively the law that is in place right now 
and, secondly, is the law that is in place right now the best 
we can do in bankruptcy?
    I think, as a judge, my responsibility is primarily in the 
first area, and I am proud of the work that the rules committee 
did. With the help of the U.S. Trustee Program, I think we have 
a set of rules and forms to implement that really is true to 
the spirit of that legislation and what it was attempting to 
do, while still having a workable formula, a workable program.
    I think that bankruptcy is still a possibility for people 
who genuinely need it. Whether we can have a better system, 
Representative Cannon, I have to tell you, I came up, with 
Judge Tom Small, with a number of suggestions that might be 
able to be more effective----
    I still think there are ways it could be more effective, 
but, again, my role as a judge is to interpret the law and 
apply it as it is written, not as I wish it were.
    Mr. Cannon. May I just comment, Madam Chair, that the 
ability to create rules in an iterative process is much simpler 
than the ability to actually create legislation, with many 
different interests.
    Thank you and I yield back.
    Ms. Sanchez. Thank you.
    At this time, I would like to recognize the gentleman from 
Georgia, Mr. Johnson, for 5 minutes.
    Mr. Johnson. Thank you.
    Mr. Cannon. Would the gentleman yield? Because the 
gentleman is attacking the process that I was----
    Mr. Johnson. I would yield.
    Mr. Cannon. I thank the gentleman. There are certainly 
credit card companies that have interests, but the purpose of--
this is a bipartisan bill that was an attempt to solve 
problems. It was an attempt to create an environment where 
people who are poor could have access to credit at the lowest 
cost.
    Mr. Johnson. Reclaiming my time. It was a very punitive 
response to a problem that did not exist. There was no fraud. 
And consumers were already being protected by existing laws in 
effect at that time.
    So to the extent that it was bipartisan, I have to blame 
both parties----
    But at any rate, I want to ask, Mr. White, according to 
your testimony, approximately what percent of consumer cases 
are ultimately dismissed for abuse under the new means testing 
criteria? Does this mean that, well, less than 1 percent of 
chapter 7 cases are dismissed for abuse, even though proponents 
of these reforms claim that that percent was going to be ten 
times higher?
    Please explain the differences.
    Mr. White. Well, I don't know that I can give you a 
definitive answer at this point, but based on the data that we 
do have, we have exercised restraint, as I said, with regard to 
declining 30 percent of all cases that are presumed abusive 
under the statutory formula, because there are special 
circumstances and Congress told us we could exercise that 
discretion.
    Nonetheless, we are filing motions to dismiss per 1,000 
cases at a higher level than pre-BAPCPA, which would seem to 
suggest that the objective standard in the new statute does 
allow us to identify abusive cases, while, at the same time, 
giving us discretion to stand down when bringing a case to 
dismiss would not be the appropriate thing to do.
    Also, what is done in the statute here is that for the 
first time, you have, instead of the old objective standard of 
substantial abuse, you have a more objective standard. What we 
cannot get measured, Mr. Johnson, is to what extent having an 
objective transparent standard, everyone filing bankruptcy 
should know whether they will be presumed abusive and potential 
consequences of that objective finding, we don't know how many 
then decide not to file bankruptcy versus selection of chapter 
13 instead of 7.
    So there are a whole constellation of factors that are at 
play. It is interesting, too, at that the hearing 18 months ago 
or so, the question was, ``What draconian results are we going 
to have because of mean testing?'' Now, the question I often 
receive at seminars or where I go is, ``Does it make a 
difference?'' There is not enough of a change. There aren't 
enough percentage of debtors being dismissed.
    But it is just kind of interesting how the arguments go 
full circle. So what we try to do in the program is just look 
objectively at what the data suggest.
    Very important to us, Congress gave us discretion. We would 
respectfully suggest that we are exercising that discretion and 
continue to need to exercise the oversight and make sure we are 
exercising the proper discretion.
    More cases are being identified under the means test than 
before, but we are also standing down on one out of every three 
cases.
    Ms. Sanchez. The time of the gentleman has expired. And I 
think there is sufficient interest that we will move to a 
second round of questioning.
    So I will recognize myself for 5 minutes.
    I would just remind Mr. White, in the talk about statistics 
and numbers in the aggregate, those are made up of individual 
cases. So I would suggest that experiences that real debtors 
experience in going through the process do matter, and I just 
ask you to keep that in mind.
    But the question that I wanted to ask was to Judge Wedoff. 
My favorite professor in law school would teach us law through 
cases, and at the end of each piece that we would write, he 
used to ask us two questions, and I think you have identified 
at least one of those questions when you were answering Mr. 
Cannon's question.
    He used to ask us, ``Is this a good law,'' and, I think, if 
I am hearing your testimony correctly, you think this law is 
good and that there could perhaps be some room for improvement 
prior to the enactment of the amendment.
    But the second follow-up question that he used to ask us, 
which I think was the more important question oftentimes, was, 
``Is this a fair law?''
    So the question I want to ask you is, approximately how 
many times has the United States Trustee, in the last 6 years, 
brought an action in your court for sanctions against an 
abusive action by a creditor or a creditor's attorney? And you 
can give me ballpark figures.
    Judge Wedoff. I can't remember.
    Ms. Sanchez. You have no recollection, or you have no 
ballpark figure whatsoever?
    Judge Wedoff. But I think it is important to keep in mind 
that the statute directors the U.S. Trustee Program to 
investigate debtors----
    Ms. Sanchez. I understand and that is part of the point 
that I am trying to make here.
    Judge Wedoff. I think that the----
    Ms. Sanchez. I was going to say, conversely, approximately 
how many times, in the same period of time, has the United 
States Trustee brought an action in your court for sanctions 
against a debtor or counsel for a debtor?
    Judge Wedoff. Not a huge number, but there have been some.
    Ms. Sanchez. Okay. And that is precisely--you have helped 
me make my point. The point is if we are going to have a law, 
whether it is a good law, perhaps not the best law, but a good 
law, we need to implement it in a way that is fair and 
evenhanded.
    And I think what I am hearing in some of the experience 
that Judge Cristol is talking about and some of the examples 
that Mr. Uyehara gave in his testimony is that perhaps there 
has been this huge focus on debtor abuse and the opposite side 
of that question is not being asked, which is--or not being 
addressed----
    Mr. Cannon. Would the Chair yield?
    Ms. Sanchez. In a moment, Mr. Cannon. I would like to 
finish my thought, which is are creditors being pursued as 
aggressively as debtors are.
    And I would suggest that one prime example is in the 
mortgage lending business and we have seen the meltdown that 
has occurred with these subprime loans and debtors trying to 
seek relief from having their homes foreclosed, but some of the 
changes to the law don't allow families to be able to save 
their homes.
    And there are instances in which there was very little 
information or misleading information when they entered into 
these mortgages. And I am not blaming the mortgage crisis on 
the bankruptcy crisis. I am simply trying to say that if 
bankruptcy is, in theory, this process by which the honest 
debtor who has fallen on hard times or perhaps even been taken 
advantage by predatory lenders or unscrupulous creditors, are 
we building--have we built, with the amendments to bankruptcy, 
a system in which these honest debtors are not allowing their 
debts to be discharged and they are being put through a process 
that, if you will, traumatizes them again and again and perhaps 
in ways that don't exactly inure to the public benefit or the 
public interest or to the idea of the fundamental principal of 
giving these debtors a fresh start.
    That was the conclusion of my thought. I do have one more 
question that I would like to ask Mr. Uyehara.
    Mr. Cannon?
    Mr. Cannon. Why don't you go ahead? I will just raise the 
issue when I have the time.
    Ms. Sanchez. I appreciate that, Mr. Cannon.
    Mr. Uyehara, based on your extensive experience in dealing 
with language issues in courts, how hard would it be for the 
UST to provide translation services at creditor meetings? 
Because that seems to be a big problem.
    Mr. Uyehara. Not hard at all. I filed a complaint against 
the U.S. Trustee in Philadelphia in 2003. I expected the 
problem to be resolved not only in Philadelphia, but across the 
country within a matter of months.
    It is now 2007 and I am hoping that Director White is going 
to be giving us some positive developments very soon. But the 
process that is involved in providing language services to 
debtors at 341 meetings is really very straightforward.
    Ms. Sanchez. And do you think it is fundamentally fair that 
a debtor who may not have great control of the English language 
is forced to attend these meetings when they don't have an idea 
of what is happening to them?
    Mr. Uyehara. I think it is clearly unfair to the debtor and 
also not fair to trustees who are concerned about getting 
accurate answers to questions that are posed.
    When you are encouraging debtors to proceed to testify 
without fully understanding the questions in a way in which 
they can't fully answer the questions, or to rely on 
interpreters who are unprofessional and lack language skills of 
their own and have to be present in the meeting or relative to, 
what have you, is just a prescription for trouble.
    Ms. Sanchez. Thank you. With that, my time has expired.
    I will recognize Mr. Cannon for 5 minutes.
    Mr. Cannon. Thank you. I just want to pursue this issue 
that Mr. Johnson raised and try and get it clear.
    The Bankruptcy Act is about people getting discharged from 
their debts in various forms, and yet the question has come up 
about how creditors are censored, and there is a way, I think, 
to do that in bankruptcy, but it seems to me it is not even a 
primary responsibility of the trustee, and I think that is what 
Mr. Wedoff was suggesting.
    Perhaps you could help me, Madam Chair, in understanding 
what it is you would like the trustees to do or what the 
responsibility is in the law that they haven't addressed or 
what we need to do to the law to give them a context for 
addressing----
    Ms. Sanchez. If the gentleman would yield.
    I didn't mean to suggest that I, for one, have the answer--
the topic of today's hearing, if debtors are being aggressively 
pursued, it seems to me that the flipside of that also needs to 
be addressed at some point, which is the abuses on the part of 
the creditors.
    Mr. Cannon. Reclaiming my time.
    I think this is a difficult issue with a balance in there. 
It is not a Democrat or Republican issue, it is not a 
Conservative or a Liberal issue.
    Ms. Sanchez. I would agree.
    Mr. Cannon. It is an issue where you have to balance and I 
think, in this regard, we have actually done a fairly good job, 
and I appreciate Mr. Wedoff's response, also Mr. White's 
response.
    On the other hand, there are issues here that we are 
dealing with, as you pointed out, in another environment, 
although we can deal with it in the bankruptcy context, where 
you have the subprime lending. I think it is fair to say, 
scams, people who are clearly not competent to make repayments 
on loans that were going to accelerate the way they have done, 
and that is an important issue, but I think separate from the 
purpose of what we are doing here.
    And without prolonging this hearing much, let me just point 
out that in a bankruptcy hearing, we have a tool that we make 
available to debtors to clean up their lives and get on. That 
is different from a criminal environment where a person could 
go to jail if he doesn't have the right kind of interpreter.
    So while I am sensitive to the need for appropriate 
interpretation and, in fact, in the case of Mr. Petit-Louis, 
you had a person whose primary language is Creole, who lives in 
Florida, where you don't have many Creole translators, is my 
guess. That is difficult and a problem, I think Mr. Uyehara has 
made it clear that there is something that doesn't work very 
well about that.
    But the obligation that we have here as Federal legislators 
I don't think is to provide interpreters, but to hope that in 
the implementation of the act, reason and judgment are used so 
that people--so we get the best outcome.
    I don't know that we want--in fact, I would suggest that we 
don't want to make it a very burdensome responsibility on the 
trustees to have a requirement to interpret, when it is, in 
fact, as Mr. Uyehara just pointed out, sometimes difficult, if 
you have got a relative who is not adequate in language. What, 
are we going to require certified interpreters?
    And I think the gentlelady----
    Ms. Sanchez. While it is true this is not the criminal 
context in which somebody's liberty is at stake, somebody's 
livelihood or all their earthly possessions or even what little 
property or anything that they may possess is at stake.
    And so I do think it is compelling when you have Government 
action that people who are caught up in the legal system----
    Mr. Cannon. Reclaiming my time.
    Ms. Sanchez [continuing]. Have an understanding of what is 
happening to them.
    Mr. Cannon. Is the gentlelady suggesting that we should 
have the requirement that the Federal Government pay for 
interpreters in all cases of bankruptcy of people who don't 
speak primarily English?
    Ms. Sanchez. I am not suggesting that. I am suggesting that 
it is a problem that Mr. Uyehara has identified and that 
clearly is a problem in search of a solution. And I am not 
going to be the one to suggest what the best solution is, but 
it is certainly a problem that he has raised and is awaiting 
some kind of response, because to date that hasn't been 
addressed.
    Mr. Cannon. I agree with the gentlelady of the problem. I 
don't think it is one that we resolve at our level.
    But I do have another question, so reclaiming my time.
    I wanted to ask this the first time, and I apologize for 
not getting to it. But in your opinion, the opinion of those of 
you here on the panel, are the trustees being paid enough or do 
we need to raise that rate?
    Mr. White. Mr. Cannon, if you are referring to the private 
trustees, the chapter 7 trustees, they have not received an 
increase in what is called the no assets fee of $60 from those 
cases in a number of years and, in principal, we concur that it 
would be appropriate for them to receive an increase.
    The difficulty is how do you achieve that while not 
endorsing any specific proposal. But consistent with our 
position in the past, in principal, we concur it would be 
appropriate to raise their pay.
    Mr. Cannon. Thank you. And, Madam Chair, would you indulge 
the others of the panel who might have an opinion on that?
    Ms. Sanchez. If they can be brief.
    Judge Wedoff. I served as a panel trustee when I only got 
$15. I enjoyed the work, but it was a charitable contribution. 
My partners thought I would maybe give it up. I understand the 
trustees are asking for $80 instead of $60, which I think is 
very reasonable, but still not enough, and I would highly 
endorse the increase.
    Ms. Sanchez. Ms. Powers?
    Ms. Powers. I would endorse it, as well.
    Ms. Sanchez. Thank you.
    Judge Cristol. I believe the trustees are very 
substantially underpaid for the amount of work that they are 
required to do under the law, but I also sympathize with the 
need not to increase the filing fees for debtors.
    Ms. Sanchez. Mr. Uyehara?
    Mr. Uyehara. Madam Chair, unfortunately, I am afraid I am 
not prepared to answer that question.
    As a career legal services attorney, we could use a pay 
raise, too.
    Ms. Sanchez. Thank you.
    Mr. Cannon. Thank you for indulging me, Madam Chair, and I 
yield back.
    Ms. Sanchez. At this time, I will recognize the gentleman 
from Georgia, Mr. Johnson.
    Mr. Johnson [continuing]. And that amount has not been 
adjusted for several years, essentially.
    Mr. White. That is correct.
    Mr. Johnson. And then with the passage of the 2005 act, it 
placed additional obligations and responsibilities upon the 
trustees for the same amount of compensation. Is that correct?
    Mr. White. That is correct.
    Mr. Johnson. They have got to monitor the means testing, 
got to do all of that additional paperwork, and got to monitor 
audits, and got to approve the credit counseling agencies and 
oversee all of that. So it is definitely more responsibility on 
the trustees now.
    Since the 2005 Act--has there been an increased number of 
pro se filers or filers who are not paying the filing fee, in 
other words? Has it increased or has it decreased?
    Mr. White. Most of the responsibilities that you outlined 
are carried out by the U.S. Trustees Program, the credit 
counseling oversight and so forth, and we are Federal 
employees.
    Some of the verification of income that goes into the means 
test, some of that is done by private trustees, but many of the 
core responsibilities under statute depend on the U.S. Trustee.
    Mr. Johnson. Most of it is done by those trustees that are 
hired by the----
    Mr. White. The private trustees do administer the cases, 
but if you are talking about the change in workload, BAPCPA, 
the new statute, in fact, did provide more responsibilities, 
and we have worked with them very closely to----
    Mr. Johnson. But they haven't received more money.
    Mr. White. I absolutely agree with that point. That point 
is correct. I was just trying to clarify with regard to 
division of responsibility.
    Mr. Johnson. Has the number of pro se debtors that pay 
those fees, have those increased or decreased?
    Mr. White. For the first time, Mr. Johnson, if your 
question is to what we refer to as IFP debtors, for the first 
time, what BAPCPA did is it allowed debtors without means to 
have the filing fee waived and to pay nothing.
    So we don't have comparative data, because before the 
bankruptcy reform law, everyone had to pay the filing fee. The 
data that I do have show that about 1.8 percent of all of the 
filers get IFP status, meaning the filing fee is waived, and 
there is a mechanism in the reform law so that if a debtor 
seeks to have the fee waived, then they need to establish 
certain facts, the inability to pay, before the bankruptcy 
judge.
    Mr. Johnson. Let me state this, also. In the northern 
district of Georgia, in the hearing rooms where they have the 
341 meetings with the creditors, posters, prominently--you will 
be prosecuted, this, that and the other.
    And in light of threats of possible criminal prosecution, 
should the U.S. Trustee Program provide translation services at 
creditors meetings to debtors who can't speak English? I know 
that this has already been answered, but I want it answered 
within that context.
    Mr. White. We try to address that and continuing to in a 
phased way.
    Mr. Johnson. Yes or no? My time is running out.
    Mr. White. We are addressing, and we are planning to do 
more to address it, and I could go into more detail. I am not 
willing to make a legal judgment with regard to the extent of 
the obligation, but we have a lot of progress we have made that 
I would be happy to provide to you.
    Mr. Johnson. It sounds like you are saying yes----
    Ms. Sanchez. I am sorry, but your time has expired.
    If there is no objection, I am going to move on.
    Judge Cristol. The U.S. Trustee has made major steps 
forward in the area of increasing availability of translators, 
interpreters, and I commend them for that and they are getting 
better in that area. And of course, in the Little Louis case 
and the other cases, my concern is the aggressiveness with 
which they pursue these uneven confrontations. And that is 
where I think they appeal to compassionate conservatives and 
bring some compassion or to apply justice tempered with mercy 
in the performance of their duties, because I think that they 
are too much caught up in the spirit of the bankruptcy abuse, 
which was the presumption before it was passed, and the 
misnomer of consumer protection, they meant consumer 
persecution.
    Ms. Powers. My feeling is that the U.S. Trustee is 
attempting to make efforts to make sure that people are 
accommodated in that way.
    Judge Wedoff. The system will work better. A more accurate 
answer, they will be better understood, but the problem is the 
one that Mr. Cannon pointed out of somebody paying for it.
    I think it would be ideal if you could make translator 
services available at every 341 meeting for every debtor who 
requested it. I don't know if there is funding available to do 
that.
    I would be delighted if there were.
    Mr. Uyehara. If I could just clarify, and partly in 
response to Representative Cannon's comments earlier, the 
situation currently is that there is existing Federal policy in 
the form of Executive Order 13166, which requires Federal 
agencies, including the justice department, to ensure that 
people who don't speak English well are able to obtain 
meaningful access to Federal Government programs.
    The situation of the meeting of creditors and bankruptcy 
counseling classes are clearly within the scope of the 
executive order and really within the scope of guidance issued 
by the justice department.
    The EOUST itself, in response to a complaint filed, issued 
a plan on what they were going to do to attack this problem 3 
years ago, for which they had made a commitment to provide 
interpreters nationally at all meetings of creditors to the 
extent reasonably possible.
    By this time, in other words, by last month, they should 
have been reporting on their progress on rolling this out 
nationally.
    So it is not so much a question of whether it is upheld by 
Federal statute, but it is a question that is required by 
executive order and in justice department policy, as well as 
policy in UST programs.
    So the other problem is that in the context of bankruptcy 
counseling and what Judge Cristol was referring to, people 
would understand there are counseling agencies out there. We 
don't have the capacity in particular languages. We are not 
going to force you to go to a class that you cannot understand 
and cannot participate in.
    Instead, what they did is they said, ``We don't dispute 
that you cannot take counseling in Creole, but you didn't do 
it, the law required it and you are not permitted to come into 
bankruptcy court unless you do that first.''
    That attitude and that overly aggressive posture violates 
their own policy. It is insulting and should be insulting not 
only to the debtor bar, but to everyone that is concerned about 
the fair administration of the law.
    Ms. Sanchez. Thank you. The time of the gentleman has 
expired.
    I would like to thank the witnesses for their testimony 
today. Without objection, Members will have 5 legislative days 
to submit any additional written questions, which we will 
forward to the witnesses, and we will ask that you complete 
them as promptly as possible so that they can be made a part of 
the record, as well.
    Without objection, the record will remain open for 5 
legislative days for the submission of any other material.
    Again, I want to thank everybody for their time and their 
patience.
    This hearing of the Subcommittee on Commercial and 
Administrative Law is adjourned.
    [Whereupon, at 2:27 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

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               Material Submitted for the Hearing Record

  Response to Questions submitted by the Honorable Linda T. Sanchez, 
   Chairperson, Subcommittee on Commercial and Adminsitrative Law to 
 Clifford J. White, III, Director, Executive Office for United States 
             Trustees, United States Department of Justice















































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