[Congressional Record Volume 147, Number 25 (Wednesday, February 28, 2001)]
[Extensions of Remarks]
[Pages E248-E252]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


   BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2001: 
               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

                                 ______
                                 

                    HON. F. JAMES SENSENBRENNER, JR.

                              of wisconsin

                    in the house of representatives

                      Wednesday, February 28, 2001

  Mr. SENSENBRENNER. Mr. Speaker, on Thursday, March 1, 2001, the House 
is scheduled to consider H.R. 333, the ``Bankruptcy Abuse Prevention 
and Consumer Protection Act of 2001.'' On February 15, 2001, the 
Committee on the Judiciary ordered reported favorably the bill H.R. 333 
and the report thereon was filed on February 26, 2001. The 
Congressional Budget Office (``CBO'') cost estimate, however, was not 
available for filing on February 26. Therefore, I hereby submit the CBO 
cost estimate for printing in the Congressional Record.

                                                    U.S. Congress,


                                  Congressional Budget Office,

                                Washington, DC, February 27, 2001.
     Hon. F. James Sensenbrenner, Jr.
     Chairman, Committee on the Judiciary, House of 
         Representatives, Washington, DC.
       Dear Mr. Chairman: The Congressional Budget Office has 
     prepared the enclosed cost estimate for H.R. 333, the 
     Bankruptcy Abuse Prevention and Consumer Protection Act of 
     2001.
       If you wish further details on this estimate, we will be 
     pleased to provide them. The CBO staff contacts are Lanette 
     J. Walker (for federal costs), Erin Whitaker (for the revenue 
     impact), Shelley Finlayson (for the state and local impact), 
     and Paige Piper/Bach (for the private-sector impact).
           Sincerely,
                                                 Barry B. Andersen
                                   (for Dan L. Crippen, Director).
       Enclosure


               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

     H.R. 333--Bankruptcy Abuse Prevention and Consumer Protection 
         Act of 2001
       Summary: CBO estimates that implementing H.R. 333 would 
     increase discretionary costs primarily to the U.S. Trustees 
     by $256 million over the 2002-2006 period. At the same time, 
     the bill would slightly increase the fees charged for filing 
     a bankruptcy case, and would change how some of these fees 
     are currently recorded in the budget. We estimate that 
     implementing the bill would increase the amount of bankruptcy 
     fees that are treated as an offset to appropriations by $279 
     million over the five-year period, resulting in a net 
     decrease in discretionary spending of $23 million over this 
     period.
       In addition, CBO estimates that enacting this bill would 
     decrease governmental receipts (revenues) by $260 million 
     over the 2002-2006 period because bankruptcy fees that are 
     currently recorded as revenues would be reclassified as 
     offsetting collections and offsetting receipts. Finally, 
     enactment of H.R. 333 would result in filling additional 
     judgeships, and we estimate that their mandatory pay and 
     benefits would cost $18 million over the next five years. 
     Because the bill would

[[Page E249]]

     affect direct spending and governmental receipts, pay-as-you-
     go procedures would apply. Assuming appropriation of the 
     necessary amounts to implement the bill, CBO estimates that 
     its enactment would reduce budget surpluses by $255 million 
     over the 2001-2006 period.
       H.R. 333 contains several intergovernmental mandates as 
     defined in the Unfunded Mandates Reform Act (UMRA), but CBO 
     estimates the costs would be insignificant and would not 
     exceed the threshold established in that act ($55 million in 
     2000, adjusted annually for inflation). Overall, CBO expects 
     that enacting this bill would benefit state and local 
     governments by enhancing their ability to collect outstanding 
     obligations in bankruptcy cases.
       H.R. 333 would impose private-sector mandates, as defined 
     by UMRA, on bankruptcy attorneys, creditors, bankruptcy 
     petition preparers, debt-relief agencies, and credit and 
     charge-card companies. CBO estimates that the direct costs of 
     these mandates would exceed the annual threshold established 
     by UMRA ($109 million in 2000, adjusted annually for 
     inflation).
       Major provisions: In addition to establishing means-testing 
     for determining eligibility for chapter 7 bankruptcy relief, 
     H.R. 333 would:
       Require the Executive Office for the United States Trustees 
     (U.S. Trustees) to establish a test program to educate 
     debtors on financial management;
       Authorize 23 new temporary judgeships and extend five 
     existing judgeships in 21 federal districts;
       Permit courts to waive chapter 7 filing fees and other fees 
     for debtors who could not pay such fees in installments;
       Require that at least one of every 250 bankruptcy cases 
     under chapter 13 or chapter 7 be audited by an independent 
     certified public accountant;
       Require the Administrative Office of the United States 
     Courts (AOUSC) to receive and maintain tax returns for 
     certain chapter 7 and chapter 13 debtors;
       Require the AOUSC and the U.S. Trustees to collect and 
     publish certain statistics on bankruptcy cases; and
       Increase chapter 7 and chapter 13 bankruptcy filing fees 
     and change the budgetary treatment of such fees.
       Other provisions would make various changes affecting the 
     bankruptcy provisions for municipalities and the treatment of 
     tax liabilities in bankruptcy cases.
       Estimated cost to the Federal Government: As shown in the 
     following table, CBO estimates that implementing H.R. 333 
     would result in a net decrease in discretionary spending of 
     $23 million over the 2002-2006 period, subject to 
     appropriation actions. In addition, we estimate that 
     mandatory spending for the salaries and benefits of 
     bankruptcy judges would increase by less than $500,000 in 
     2001 and by $18 million over the 2002-2006 period. Enacting 
     the bill's provisions for adjusting filing fees would reduce 
     revenues by $260 million over the next five years. That 
     change in revenues would be more than offset, however, by 
     increased collections to be credited against discretionary 
     spending if future appropriation actions are consistent with 
     the bill. (The estimated net decrease in discretionary 
     spending of $23 million reflects an increase in

----------------------------------------------------------------------------------------------------------------
                                                                      By fiscal year, in millions of dollars
                                                                 -----------------------------------------------
                                                                   2001    2002    2003    2004    2005    2006
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION
 
Means-Testing (Section 102)
    Estimated Authorization Level...............................       0      11      10      10      10       9
    Estimated Outlays...........................................       0       9      10      10      10       9
GAO, SBA, and U.S. Trustees Studies (Sections 103, 230, and 443)
    Estimated Authorization Level...............................       0       1     \1\       0       0       0
    Estimated Outlays...........................................       0       1     \1\       0       0       0
Debtor Financial Management Training (Section 105)
    Estimated Authorization Level...............................       0       3       1       0       0       0
    Estimated Outlays...........................................       0       2       1     \1\       0       0
Credit Counseling Certification (Section 106)
    Estimated Authorization Level...............................       0       4       3       3       4       4
    Estimated Outlays...........................................       0       3       3       3       4       4
Maintenance of Tax Returns (Section 315)
    Estimated Authorization Level...............................       0       1       2       2       2       2
    Estimated Outlays...........................................       0       1       2       2       2       2
Changes in Bankruptcy Filing Fees (Sections 325 and 418)
    Estimated Authorization Level...............................       0     -51     -59     -59     -55     -55
    Estimated Outlays...........................................       0     -51     -59     -59     -55     -55
U.S. Trustee Site Visits (Section 439)
    Estimated Authorization Level...............................       0       3       2       2       2       3
    Estimated Outlays...........................................       0       2       2       2       2       3
Compiling and Publishing Data (Sections 601-602)
    Estimated Authorization Level...............................       0       0       8       8       7       7
    Estimated Outlays...........................................       0       0       8       8       7       7
Audit Procedures (Section 603)
    Estimated Authorization Level...............................       0       0      14      17      18      19
    Estimated Outlays...........................................       0       0      14      17      18      19
Additional Judgeships--Support Costs (Section 1224)
    Estimated Authorization Level...............................     \1\       7      13      14      15      14
    Estimated Outlays...........................................     \1\       7      13      14      15      14
FTC Toll-Free Hotline (Section 1301)
    Estimated Authorization Level...............................       0       2       1       1       1       1
    Estimated Outlays...........................................       0       2       1       1       1       1
                                                                 -----------------------------------------------
    Total Discretionary Changes
    Estimated Budget Authority..................................     \1\     -19      -5      -2       4       4
    Estimated Outlays...........................................     \1\     -24      -5      -2       4       4
 
                                           CHANGES IN DIRECT SPENDING
 
Additional Judgeships (Section 1224)
    Estimated Budget Authority..................................     \1\       2       4       4       4       4
    Estimated Outlays...........................................     \1\       2       4       4       4       4
 
                                               CHANGES IN REVENUES
 
Changes in Revenue from Filing Fees
    Estimated Revenues..........................................       0     -45     -53     -54     -54    -54
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
Note: GAO = General Accounting Office.
SBA = Small Business Administration.
FTC = Federal Trade Commission.

       Basis of Estimate: For purposes of this estimate, CBO 
     assumes that H.R. 333 will be enacted during the third 
     quarter of fiscal year 2001 and that the amounts necessary to 
     implement the bill will be appropriated for each fiscal year.
     Spending subject to appropriation
       Most of the estimated increases in discretionary spending 
     would be required to fund the additional workload that would 
     be imposed on the U.S. Trustees. These increases would be 
     more than offset by changes in bankruptcy filing fees that 
     would be recorded as offsetting collections under the bill. 
     CBO estimates that implementing H.R. 333 would result in a 
     net reduction in discretionary costs of $23 million over the 
     2002-2006 period.
       Means-Testing (Section 102). This section would establish a 
     system of means-testing for determining a debtor's 
     eligibility for relief under chapter 7. Under the means test, 
     if the amount of debtor income remaining after certain 
     expenses and other specified amounts are deducted from the 
     debtor's current monthly income exceeds the threshold 
     specified in section 102, then the debtor would be presumed 
     ineligible for chapter 7 relief. A debtor who could not 
     demonstrate ``extraordinary circumstances,'' which would 
     cause the expected disposable income to fall below the 
     threshold, could file under other chapters of the bankruptcy 
     code.
       Although the private trustees would be responsible for 
     conducting the initial review of a debtor's income and 
     expenses and filing the majority of motions for dismissal or 
     conversion, CBO expects that the workload of the U.S. 
     Trustees would increase under the means-testing provision. 
     The U.S. Trustees would provide increased oversight of the 
     work performed by the private trustees, file

[[Page E250]]

     additional motions for dismissal or conversion, and take part 
     in additional litigation that is expected to occur as the 
     courts and debtors debate allowable expenses and other 
     related issues. Although CBO cannot predict the amount of 
     such litigation, we expect that, during the first few years 
     following enactment of the bill, the amount of litigation 
     could be significant, as parties test the new law's 
     standards. In subsequent years, litigation could begin to 
     subside as precedents are established. Based on information 
     from the U.S. Trustees, CBO estimates that the U.S. Trustees 
     would require 115 additional attorneys, paralegals, and 
     analysts to address the increased workload. As a result, CBO 
     estimates that implementing this provision would cost $48 
     million over the next five years.
       General Accounting Office (GAO), Small Business 
     Administration (SBA), and U.S. Trustees Studies (Sections 
     103, 230, and 443). Section 103 would require the U.S. 
     Trustees to conduct a study regarding the use of Internal 
     Revenue Service expense standards for determining a debtor's 
     current monthly expenses and the impact of these standards on 
     debtors and bankruptcy courts. Section 230 would require GAO 
     to conduct a study regarding the feasibility of requiring 
     trustees to provide the Office of Child Support Enforcement 
     information about outstanding child support obligations of 
     debtors. Section 443 would require the Administrator of SBA, 
     in consultation with the Attorney General, the U.S. Trustees, 
     and the AOUSC, to conduct a study on small business 
     bankruptcy issues. Based on information from U.S. Trustees, 
     GAO, SBA, CBO estimates that completing the necessary studies 
     would cost up to $1 million in 2002, and less than $500,000 
     in 2003.
       Debtor Financial Management Test Training Program (Section 
     105). This section would require the U.S. Trustees to 
     establish a test training program to educate debtors on 
     financial management. The test training program would be 
     authorized for six judicial districts over an 18-month 
     period. Based on information from the U.S. Trustees, CBO 
     estimates that about 90,000 debtors would participate if such 
     a program were administered by the U.S. Trustees in fiscal 
     years 2002 and 2003. At a projected cost of about $40 per 
     debtor, CBO estimates that this provision would cost $4 
     million over the 2002-2004 period.
       Credit Counseling Certification (Section 106). This section 
     would require the U.S. Trustees to certify, on an annual 
     basis, that certain credit counseling services could provide 
     adequate services to potential debtors. Based on information 
     from the U.S. Trustees, CBO estimates that the U.S. Trustees 
     would require additional attorneys and analysts to handle the 
     greater workload associated with certification. CBO estimates 
     that enacting this provision would cost $17 million over the 
     next five years.
       Maintenance of Tax Returns (Section 315). This section 
     would authorize the AOUSC to receive and retain debtors' tax 
     returns for the year prior to the commencement of the 
     bankruptcy for chapter 7 and chapter 13 filings. Such 
     collection and storage of tax returns would commence only at 
     the request of a creditor. Based on information from the 
     AOUSC, CBO expects that creditors will request tax 
     information in about 25 percent of such cases. CBO estimates 
     that implementing H.R. 333 would cost $9 million over the 
     next five years to store and provide access to over two 
     million tax returns.
       Changes in Bankruptcy Filing Fees (Sections 325 and 418). 
     Section 325 would increase chapter 7 and chapter 13 
     bankruptcy filing fees and change the distribution of such 
     fees. In addition, the bill would allow the U.S. Trustee 
     System Fund to collect 75 percent of chapter 11 filing fees. 
     Under current law, the filing fee for chapter 7 and chapter 
     13 is $155 and is divided between the U.S. Trustee System 
     Fund, the AOUSC, the private trustee assigned to the case, 
     and the remainder is recorded as a governmental receipt 
     (i.e., revenue). Under H.R. 333, the filing fee for a chapter 
     7 case would be $160, and income from this fee would be 
     recorded in two different places in the budget. Of the $160, 
     $65 would be recorded as an offsetting collection to the 
     appropriation for the U.S. Trustee System Fund, and $50 would 
     be recorded as an offsetting receipt and spent without 
     further appropriation by the AOUSC. The remainder of this fee 
     would be spent by the private trustees assigned to each case. 
     The bill would reduce the filing fee for a chapter 13 case to 
     $150 and change how the fee is recorded in the budget. The 
     U.S. Trustee System Fund would receive $105 and the AOUSC 
     would receive $45 per case. Under H.R. 333, no portion of 
     chapter 7, chapter 11, or chapter 13 filing fees would be 
     recorded as governmental receipts.
       Section 418 would permit a bankruptcy court or district 
     court to waive the chapter 7 filing fee and other fees for a 
     debtor who is unable to pay such fees in installments. Based 
     on information from the AOUSC, CBO expects that in fiscal 
     year 2002 chapter 7 filing fees would be waived for about 3.5 
     percent of all chapter 7 filers and that the percentage 
     waived would gradually increase to about 10 percent by fiscal 
     year 2005.
       Considering the expected reduction in the use of chapter 7 
     because of means-testing and the provision that would allow 
     fee waivers, CBO estimates that implementing the new fee 
     structure and changes in fee classifications would result in 
     an increase in offsetting collections totaling $279 million 
     over the 2002-2006 period.
       U.S. Trustee Site Visits in Chapter 11 Cases (Section 439). 
     This section would expand the responsibilities of the U.S. 
     Trustees in small business bankruptcy cases to include site 
     visits to inspect the debtor's premises, review records, and 
     verify that the debtor has filed tax returns. Based on 
     information from the U.S. Trustees, CBO estimates that 
     implementing section 439 would require about 20 additional 
     analysts to conduct over 2,300 site visits each year. CBO 
     estimates that implementing this provision would cost about 
     $11 million over the next five years for the salaries, 
     benefits, and travel expenses associated with these 
     additional personnel.
       Compilation and Publication of Bankruptcy Data and 
     Statistics (Sections 601-602). H.R. 333 would require the 
     AOUSC to collect data on chapter 7, chapter 11, and chapter 
     13 cases and the U.S. Trustees to make such information 
     available to the public. CBO estimates that it would cost 
     about $30 million over the 2002-2006 period to meet these 
     requirements. Of the total estimated cost, about $26 million 
     would be required for additional legal clerks, analysts, and 
     data base support. The remainder would be incurred by the 
     U.S. Trustees for compiling data and providing Internet 
     access to records pertaining to bankruptcy cases.
       Audit Procedures (Section 603). Beginning 18 months after 
     enactment, H.R. 333 would require that at least one out of 
     every 250 bankruptcy cases under chapter 7, chapter 11, and 
     chapter 13, plus other selected cases under those chapters, 
     be audited by an independent certified public accountant. 
     Based on information from the U.S. Trustees, CBO estimates 
     that about 1.6 million cases would be subject to audits in 
     fiscal year 2003, increasing to about 1.9 million in fiscal 
     year 2006. CBO assumes that about 0.8 percent of those cases 
     would be audited and that each audit would cost about $1,000 
     (in 2001 dollars). CBO also expects that the U.S. Trustees 
     would need about 10 additional analysts and attorneys to 
     support the follow-up work associated with the audits. We 
     estimate that implementing this provision would cost $68 
     million over the 2003-2006 period.
       Additional Judgeships--Support Costs (Section 1224). This 
     provision would extend five temporary bankruptcy judgeships 
     and authorize 23 new temporary bankruptcy judgeships for 21 
     federal judicial districts. Based on information from the 
     AOUSC, CBO assumes that about half of the 23 new positions 
     would be filled by the beginning of fiscal year 2002 and the 
     rest would be filled by the start of fiscal year 2003. Also, 
     we anticipate that all five temporary judgeships would be 
     filled by fiscal year 2003. We expect that discretionary 
     expenditures for support costs associated with each judgeship 
     would average about $460,000 annually (in 2001 dollars). CBO 
     estimates that the administrative support of additional 
     bankruptcy judges would require an appropriation of less than 
     $500,000 in fiscal year 2001 and $63 million over the 2002-
     2006 period. (Salaries and benefits for the judges are 
     classified as mandatory spending, and those costs are 
     described below.)
       Federal Trade Commission Toll-Free Hotline (Section 1301). 
     This section would require the Federal Trade Commission (FTC) 
     to operate a toll-free number for consumers to calculate how 
     long it would take to pay off a credit card debt if they were 
     to make only the minimum monthly payments. Based on 
     information from the FTC about the demand for the agency's 
     other credit-related hotline, CBO expects that the FTC would 
     receive about 20,000 calls each month. CBO estimates that the 
     equipment and personnel necessary to serve this volume of 
     inquiries would cost $2 million in 2002 and $6 million over 
     the 2002-2006 period, subject to the appropriation of the 
     necessary amounts.
     Direct spending and revenues
       Additional Judgeships (Section 1224). CBO estimates that 
     enacting the means-testing provision (section 102) would 
     impose some additional workload on the courts. Section 128 
     would authorize 23 new temporary bankruptcy judgeships and 
     extend five existing temporary judgeships. Based on 
     information from the AOUSC and other bankruptcy experts, CBO 
     expects that the increase in the number of bankruptcy judges 
     would be sufficient to meet the increased workload. Assuming 
     that the salary and benefits of a bankruptcy judge would 
     average about $155,000 a year (in 2001 dollars), CBO 
     estimates that the mandatory costs associated with the 
     salaries and benefits of these additional judgeships would be 
     less than $500,000 in fiscal year 2001 and about $18 million 
     over the 2002-2006 period.
       Changes in Bankruptcy Filing Fees (Sections 102, 325, and 
     418). Section 325 would change the classification of where 
     bankruptcy filing fees are recorded in the budget. Under 
     current law, filing fees are divided between the U.S. Trustee 
     System Fund, the AOUSC, the private trustee assigned to the 
     case, and the remainder is recorded as governmental receipts 
     (i.e., revenues). The percentage of the fees allocated to 
     these different parts of the budget varies by chapter. Under 
     the fee structure specified in the bill, the portions of 
     chapter 7, chapter 11, and chapter 13 filing fees that are 
     now recorded as governmental receipts would be recorded as 
     offsetting collections or offsetting receipts. Therefore, CBO 
     estimates that enacting H.R. 333 would reduce governmental 
     receipts by $260 million over the 2002-2006 period. (The 
     change in offsetting receipts would be matched by additional 
     spending, resulting in no net change in direct spending.)

[[Page E251]]

       Tax Provisions (Title VII). Title VII of H.R. 333 would 
     alter several provisions related to tax claims. It would 
     alter the treatment of certain tax liens, disallow the 
     discharge of taxes resulting from fraudulent tax returns 
     under chapter 13 or chapter 11 of the bankruptcy code, 
     require periodic cash payments of priority tax claims, and 
     specify the rate of interest on tax claims. Title VII also 
     would change the status of assessment periods for tax claims 
     and would alter various administrative requirements. Based on 
     information from the Internal Revenue Service and the Joint 
     Committee on Taxation, CBO estimates that these provisions 
     would increase revenues, but that any increase would be 
     negligible.
       Pay-as-you-go considerations: The Balanced Budget and 
     Emergency Deficit Control Act sets up pay-as-you-go 
     procedures for legislation affecting direct spending or 
     receipts. The means-testing, waiver of fees, and changes in 
     filing fees provisions would affect receipts, and the 
     additional judgeships would increase direct spending; hence, 
     pay-as-you-go procedures would apply. The net changes in 
     outlays and governmental receipts are shown in the following 
     table. For the purposes of enforcing pay-as-you-go 
     procedures, only the effects in the current year, the budget 
     year, and the succeeding four years are counted.

 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          By fiscal year, in millions of dollars
                                                                 ---------------------------------------------------------------------------------------
                                                                   2001    2002    2003    2004    2005    2006    2007    2008    2009    2010    2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays..............................................       0       2       4       4       4       4       4       4       2       2       2
Changes in receipts.............................................       0     -45     -53     -54     -54     -54     -54     -54     -54     -54     -54
--------------------------------------------------------------------------------------------------------------------------------------------------------

       Estimated impact on state, local, and tribal governments: 
     H.R. 333 contains intergovernmental mandates as defined in 
     UMRA, but such costs would not be significant and would not 
     exceed the threshold established in that act ($55 million in 
     2000, adjusted annually for inflation). Overall, CBO expects 
     that enacting this bill would benefit state and local 
     governments by enhancing their ability to collect outstanding 
     obligations in bankruptcy cases.
     Mandates
       Section 227 of the bill would preempt state laws governing 
     contracts between a debt relief agency and a debtor, but only 
     to the extent that those state laws are inconsistent with the 
     federal requirements set forth in this bill. Such preemptions 
     are mandates as defined in UMRA. Because the preemption would 
     not require states to change their laws, CBO estimates the 
     costs to states of complying with this mandate would not be 
     significant.
       Section 719 would require state and local income tax 
     procedures to conform to the Internal Revenue Code with 
     regard to dividing tax liabilities and responsibilities 
     between the estate and the debtor, the tax consequences of 
     partnerships and transfers of property, and the taxable 
     period of the debtor. CBO estimates that this provision would 
     increase costs for the administration of state and local tax 
     laws, but would not require state and local tax rates to 
     conform to the federal rates. Such administrative costs would 
     not be significant and would likely be offset by increased 
     collections.
       Section 1310 would prohibit state courts from recognizing 
     or enforcing certain foreign judgments. Based on the small 
     number of potential cases and the small likelihood that those 
     cases would be heard in state courts, CBO estimates that 
     there would be no significant costs associated with complying 
     with this mandate.
     Other impacts
       The changes to bankruptcy law in the bill would affect 
     state and local governments primarily as creditors and 
     holders of tax or child support claims against debtors. In 
     addition, it would change some of the state statutes that 
     govern which of a debtor's assets are protected from 
     creditors in a bankruptcy proceeding.
       A 1996 survey of the 50 states conducted by the Federation 
     of Tax Administrators and the States' Association of 
     Bankruptcy Attorneys, the most recent data available, 
     indicated that more than 360,000 taxpayers in bankruptcy owed 
     claims totaling about $4 billion. Of these claims, states 
     reported collecting only about $234 million. Total bankruptcy 
     filings have increased since 1996. While CBO cannot predict 
     how much more money might be collected, it is likely that 
     states and local governments would collect a greater share of 
     future claims than they would under current law.
       Exemptions. Although bankruptcy is regulated according to 
     federal statute, states are allowed to provide debtors with 
     certain exemptions for property, insurance, and other items 
     that are different from those allowed under the federal 
     bankruptcy code. (Exempt property remains in possession of 
     the debtor and is not available to pay off creditors.) In 
     some states debtors can chose the federal or state exemption; 
     other states require a debtor to use only the state 
     exemptions. The bill would reduce the value of a debtor's 
     homestead exemption under certain circumstances and create a 
     new exemption for certain retirement funds and education 
     savings plans. This bill also would place a ceiling of 
     $100,000 on the exemptions for the value of certain property 
     acquired in the two years prior to a bankruptcy filing under 
     certain circumstances.
       These exemption standards would apply regardless of the 
     state policy on exemptions. The new homestead exemption and 
     property-value limitation could make more money available to 
     creditors in some cases, while the exemptions on retirement 
     and education savings generally would make less money 
     available.
       Domestic Support Obligations. The bill would significantly 
     enhance a state's ability to collect domestic support 
     obligations, including child support. Domestic support 
     obligations owed to state or local governments would be given 
     priority over all other claims, except those same obligations 
     owed to individuals. The bill would make these debts 
     nondischargeable (not able to be written-off at the end of 
     bankruptcy). The bill also would require that filers under 
     chapter 11 and 13 cases pay domestic support obligations owed 
     to government agencies or individuals in order to receive a 
     discharge of outstanding debts. In addition, under this bill, 
     the automatic stay that is triggered by filing bankruptcy 
     would not apply to domestic support obligations owed by 
     debtors or withheld from regular income, as it currently 
     does. The bill also would require bankruptcy trustees to 
     notify individuals with domestic support claims of their 
     right to use the services of a state child support 
     enforcement agency, and notify the agency that it has done 
     so. The last known address of the debtor would be a part of 
     the notification.
       Tax Payment Plans. The bill would require that payment 
     plans for tax liabilities be limited to five years and that 
     payment amounts be regular and not less favorable than 
     payments for other obligations. Under current law, taxing 
     authorities sometimes face payment plans that include a 
     series of small payments over time followed by a large 
     balloon payment near the end of the planned payment stream. 
     At that point, the debtors often fail to complete their 
     payments. This provision would require that taxes be paid at 
     a rate proportionate to those of other debts, but does not 
     specifically prohibit balloon provisions. It also would 
     establish interest rates to be applied to outstanding tax 
     liabilities. Under current law, any interest charges on 
     outstanding tax liabilities are determined at the discretion 
     of the bankruptcy judge.
       However, this status is granted only if a tax is assessed 
     within a specific period of time from the date of the 
     bankruptcy filing. If that filing is subsequently dismissed 
     and a new filing is made, the tax claim may lose its priority 
     status. The bill would make adjustments to this provision, 
     allowing more time to pass in some circumstances, thus 
     increasing the likelihood that state or local tax claims 
     would maintain their priority status.
       Taxes and Administrative Expenses. Under current law, 
     certain expenses and the priority of claims reduce the funds 
     that would otherwise be available to pay tax liens on 
     property. The bill would increase the priority of those liens 
     in certain circumstances against certain expenses and claims, 
     thereby making it more likely that funds would remain 
     available to cover tax obligations. Governmental units would 
     not be required to file a request for certain administrative 
     expenses as a condition of being allowed such an expense. The 
     bill also would allow state and local governments to claim 
     administrative expenses for costs incurred by closing a 
     health care business.
       Fuel Tax Claims. Under current law, all states owed fuel 
     tax under the International Fuel Tax Agreement have to file 
     separate claims against debtors under the bankruptcy code. 
     The bill would allow a state designated under the agreement 
     to file a single claim on behalf of all states owed the fuel 
     taxes. This would simplify the filing process.
       Tax Return Filing. A number of provisions in the bill would 
     require debtors to have filed tax returns, and in some cases 
     to be current in their tax payments, before a bankruptcy case 
     may continue. These provisions would help states identify 
     potential claims in bankruptcy cases where they may be owed 
     delinquent taxes.
       Priority of Payments. In some circumstances under current 
     law, debtors have borrowed money or incurred some new 
     obligation that is dischargeable (able to be written-off at 
     the end of bankruptcy) to pay for an obligation that would 
     not be dischargeable. This bill would give the new debt the 
     same priority as the underlying debt. If the underlying debt 
     had a priority higher than that of state or local tax 
     liabilities, state and local governments could lose access to 
     some funds. However, it is possible that the underlying debt 
     could be for a tax claim, in which case the taxing authority 
     would face no loss. Because it is unclear what types of 
     nondischargeable debts are covered by new debt and the degree 
     to which this new provision would discourage such activity, 
     CBO can estimate neither the direction nor the magnitude of 
     the provision's impact on states and localities.
       Single Asset Cases. One provision of the bill would allow 
     expedited bankruptcy proceedings in certain single asset 
     cases (usually involving a large office building). State and 
     local governments could benefit to the extent that real 
     property is returned to productive tax rolls earlier as a 
     result of this provision.
       Municipal Bankruptcy. The bill would clarify regulations 
     governing municipal bankruptcy actions and allow 
     municipalities that have filed for bankruptcy to liquidate 
     certain financial contracts.

[[Page E252]]

     Estimated impact on the private sector
       Mandates
       H.R. 333 would impose new private-sector mandates on 
     bankruptcy attorneys, creditors, bankruptcy petition 
     preparers, debt-relief agencies, and credit and charge-card 
     companies. Consumer bankruptcy attorneys would be required to 
     make reasonable inquiries to confirm that the information in 
     documents they submit to the court or to the bankruptcy 
     trustee is well grounded in fact. Creditors would be required 
     to make disclosures in their agreements with debtors and 
     provide certain notices to courts and debtors. Bankruptcy 
     petition preparers and debt-relief agencies would also be 
     required to provide certain notices to debtors. Credit and 
     charge-card companies would be required to disclose specified 
     information in monthly billing statements, new account 
     introductory rate offers, and internet-based solicitations. 
     CBO estimates that the direct costs of these mandates would 
     exceed the annual threshold established by UMRA ($109 million 
     in 2000, adjusted annually for inflation).
       Section 102 of the bill would make bankruptcy attorneys 
     liable for misleading statements and inaccuracies in 
     schedules and documents submitted to the court or to the 
     trustee. To avoid sanctions and potential civil penalties, 
     attorneys would need to verify the information given to them 
     by their clients regarding the list of creditors, assets and 
     liabilities, and income and expenditures. Completing a 
     reasonable investigation of debtors' financial affairs and, 
     for chapter 7 cases, computing debtor eligibility, would 
     require attorneys to expend additional effort. Information 
     from the American Bar Association indicates that this 
     requirement would increase attorney costs by $150 to $500 per 
     case. Based on the 1.59 million projected filings under 
     chapter 7 (liquidation) and chapter 13 (rehabilitation), CBO 
     estimates that the direct cost of complying with this mandate 
     would be between $240 million and $790 million in fiscal year 
     2002. With a rise in projected filings over the next three 
     years, annual direct costs would reach a peak in fiscal year 
     2004 at between $280 million and $950 million and remain in 
     that range through fiscal year 2006. The additional costs for 
     attorneys would most likely be passed on to debtors.
       The bill would require certain notices to be disclosed as 
     part of the bankruptcy process. Section 203 of the bill would 
     require a creditor with an unsecured consumer debt seeking a 
     reaffirmation agreement with a debtor to provide certain 
     disclosures. The agreement reaffirms the debt discharged in 
     bankruptcy between a holder of a claim and the debtor.
       These disclosures must be made clearly and conspicuously in 
     writing and include certain advisories and explanations. The 
     required disclosures could be incorporated into existing 
     standard reaffirmation agreements. Section 221 would require 
     bankruptcy petition preparers who are not attorneys to give 
     the debtor written notice explaining that the preparer may 
     not provide legal advice. Section 228 would require a debt-
     relief agency providing bankruptcy assistance to an assisted 
     person to give certain written notices to the person and to 
     execute a written contract. Such agencies also would be 
     required to supply certain advisories and explanations 
     regarding the bankruptcy process. Most attorneys and debt-
     relief counselors currently provide similar information. 
     Based on information from bankruptcy practitioners, CBO 
     estimates that the direct costs of complying with these 
     mandates would fall well below the annual threshold 
     established by UMRA.
       H.R. 333 also requires credit lenders to provide additional 
     disclosures to consumers. Credit and charge-card companies 
     would be required to include certain disclosures in billing 
     statements with respect to various open-end credit plans 
     regarding the disadvantages of making only the minimum 
     payment. Other disclosures would be required to be included 
     in application and solicitation materials involving 
     introductory rate offers, internet-based credit card 
     solicitations, and for late payment deadlines and penalties. 
     Based on information from credit lenders, CBO estimates that 
     the direct costs of these disclosure requirements would fall 
     below the annual threshold.
       Other impacts
       H.R. 333 also contains many provisions that would benefit 
     creditors. Most significant for creditors are provisions that 
     would shift debtors from chapter 7 to chapter 13 and 
     provisions that would expand the types of debts that would be 
     nondischargeable. By expanding the types of debts that are 
     nondischargeable, some creditors would continue to receive 
     payments on debts that would be discharged under current law. 
     Means-testing in the bankruptcy system would result in more 
     individuals being required to seek relief under chapter 13 
     rather than chapter 7. Because chapter 13 requires debtors to 
     develop a plan to repay creditors over a specified period, 
     the total pool of funds available for distribution for 
     creditors would likely increase. As long as the likelihood of 
     repayment by debtors and the pool of funds increases by an 
     amount greater than the cost to creditors of administering 
     the new bankruptcy code, creditors would be made better off 
     under the bill.
       Under UMRA, duties arising from participation in voluntary 
     federal programs are not mandates. The bankruptcy process is 
     largely voluntary for debtors, and debtor-initiated 
     bankruptcies are equivalent to participation in a voluntary 
     federal program. Consequently, new duties imposed by the bill 
     on individuals who file as debtors do not meet the definition 
     of private-sector mandates, and additional cost for debtors 
     would not be counted as direct costs for purposes of UMRA.
       Estimate prepared by: Federal Costs: Lanette J. Walker and 
     Ken Johnson; Revenues: Erin Whitaker; Impact on State, Local, 
     and Tribal Governments: Shelley Finlayson; Impact on the 
     Private Sector: Paige Piper/Bach.
       Estimate approved by: Peter H. Fontaine, Deputy Assistant 
     Director for Budget Analysis.

     

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