    Bankruptcy: Implementation of Reform Act's Debt Reaffirmation
    Agreement Provisions (07-DEC-07, GAO-08-94).

    The Bankruptcy Abuse Prevention and Consumer Protection Act of
    2005 (referred to hereafter as the Reform Act) included
    provisions to better inform individuals who file for personal
    bankruptcy about their options for reaffirming debt--whereby
    filers may voluntarily agree to pay certain creditors in an
    effort to retain assets, such as an automobile. Reaffirmation
    agreements between debtors and creditors are required, by law, to
    formally disclose to debtors the terms of the agreement, such as
    the amount of debt reaffirmed. Some requirements differ for
    credit unions, such as an exemption for reporting debtor
    financial information when the debtor's attorney signs the
    agreement. The Reform Act required GAO to study the bankruptcy
    reaffirmation process. This report discusses (1) the extent to
    which required Reform Act disclosures and other information have
    been incorporated into reaffirmation agreements, (2) the types of
    debts reaffirmed and the percent this debt comprised of debtors'
    overall debt burden, and (3) how reaffirmed and original interest
    rates compare. GAO reviewed a representative sample of bankruptcy
    files with agreements in five bankruptcy courts (in AL, CA, IL,
    TX, and WV) selected by, among other things, filing volume and
    geographic dispersion. Estimates from our sample cannot be
    generalized to all bankruptcy courts, but can be generalized to
    each of the selected bankruptcy courts.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-08-94
        ACCNO:   A78689
      TITLE:     Bankruptcy: Implementation of Reform Act's Debt
    Reaffirmation Agreement Provisions
         DATE:   12/07/2007
      SUBJECT:   Bankruptcy
    	     Cost sharing (finance)
    	     Debt collection
    	     Debt held by public
    	     Financial management
    	     Financial management systems
    	     Financial statements
    	     Information disclosure
    	     Interest rates
    	     Noncompliance
    	     Public debt

    ******************************************************************
    ** This file contains an ASCII representation of the text of a  **
    ** GAO Product.                                                 **
    **                                                              **
    ** No attempt has been made to display graphic images, although **
    ** figure captions are reproduced.  Tables are included, but    **
    ** may not resemble those in the printed version.               **
    **                                                              **
    ** Please see the PDF (Portable Document Format) file, when     **
    ** available, for a complete electronic file of the printed     **
    ** document's contents.                                         **
    **                                                              **
    ******************************************************************
    GAO-08-94

    This text file was formatted by the U.S. Government Accountability
    Office (GAO) to be accessible to users with visual impairments, as part
    of a longer term project to improve GAO products' accessibility. Every
    attempt has been made to maintain the structural and data integrity of
    the original printed product. Accessibility features, such as text
    descriptions of tables, consecutively numbered footnotes placed at the
    end of the file, and the text of agency comment letters, are provided
    but may not exactly duplicate the presentation or format of the printed
    version. The portable document format (PDF) file is an exact electronic
    replica of the printed version. We welcome your feedback. Please E-mail
    your comments regarding the contents or accessibility features of this
    document to Webmaster@gao.gov.

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed
    in its entirety without further permission from GAO. Because this work
    may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this
    material separately.

    Report to Congress:

    United States Government Accountability Office:
    GAO:

    December 2007:

    Bankruptcy:

    Implementation of Reform Act's Debt Reaffirmation Agreement Provisions:

    GAO-08-94:

    GAO Highlights:

    Highlights of GAO-08-94, a report to Congress.

    Why GAO Did This Study:

    The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
    (referred to hereafter as the Reform Act) included provisions to better
    inform individuals who file for personal bankruptcy about their options
    for reaffirming debt�whereby filers may voluntarily agree to pay
    certain creditors in an effort to retain assets, such as an automobile.
    Reaffirmation agreements between debtors and creditors are required, by
    law, to formally disclose to debtors the terms of the agreement, such
    as the amount of debt reaffirmed. Some requirements differ for credit
    unions, such as an exemption for reporting debtor financial information
    when the debtor�s attorney signs the agreement.

    The Reform Act required GAO to study the bankruptcy reaffirmation
    process. This report discusses (1) the extent to which required Reform
    Act disclosures and other information have been incorporated into
    reaffirmation agreements, (2) the types of debts reaffirmed and the
    percent this debt comprised of debtors� overall debt burden, and (3)
    how reaffirmed and original interest rates compare.

    GAO reviewed a representative sample of bankruptcy files with
    agreements in five bankruptcy courts (in AL, CA, IL, TX, and WV)
    selected by, among other things, filing volume and geographic
    dispersion. Estimates from our sample cannot be generalized to all
    bankruptcy courts, but can be generalized to each of the selected
    bankruptcy courts.

    What GAO Found:

    Most reaffirmation agreements across the five districts included Reform
    Act disclosure statements and other required information. For example,
    for the five districts, the required disclosure statement for the
    �Annual Percentage Rate� was included in an estimated 86 to 97 percent
    of agreements and the disclosure statement for the �Amount Reaffirmed�
    and the amount was included in an estimated 87 to 98 percent of
    agreements, as shown below.

    Estimated Percentage of Reaffirmation Agreements That Included
    Disclosure Statements and Other Information for Selected Statements and
    Information:

    Required disclosure statements and other information: �Annual
    Percentage Rate� and the amount;
    AL: 86;
    CA: 97;
    IL: 91;
    TX: 92;
    WV: 86.

    Required disclosure statements and other information: �Amount
    Reaffirmed� and the amount;
    AL: 90;
    CA: 98;
    IL: 96;
    TX: 93;
    WV: 87.

    Required disclosure statements and other information: Debtor monthly
    income, expense, and net income information to make determination of
    whether a presumed undue hardship exists[a]:
    AL: 67;
    CA: 71;
    IL: 88;
    TX: 75;
    WV: 67.

    Source: GAO analysis of bankruptcy file reviews.

    Note: The margin of error for this data is plus or minus 10 percent,
    or less at the 95 percent confidence level.

    [a] Because this disclosure statement and the inclusion of information
    differs for credit unions, these data are for non-credit unions only.

    [End of table]

    We also estimate that, for the five districts, 67 to 88 percent of non-
    credit union agreements included monthly income, expense, and net
    income information�conversely, 12 to 33 percent were missing this
    information. This information helps to inform debtors, debtor
    attorneys, creditors, and court officials of the potential inability of
    the debtor to make payment on reaffirmed debt. In May 2007, a federal
    judiciary advisory committee proposed the use of a reaffirmation
    agreement coversheet that, if approved, would make it mandatory for
    debtors to provide required financial information to determine an undue
    hardship. If approved, the coversheet would appear to address the
    issue of missing financial information.

    For the five districts, debts secured by assets, such as an automobile,
    were the most frequently reaffirmed type of debt�comprising an
    estimated 90 percent or more of all reaffirmations. Unsecured debt�such
    as credit card debt�was reaffirmed infrequently in reaffirmation
    agreements, occurring in an estimated 2 percent to 10 percent among all
    agreements in the five districts. For the five districts, we estimate
    that in approximately two-thirds of cases the reaffirmed debt burden
    comprised 25 percent or less of the debtors� total debts.

    In those cases where an original interest rate was provided, rates on
    reaffirmed debt were generally less than or equal to the original
    rate. Specifically, the interest rates were equal to the original rate
    in an estimated 56 to 84 percent of reaffirmed debts for the five
    districts, less than the original rate for 10 to 44 percent of debts,
    and greater in 0 to 8 percent of debts. (The margin of error for these
    estimates is at most plus or minus 16 percent at the 95 percent
    confidence level.)

    To view the full product, including the scope and methodology, click on
    [hyperlink, http://www.GAO-08-94]. For more information, contact
    William O. Jenkins Jr. at (202) 512-8777 or jenkinswo@gao.gov.

    [End of section]

    Contents:

    Letter:

    Results in Brief:

    Background:

    Required Reform Act Disclosure Statements Were Included in Most
    Reaffirmation Agreements, though Required Information Was Missing in
    Some Agreements:

    Secured Debts for Autos and Homes Most Frequent Type of Reaffirmed
    Debt; for Most Agreements, Reaffirmed Debt Burden Less than 25 Percent
    of Total Debt:

    Reaffirmed Interest Rates Were Less than or Equal to the Original Rate:

    Agency Comments:

    Appendix I: Objectives, Scope, and Methodology:

    Selection of Five Bankruptcy Court Districts for File Review:

    Selection of Cases Reviewed within Five Bankruptcy Court Districts:

    Appendix II: Reaffirmation Agreement Disclosures and Required
    Information; Estimates for Credit Unions:

    Appendix III: Federal Judiciary Reaffirmation Agreement Form, January
    2007:

    Appendix IV: Additional Estimates on Cases and Reaffirmation Agreements
    Filed in Five Bankruptcy Court Districts:

    Case-Level Information:

    Reaffirmation-level Information:

    Appendix V: Federal Judiciary Proposed Coversheet for Reaffirmation
    Agreements:

    Appendix VI: GAO Contact and Staff Acknowledgments:

    Tables:

    Table 1: Summary of Reform Act-Required Disclosure Statements and Other
    Required Information:

    Table 2: Estimated Percentages for Inclusion of Required Financial
    Data, Asset Information, and Debtor Notification Statements in
    Reaffirmation Agreements Filed in Five Selected Bankruptcy Courts:

    Table 3: Estimated Percentages for Inclusion of Required Debtor
    Agreement Statement and Other Information in Reaffirmation Agreements
    Filed in Five Selected Bankruptcy Courts:

    Table 4: Estimated Percentages for Inclusion of Debtor Attorney
    Certification Statements and in Reaffirmation Agreements Filed in Five
    Selected Bankruptcy Courts:

    Table 5: Estimated Percentages for Inclusion of Debtor Statement in
    Support of Reaffirmation Agreement and Other Information in
    Reaffirmation Agreements with Non-Credit Unions Filed in Five Selected
    Bankruptcy Courts:

    Table 6: Estimated Percentage of Cases in Five Districts by Total
    Amount Reaffirmed as Percentage of Total Debt:

    Table 7: Characteristics of Five Selected Bankruptcy Court Districts
    Relied upon When Selecting Districts for Review:

    Table 8: Description of Sampling Universe and Samples for Five Selected
    Districts for Cases Filed from October 17, 2005, through October 17,
    2006:

    Table 9: Reform Act Reaffirmation Agreement Disclosure Statements and
    Other Required Information:

    Table 10: Estimated Percentage of Reaffirmation Agreements with Credit
    Unions That Included Disclosure Statements and Required Information for
    Five Selected Bankruptcy Court Districts:

    Table 11: Estimated Mean and Median Dollar Amounts for Debtor Assets,
    Liabilities, Income, and Expenses in Case Petitions That Included
    Reaffirmation Agreements in Five Bankruptcy Court Districts (October
    17, 2005, through October 17, 2006):

    Table 12: Estimated Percentages for Certain Characteristics in
    Reaffirmation Agreements Filed in Five Bankruptcy Court Districts
    (October 17, 2005, through October 17, 2006):

    Table 13: Estimated Dollar Amounts for Debtor Monthly Income and
    Expenses Based on Information from Reaffirmation Agreements in Five
    Bankruptcy Court Districts (October 17, 2005, through October 17, 2006):

    Table 14: Total Dollar Amount of Debt Reaffirmed Per Agreement in Five
    Bankruptcy Court Districts (October 17, 2005, through October 17, 2006):

    Table 15: Estimated Average and Median Dollar Amount of Debt Reaffirmed
    per Reaffirmation Agreement and Average and Median Original Debt Amount
    or Original Purchase Price:

    Table 16: Estimated Average Interest Rates on Original Debt for
    Reaffirmation Agreements Filed in Five Bankruptcy Court Districts
    (October 17, 2005, through October 17, 2006):

    Table 17: Estimated Average Interest Rates on Reaffirmed Debt for
    Reaffirmation Agreements Filed in Five Bankruptcy Court Districts
    (October 17, 2005, through October 17, 2006):

    Figures:

    Figure 1: General Process for Reaffirmation Agreements:

    Figure 2: Excerpt of Unclear Attorney Certification Form:

    Figure 3: Excerpt of Clear Attorney Certification Form:

    Figure 4: Example of Additional Language Added to Debtor Attorney
    Certification:

    Figure 5: Estimated Percentage of Reaffirmation Agreements with
    Reaffirmed Interest Rates Greater than, Equal to, or Less than Original
    Rates:

    Figure 6: Estimated Percentage of Chapter 7 Cases with at Least One
    Reaffirmation Agreement in the Five Bankruptcy Court Districts (October
    17, 2005, through October 17, 2006):

    Figure 7: Estimated Average Number of Days from Date when Petition was
    Filed to Date Case was Closed (October 17, 2005, through October 17,
    2006):

    Figure 8: Estimated Average Number of Days from Date When Reaffirmation
    Agreement Was Filed to Date Case Was Closed (October 17, 2005, through
    October 17, 2006):

    Abbreviations:

    AL-N: Northern District of Alabama:

    AOUSC: Administrative Office of the U.S. Courts:

    CA-C: Central District of California:

    IL-N: Northern District of Illinois:

    TX-N: Northern District of Texas:

    WV-S: Southern District of West Virginia:

    [End of section]

    United States Government Accountability Office: Washington, DC 20548:

    December 7, 2007:

    The Honorable Robert C. Byrd:
    President Pro Tempore:
    United States Senate:

    The Honorable Nancy Pelosi:
    Speaker of the House:
    House of Representatives:

    The Honorable Patrick Leahy:
    Chairman:
    The Honorable Arlen Specter:
    Ranking Member:
    Committee on the Judiciary:
    United States Senate:

    The Honorable John Conyers, Jr.:
    Chairman:
    The Honorable Lamar Smith:
    Ranking Member:
    Committee on the Judiciary:
    House of Representatives:

    Individuals may file for personal bankruptcy in federal bankruptcy
    courts to reduce their debts by having their eligible debts discharged
    by the bankruptcy court.[Footnote 1] Bankruptcy filers may voluntarily
    reaffirm--that is, agree to pay--certain debts with creditor firms in
    an effort to retain assets.[Footnote 2] Debtors may, for example, be
    motivated to reaffirm one or more debts through a reaffirmation
    agreement with a creditor to retain an asset that secures a debt, such
    as an automobile, home, or household good that otherwise would likely
    have to be surrendered to the creditor if the debtor did not reaffirm
    the debt.[Footnote 3] A debtor may also choose to reaffirm a debt that
    is not secured by an asset, such as credit card debt or a line of
    credit from a bank. In the late 1990s, several reports, including a
    1997 National Bankruptcy Review Commission report, expressed concern
    over questionable practices that may have led some individuals filing
    for bankruptcy to take actions that were not in their best interests--
    by entering, for example, into agreements with creditors that were
    financially burdensome.[Footnote 4]

    Between 2001 and 2004, an average of more than 1.5 million people
    annually filed for personal bankruptcy protection. In April 2005, the
    Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
    (referred to in this report as the Reform Act) was enacted and
    contained provisions designed to better inform debtors and assist them
    in making decisions about reaffirming debt.[Footnote 5] Under the
    Reform Act, a reaffirmation agreement is required to contain specified
    disclosure statements that, among other things, are designed to inform
    debtors of the terms of the reaffirmation agreement as well as the
    debtor's rights and responsibilities. For example, the amount
    reaffirmed and the annual percentage rate for that amount must be
    conspicuously disclosed in the agreement. Statements, among other
    prescribed narratives, must also be included to inform debtors of their
    right to rescind a reaffirmation agreement within a certain time period
    and that the debtor or creditor must file the agreement with the court.
    The required disclosure statements are designed to help ensure that
    debtors make decisions about reaffirming a debt that are in their best
    interests.

    The Reform Act required that GAO study the bankruptcy reaffirmation
    agreement process. This report addresses the following questions
    regarding reaffirmation agreements in cases filed over a 1 year period
    beginning October 17, 2005, when the reaffirmation provisions of the
    Reform Act took effect:

    1. To what extent have required Reform Act disclosure statements and
    other required information (such as the annual percentage rate for the
    reaffirmed debt) been incorporated into reaffirmation agreements?

    2. What types of debts were reaffirmed and to what extent did
    reaffirmed debt amounts comprise debtors' overall debt burden when they
    filed for bankruptcy?

    3. How did the reaffirmed and original interest rates compare?

    To answer these questions, we reviewed a representative sample of
    bankruptcy case files with reaffirmation agreements in each of five
    district bankruptcy courts: Alabama Northern (AL-N), California Central
    (CA-C), Illinois Northern (IL-N), Texas Northern (TX-N), and West
    Virginia Southern (WV-S). The districts were selected based on the
    following criteria: a range of filing volume, proportion of Chapter 7
    filings within the bankruptcy courts,[Footnote 6] whether cases were
    overseen by the U.S. Trustee Program or the Bankruptcy Administrator
    program,[Footnote 7] and courts in dispersed geographic locations. From
    January 1, 2001, to June 30, 2006, the average quarterly filing volume
    for the nation's 90 district bankruptcy courts was 385,424. The five
    districts we selected collectively represented about 12 percent of
    those average quarterly filings. When determining which districts to
    include in our study, we selected the 2001 to 2006 time period to
    gather sufficient historical filing data to determine the average
    number of filings each district had over time. Each sample of cases
    within these districts was selected from the universe of cases that
    were filed in the five districts between October 17, 2005, and October
    17, 2006--the first year the Reform Act's reaffirmation provisions were
    in effect--and also contained at least one reaffirmation agreement.
    Each universe of cases with at least one reaffirmation agreement was
    drawn from a database maintained by the bankruptcy courts. We
    determined that these data were sufficiently reliable to develop the
    universe of cases for each of the five district bankruptcy courts from
    which we selected a representative sample of bankruptcy cases. To
    determine the reliability of the bankruptcy data we reviewed
    documentation about the system that maintained them and interviewed
    agency officials knowledgeable about the data to discuss the procedures
    they used in collecting and maintaining these data. On the basis of our
    samples of bankruptcy cases with at least one reaffirmation agreement
    from the five selected bankruptcy court districts, we generated
    estimates of percentages, means, and medians to generalize sample
    results to each district's bankruptcy court. All percentage estimates
    in this report have a margin of error of plus or minus 10 percent or
    less, unless otherwise noted. Some percentage estimates we present have
    a margin of error greater than plus or minus 10 percent. This occurred
    for percentage estimates based on a small number of cases in the
    district samples with specific characteristics that were unavailable to
    us prior to sampling. For instance, when we present percentage
    estimates for reaffirmation agreements made with credit unions, the
    small number of agreements made with credit unions in the samples
    results in larger margins of error. Mean and median estimates have a
    relative error of 20 percent or less, unless otherwise noted. Some mean
    and median estimates we present in this report have a great deal of
    variance, resulting in large percentages of relative error. For
    instance, when we discuss the mean and median amount of the debt
    reaffirmed per reaffirmation agreement, individual reaffirmation
    agreement debts range from very low amounts (such as a small
    outstanding balance for an automobile) to much higher amounts (as with
    the outstanding balance for the mortgage on a home); these large
    variations result in larger percentages of relative error.

    Our case file review was performed using a data collection instrument
    that included uniform questions to ensure data were collected
    consistently. We relied on data presented in bankruptcy documents filed
    with the courts by debtors, creditors, and debtor attorneys. Bankruptcy
    courts, bankruptcy administrators, and the U.S. Trustee Program manage
    bankruptcy cases and perform some measures to verify data that help
    ensure the reliability of information provided. For example, bankruptcy
    court officials have measures to ensure that data entered into
    information systems are accurate. Also, as a part of the bankruptcy
    process, the U.S. Trustee Program verifies selected debtor-reported
    financial data, such as income and assets. On the basis of these
    measures, we believe the bankruptcy data we reviewed to be sufficiently
    reliable for our purposes. In addition to reviewing case files in each
    district, we interviewed bankruptcy court clerks, U.S. Regional
    Trustees, case trustees, and the Bankruptcy Administrator for the
    Northern District of Alabama to determine the availability of
    reaffirmation agreement data and to learn about the reaffirmation
    process. We interviewed four creditors that we identified during our
    case file review as the creditors that most frequently entered into
    reaffirmation agreements in the five selected districts. We also
    interviewed debtor and creditor attorneys, bankruptcy consumer
    advocates who represented the interests of debtors during development
    of the Reform Act, and academics specializing in bankruptcy issues.

    The Reform Act provides that disclosures (with the exception of the
    terms "Amount Reaffirmed" and "Annual Percentage Rate") may be made in
    a different order and may use terminology different from those set out
    in the Reform Act and that such disclosure requirements shall be
    satisfied if the required disclosures are given in good faith. This
    report discusses how the reaffirmation process was working under the
    Reform Act in selected bankruptcy court districts, not whether
    agreements were in compliance with the Reform Act. Furthermore, we did
    not determine the reason that individual reaffirmation agreements did
    not include required disclosures or other information. Appendix 1
    provides additional information on our scope and methodology.

    Our work was conducted from June 2006 through November 2007 in
    accordance with generally accepted government auditing standards.

    Results in Brief:

    Most reaffirmation agreements in the five districts included required
    Reform Act disclosure statements. For example, the disclosure statement
    for the annual percentage rate was included in an estimated 86 percent
    (in AL-N and WV-S) to 97 percent (in CA-C) of all agreements for the
    five districts in the first year after the Reform Act's reaffirmation
    provisions took effect. The disclosure statement for the "Amount
    Reaffirmed" and the amount was included in an estimated 87 percent (in
    WV-S) to 98 percent (in CA-C) of agreements for the five districts.
    Other required information that must be entered into reaffirmation
    agreement forms, in addition to disclosure statements, was generally
    included in agreements when required. For example, when a debt being
    reaffirmed is secured by an asset, the Reform Act requires that a
    description of the asset securing the agreement be included in the
    reaffirmation agreement. This information was included in an estimated
    87 percent (in WV-S) to 99 percent (in CA-C) of reaffirmation
    agreements for the five districts. We also estimate that 67 percent (in
    AL-N and WV-S) to 88 percent (in IL-N) of non-credit union agreements
    included debtors' monthly income, expense, and net income information-
    -conversely, an estimated 12 percent (in IL-N) to 33 percent (in AL-N
    and WV-S) were missing this information (these data are not required
    for credit union agreements signed by a debtor attorney).[Footnote 8]
    This information helps to inform debtors, debtor attorneys, creditors,
    and court officials of the potential inability of the debtor to make
    payment on reaffirmed debt. While information about income, expenses,
    and net income available can be determined from other schedules in the
    bankruptcy filings or during hearings, having that information included
    in the agreement makes it easier for the courts to evaluate the
    debtor's financial situation. In May 2007, an advisory committee to the
    federal judiciary proposed the use of a reaffirmation agreement
    coversheet that, if approved, would make it mandatory for debtors to
    provide income and expense information, among other things, on the
    coversheet to be used in the evaluation of undue hardship. According to
    the Administrative Office of the U.S. Courts (AOUSC), this new form
    could take effect by December 1, 2009. If approved, the coversheet
    would appear to address the issue of missing financial information.

    Secured debts (i.e., debts secured by assets that the creditor may
    repossess if the debtor does not pay the underlying debt) were the most
    frequently reaffirmed type of debt, comprising an estimated 90 percent
    (in AL-N) to 98 percent (in TX-N and WV-S) of all reaffirmations for
    the five districts. Of all types of secured debts, automobiles and
    homes were the most frequently reaffirmed assets. With respect to
    homes, reaffirmation agreements are not required to be reviewed by the
    court. Unsecured debt was reaffirmed infrequently--occurring in an
    estimated 2 percent (in TX-N and WV-S) to 10 percent (in AL-N) of all
    reaffirmation agreements in the five districts. Credit card debt was
    the most frequently reaffirmed unsecured debt in the 52 unsecured
    agreements we reviewed. As to the extent to which reaffirmed debt
    amounts comprised debtors' overall debt burden, in approximately two-
    thirds of cases for each of the five districts the reaffirmed debt
    burden comprised less than 25 percent of the debtors' total debts.

    When the files contained both the original interest rate and the
    reaffirmed rate, reaffirmed interest rates were generally less than or
    equal to the original rate. Specifically, interest rates on reaffirmed
    debt were equal to the original rate in an estimated 56 percent (in WV-
    S) to 84 percent (in CA-C) of reaffirmation agreements for the five
    districts. The reaffirmed rate was less than the original rate in 10
    percent (in IL-N) to 44 percent (in WV-S) and greater than the original
    rate in 0 percent (in WV-S) to 8 percent (in IL-N) of agreements for
    the five districts. For the 9 (of 1,164) reaffirmation agreements we
    reviewed where the reaffirmed interest rate was greater than the
    original rate, the amount of the interest rate increase ranged from
    0.10 percentage points to 4.25 percentage points. For the 72 (of 1,164)
    reaffirmation agreements we reviewed where the reaffirmed interest rate
    was less than the original rate, the amount of the interest rate
    decrease ranged from 0.01 percentage points to 26.99 percentage points.
    The average reaffirmed interest rate was an estimated 8 to 10 percent
    in the five districts. Interest rates for 41 unsecured reaffirmations
    we reviewed that disclosed a reaffirmed interest rate ranged from 0 to
    21 percent. Nineteen of the 41 agreements were reaffirmed with a 0
    percent interest rate, while the remaining 22 agreements had interest
    rates ranging from 7.99 to 21 percent.

    Background:

    Overview of Reaffirmation Agreement Process:

    The reaffirmation agreement process involves several parties and many
    steps. Creditors, debtors, debtor attorneys, and the courts each have
    reaffirmation agreement roles. The process begins when a debtor in
    bankruptcy decides to reaffirm a debt or the creditor proposes a
    reaffirmation agreement and forwards it to a debtor. Officials at four
    credit institutions that frequently engaged in reaffirmation agreements
    we reviewed stated that once they receive notice of a debtor filing for
    bankruptcy, the creditors generally send the debtor or the debtor's
    attorney their proposal for a reaffirmation agreement. Under the Reform
    Act, certain certifications may be required such as an attorney
    certification that certifies that the agreement does not impose an
    undue hardship on the debtor. Also, under the Reform Act, the court is
    to review agreements where debtors are not represented by an attorney
    and those that have a presumed undue hardship. A presumption of undue
    hardship is triggered when a debtor's monthly net income (including
    expected monthly payments on post-bankruptcy debt) is not sufficient to
    pay the proposed monthly reaffirmed payment. A debtor may try to
    counter this presumption in writing. After these reviews, the court may
    approve or disapprove the agreement. Figure 1 provides more detailed
    information about the reaffirmation agreement process.

    Figure 1: General Process for Reaffirmation Agreements:

    [See PDF for image]

    This figure is an illustration of the General Process for Reaffirmation
    Agreements. The illustration depicts the process flow, which may take
    one of the following three paths as follows:

    First path:
    1. Debtor decides to reaffirm debt.
    2. Creditor prepares the reaffirmation agreement, signs it, and sends it
    to debtor.
    3. Debtor completed information about their finances and attests to their
    ability to make payments.
    4. Debtor and debtor's attorney (if applicable) sign the reaffirmation
    agreement.
    5. Creditor or debt/debtor's attorney files completed affirmation agreement
    with the court.
    6. If the reaffirmation agreement did not the have signature of a debtor
    attorney, presumption of undue hardship. Court reviews the
    reaffirmation agreement [b].
    7. If the Court disapproves the reaffirmation agreement, the Court issues
    an order disapproving the agreement.
    8. Reaffirmation process is complete.

    Second path:
    1. Debtor decides to reaffirm debt.
    2. Creditor prepares the reaffirmation agreement, signs it, and sends it to
    debtor.
    3. Debtor completed information about their finances and attests to their ability
    to make payments.
    4. Debtor and debtor's attorney (if applicable) sign the reaffirmation agreement.
    5. If debtor's attorney signed the reaffirmation agreement, debtor's attorney
    certifies that the reaffirmation agreement does not impose an undue hardship [a].
    6. Debtor may rescind the agreement any time before discharge or within 60
    days of the reaffirmation filing.
    7. Reaffirmation process is complete.

    Third path:
    1. Debtor decides to reaffirm debt.
    2. Creditor prepares the reaffirmation agreement, signs it, and sends it to
    debtor.
    3. Debtor completed information about their finances and attests to their ability
    to make payments.
    4. Debtor and debtor's attorney (if applicable) sign the reaffirmation agreement.
    5. If debtor's attorney signed the reaffirmation agreement, debtor's attorney
    certifies that despite a presumption of hardship being established that, in the
    opinion of the attorney, the debtor is able to pay the reaffirmed debt.
    6. Presumption of undue hardship. Court reviews the reaffirmation agreement [b].
    7. Court approves the reaffirmation agreement.
    8. Debtor may rescind the agreement any time before discharge or within 60 days
    of the reaffirmation filing.
    9. Reaffirmation process is complete.

    Source: GAO analysis of the Reform Act.

    Note: This general process refers to those reaffirmation agreements
    that have been made before the granting of the discharge and filed with
    the court. The Bankruptcy Code provides that such agreements are
    enforceable only if, among other things, such agreements are filed with
    the court.

    [A] When a debtor attorney certifies that the debtor is able to make
    the reaffirmation payment, and no presumption of undue hardship is
    established, the Reform Act does not require a judge to review the
    agreement.

    [B] Credit union agreements are not reviewed by the court unless the
    reaffirmation agreement is not signed by an attorney representing the
    debtor. Reaffirmations for real property, such as a home, are not
    required to be reviewed by the court.

    [End of figure]

    Reform Act Provisions Related to Reaffirmation Agreements:

    Described as representing the most comprehensive set of reforms in more
    than 25 years, the Reform Act addressed, among other things, the
    reaffirmation agreement process. The Reform Act added new disclosures
    and court review requirements with respect to reaffirmation agreements
    designed to help ensure that reaffirmation agreements are consistent
    with the debtor's best interests. The reaffirmation agreement
    requirements include, among other things, disclosures notifying debtors
    of reaffirmed terms. Agreements must also include the debtor's monthly
    income and expenses to determine if a presumption of undue hardship
    exists and certification by the debtor's attorney that the agreement
    represents a fully informed and voluntary agreement by the debtor and
    that the agreement does not impose an undue hardship. Table 1
    summarizes key reaffirmation agreement disclosure requirements under
    the Reform Act. Appendix II provides the full text of the disclosure
    statements required by the Reform Act.

    Table 1: Summary of Reform Act-Required Disclosure Statements and Other
    Required Information:

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications;
    Required disclosure statements and other required information:
    * Disclosure statements:
    - Amount Reaffirmed, using those terms and including the amount;
    - Statements accompanying Amount Reaffirmed data;
    - Annual Percentage Rate, using those terms and including the rate;
    - Statement instructing debtor to review disclosures;
    - Statements indicating �Summary of Reaffirmation Agreement� and that
    the summary is pursuant to the Bankruptcy Code;
    - Statement accompanying variable rate transactions, if applicable;
    - Statement instructing debtor to consult with attorney or a judge
    regarding the effect of reaffirming a debt;
    - Statement explaining the reaffirmation process and certain
    requirements.
    * Other information:
    - Description of asset securing the agreement, if applicable;
    - Original purchase price or the original amount of the loan.

    Reaffirmation section and description: Part B: Debtor agreement
    statement;
    Required disclosure statements and other required information:
    * Disclosure statement:
    - Statement that debtor agrees to reaffirm the debt described in this
    section.
    * Other information:
    - Description of credit agreement;
    - Description of any changes to the credit agreement, if any.

    Reaffirmation section and description: Part C: Certification by the
    debtor�s attorney;
    Required disclosure statements and other required information:
    * Disclosure statement:
    - Statement that the agreement represents a fully informed and
    voluntary agreement by the debtor, that the agreement does not impose
    an undue hardship on the debtor, and that the attorney has fully
    advised the debtor of the effect of the agreement.
    * Other information:
    - If applicable, statement that when a presumption of undue hardship is
    established, that in the opinion of the attorney, the debtor is able to
    make the reaffirmation payment[a].

    Reaffirmation section and description: Part D: Debtor statement in
    support of the reaffirmation agreement[b]:
    Required disclosure statements and other required information:
    * Disclosure statement:
    - Statement that the reaffirmation agreement does not impose an undue
    hardship on the debtor.
    * Other information:
    - Debtor monthly income, expense, and net income information to make
    the determination of whether the presumption of an undue hardship
    exists.

    Reaffirmation section and description: Part E: Motion for court
    approval;
    Required disclosure statements and other required information:
    * Disclosure statement:
    - Motion for court approval, if debtor is not represented by an
    attorney[c].

    Source: GAO analysis of the Reform Act.

    [A] Under the Reform Act, in reaffirmation agreements with credit
    unions where a presumption of undue hardship is established, debtor
    attorneys are not required to certify that in the opinion of the
    attorney the debtor is able to make the payment.

    [B] Under the Reform Act, the presumption of undue hardship calculation
    is not applicable to attorney represented debtors reaffirming with
    credit unions. Correspondingly, in the debtor statement in support of
    the reaffirmation agreement, monthly income, expense, and net income
    information is not required for debtors reaffirming a debt with a
    credit union where the debtor is represented by an attorney.

    [C] Debtors who are not represented by an attorney are not required to
    file a motion for court approval where the consumer debt being
    reaffirmed is secured by a lien on real property.

    [End of table]

    Flexibility in Disclosure Requirements under the Reform Act:

    The Reform Act allows for some flexibility in the disclosures required
    in reaffirmation agreements and provides that the disclosure
    requirements shall be satisfied if the disclosures were provided to the
    debtor in good faith. Almost all of the disclosures can be made in a
    different order and with different terminology than what is set forth
    in the law. In addition, one creditor official we interviewed stated
    that his organization uses a standardized form created by the creditor
    to comply with the Reform Act. However, according to the official, his
    company has 32 versions of the form designed to comply with individual
    bankruptcy court requirements.

    The AOUSC, which provides administrative, legal, and other support to
    the federal judiciary, issued a reaffirmation agreement form that
    incorporates the required and recommended language in the Reform Act.
    The form was issued on October 2005 and was revised in August 2006 and
    in January 2007.[Footnote 9] Because of the requirement for flexibility
    in disclosure language, creditors and debtors are not required to use
    the AOUSC form and may use other forms. According to AOUSC, one of the
    primary reasons the federal judiciary did not impose a specific
    reaffirmation form was because the law allows for different
    reaffirmation agreement forms. The federal judiciary also took other
    factors into consideration, according to AOUSC, including the many
    variations of statutory requirements that are dependent upon the
    debtors' circumstances, and the fact that a creditor and debtor might
    want to include language in addition to what the law requires.

    Court Review of Reaffirmations under the Reform Act:

    The Reform Act also specifies in what circumstances reaffirmation
    agreements are to be reviewed by the courts during the bankruptcy
    process. In general, if the reaffirmation agreement is signed by a
    debtor attorney, the agreement is effective upon filing with the court,
    unless income and expense information on the debtor's statement in
    support of the agreement reflects insufficient funds for making the
    reaffirmation payment, which triggers the presumption of an undue
    hardship. If a presumption of undue hardship exists, the court is
    required to review and approve or disapprove the agreement based on
    whether the presumption is countered by debtor explanations for how the
    debtor can afford the reaffirmation payment.

    The Reform Act makes certain provisions for reaffirmation agreements
    that do not include a debtor attorney signature. Reaffirmation
    agreements might not include a debtor attorney signature because the
    debtor has opted to undergo the bankruptcy process without an attorney,
    which is known as a pro se bankruptcy filing. Also, in some instances,
    debtor attorneys might not sign the agreement because he or she
    believes the agreement imposes an undue hardship on the debtor. All
    agreements that are not signed by debtor attorneys must be submitted to
    the court for review and approval or disapproval, with the exception of
    reaffirmed consumer debt secured by a lien on real property such as a
    home.[Footnote 10] Agreements cannot be disapproved without a hearing
    and notice of the hearing to the debtor and creditor.

    Reaffirmations with Credit Unions:

    Under the Reform Act, reaffirmation agreements where the creditor is a
    credit union have different requirements than reaffirmation agreements
    with other types of creditors. While most requirements for
    reaffirmation agreements are uniform across all types of lenders, the
    Reform Act's presumption of undue hardship provisions are not
    applicable to agreements with credit unions. This exemption is evident
    in several Reform Act provisions. For example, while reaffirmation
    agreements where the creditor is a credit union are to include a debtor
    statement in support of the reaffirmation agreement when the agreement
    is signed by a debtor attorney, the statement is not, however, required
    to include the income and expense information otherwise used to
    calculate whether there is a presumption of undue hardship. Instead,
    such a debtor's statement in support of the agreement is required to
    include that the reaffirmation is in the debtor's financial interest,
    that the debtor can afford the reaffirmation payments, and that the
    debtor received a copy of the required disclosures and has completed
    and signed the agreement. In addition, when the debtor is represented
    by an attorney, with respect to credit unions, a required debtor
    notification is to explain the reaffirmation process and state that the
    reaffirmation agreement is effective upon filing with the court. By
    contrast, the required debtor notification for agreements with all
    other types of creditors states that the agreement is effective upon
    filing with the court unless the agreement is presumed to be an undue
    hardship.

    Required Reform Act Disclosure Statements Were Included in Most
    Reaffirmation Agreements, though Required Information Was Missing in
    Some Agreements:

    We estimate that required disclosure statements were included in most
    reaffirmation agreements for each of the five districts.[Footnote 11]
    For example, we estimate inclusion of the statement "Amount Reaffirmed"
    and the amount was from 87 percent (in WV-S) to 98 percent (in CA-C) of
    all reaffirmation agreements. Similarly, we estimate that the statement
    "Annual Percentage Rate" and the amount were in 86 percent (in AL-N and
    WV-S) to 97 percent (in CA-C) of all reaffirmation agreements for the
    five districts. Debtor attorney certifications were frequently included
    in reaffirmation agreements signed by attorneys--from an estimated 95
    percent (in WV-S) to 100 percent (in CA-C) of agreements. We also
    estimate that 67 percent (in AL-N and WV-S) to 88 percent (in IL-N) of
    non-credit union agreements included monthly income, expense, and net
    income information--conversely, an estimated 12 percent (in IL-N) to 33
    percent (in AL-N and WV-S) were missing this required information (as
    mentioned previously, these data are not required of credit union
    agreements signed by a debtor attorney). This information helps to
    inform debtors, debtor attorneys, creditors, and court officials of the
    potential inability of the debtor to make payment on reaffirmed debt.
    While information about income, expenses and net income available can
    be determined from other schedules in the bankruptcy filings or during
    hearings, having that information included in the agreement makes it
    easier for the courts to evaluate the debtor's financial situation. In
    March 2007, the Judicial Conference's Advisory Committee on Bankruptcy
    Rules[Footnote 12] proposed the use of a reaffirmation agreement
    coversheet that, if approved, would make it mandatory for debtors to
    provide income and expense information, among other things, on the
    coversheet to be used in the evaluation of undue hardship. If approved
    by the Judicial Conference, the mandatory coversheet would appear to
    address the issue of missing financial information.

    Financial Data, Asset Information, and Debtor Notifications Included in
    Most Reaffirmation Agreements:

    The Reform Act requires that reaffirmation agreements include financial
    data disclosure statements for the amount reaffirmed and the annual
    percentage rate for the amount reaffirmed. As shown in table 2, we
    estimate that these disclosure statements were included in a high
    percentage of all agreements within the five districts. For example,
    the statement "Amount Reaffirmed" and the amount were included in an
    estimated 87 percent (in WV-S) to 98 percent (in CA-C) of all
    reaffirmation agreements. Similarly, the statement "Annual Percentage
    Rate" and the amount were included in an estimated 86 percent (in AL-N
    and WV-S) to 97 percent (in CA-C) of all reaffirmation agreements for
    the five districts.

    The Reform Act requires several notification disclosure statements
    designed to help ensure that debtors make decisions about reaffirming
    debt that are in their best interests, such as informing them of the
    reaffirmation agreement process as well as the effect of agreeing to
    reaffirm debt. We estimate these notification disclosure statements
    were included in high percentages of reaffirmation agreements in all
    five districts. One notification disclosure explains the reaffirmation
    process and certain requirements. For example, the disclosure instructs
    debtors on which sections of the agreement to read and sign and under
    what circumstances the agreement may be reviewed by the court before
    becoming effective. The notification also informs debtors, among other
    things, of their right to rescind the agreement and that reaffirmation
    agreements are not required. As shown in table 2, we estimate that non-
    credit union reaffirmations included the notification disclosure
    statement explaining the reaffirmation process and certain requirements
    in an estimated 87 percent (in AL-N) to 96 percent (in CA-C) of
    reaffirmation agreements for the five districts. This disclosure
    statement differs for credit unions. We provide estimates for inclusion
    of disclosure statements in credit union agreements later in this
    report.

    Other required debtor notification disclosure statements were also
    included in high percentages of reaffirmation agreements in the five
    districts. As shown in table 2, we estimate that 87 percent (in WV-S)
    to 97 percent (in CA-C) of all reaffirmation agreements within the five
    districts included a statement instructing debtors to review the
    required disclosures. Similarly, we estimate that 87 percent (in WV-S)
    to 97 percent (in CA-C) of all reaffirmation agreements in the five
    districts included a statement that summary information in the
    reaffirmation agreement was made pursuant to the requirements of the
    Bankruptcy Code.

    With respect to unsecured debts, other than requiring a brief
    description of the credit agreement, the Reform Act does not provide a
    specific disclosure statement for inclusion of asset information, the
    original purchase price, or the original amount of the loan. However,
    when a reaffirmed debt is secured by an asset, the Reform Act requires
    both the asset and either the original purchase price or original
    amount of the loan be listed in the agreement. As shown in table 2, we
    estimate that required information describing the asset securing the
    agreement was included in 87 percent (in WV-S) to 99 percent (in CA-C)
    of agreements in the five districts. The original purchase price or the
    original amount of the loan was also included in a high percentage of
    agreements--an estimated 81 percent (in WV-S) to 91 percent (in CA-C)
    for the five districts.

    Table 2: Estimated Percentages for Inclusion of Required Financial
    Data, Asset Information, and Debtor Notification Statements in
    Reaffirmation Agreements Filed in Five Selected Bankruptcy Courts:

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: "Amount Reaffirmed" and
    the amount;
    AL-N: 90;
    CA-C: 98;
    IL-N: 96;
    TX-N: 93;
    WV-S: 87.

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Statements accompanying
    Amount Reaffirmed data;
    AL-N: 88;
    CA-C: 97;
    IL-N: 96;
    TX-N: 91;
    WV-S: 87.

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: "Annual Percentage Rate"
    and the amount;
    AL-N: 86;
    CA-C: 97;
    IL-N: 91;
    TX-N: 92;
    WV-S: 86.

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Statement instructing
    debtor to review disclosures;
    AL-N: 88;
    CA-C: 97;
    IL-N: 96;
    TX-N: 92;
    WV-S: 86.

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Statements indicating
    "Summary of Reaffirmation Agreement" and that the summary is pursuant
    to the Bankruptcy Code;
    AL-N: 88;
    CA-C: 97;
    IL-N: 96;
    TX-N: 92;
    WV-S: 86.

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Statement accompanying
    variable rate transactions, if applicable;
    AL-N: [A];
    CA-C: [A];
    IL-N: [A];
    TX-N: [A];
    WV-S: [A].

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Statement instructing
    debtor to consult with attorney or a judge regarding the effect of
    reaffirming a debt;
    AL-N: 85;
    CA-C: 96;
    IL-N: 91;
    TX-N: 89;
    WV-S: 85.

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Statement explaining the
    reaffirmation process and certain requirements[B];
    AL-N: 87;
    CA-C: 96;
    IL-N: 90;
    TX-N: 90;
    WV-S: 89.

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Other information;
    AL-N: [Empty];
    CA-C: [Empty];
    IL-N: [Empty];
    TX-N: [Empty];
    WV-S: [Empty].

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Description of asset
    securing the agreement, if applicable;
    AL-N: 94;
    CA-C: 99;
    IL-N: 97;
    TX-N: 97;
    WV-S: 87.

    Reaffirmation section and description: Part A: Financial data, asset
    information, and debtor notifications; Required disclosure statements
    and other information, Disclosure statement: Original purchase price or
    the original amount of the loan, if applicable;
    AL-N: 84;
    CA-C: 91;
    IL-N: 87;
    TX-N: 90;
    WV-S: 81.

    Source: GAO analysis of bankruptcy file reviews.

    [A] We are not able to generate reliable estimates for variable rate
    transactions because of the low numbers of reaffirmation agreements
    with these characteristics.

    [B] Because this disclosures statement differs for credit unions, these
    data are for non-credit unions only. See appendix II for credit union
    disclosure data.

    [End of table]

    Debtor Agreement Disclosure Statement Included in Most Reaffirmation
    Agreements:

    The Reform Act requires a disclosure statement that includes a
    statement that the debtor agrees to reaffirm the debt, a field for a
    brief description of the credit agreement, a field for a description of
    any changes to the credit agreement made as part of the reaffirmation
    agreement, and fields for debtor and creditor signatures. As shown in
    table 3, we estimate that this statement by the debtor was included in
    84 percent (in WV-S) to 95 percent (in CA-C) of all reaffirmation
    agreements within each of the five districts. We also estimate that
    creditors or debtors included required information describing the
    credit agreement in 76 percent (in WV-S) to 84 percent (in IL-N) of all
    reaffirmation agreements in the five districts, as shown in table 3.
    These descriptions varied in content. For example, when reviewing
    reaffirmation agreements, we observed agreements that included
    descriptive information about the type of contract involved in the
    transaction, such as a type of "retail installment contract" or
    "promissory note." Other agreements included more detail about the
    terms of the credit agreement, such as the number of payments, monthly
    payment amounts, and original amount of the loan.

    Table 3: Estimated Percentages for Inclusion of Required Debtor
    Agreement Statement and Other Information in Reaffirmation Agreements
    Filed in Five Selected Bankruptcy Courts:

    Reaffirmation section and description: Part B: Debtor agreement
    statement; Required disclosure statements and other information,
    Disclosure statement: Statement that debtor agrees to reaffirm the
    debt, a field for a brief description of the credit agreement, a field
    for a description of any changes to the credit agreement made as part
    of the reaffirmation agreement, and fields for debtor and creditor
    signatures;
    AL-N: 87;
    CA-C: 95;
    IL-N: 94;
    TX-N: 91;
    WV-S: 84.

    Reaffirmation section and description: Part B: Debtor agreement
    statement; Required disclosure statements and other information,
    Disclosure statement: Other information;
    AL-N: [Empty];
    CA-C: [Empty];
    IL-N: [Empty];
    TX-N: [Empty];
    WV-S: [Empty].

    Reaffirmation section and description: Part B: Debtor agreement
    statement; Required disclosure statements and other information,
    Disclosure statement: Description of credit agreement;
    AL-N: 81;
    CA-C: 77;
    IL-N: 84;
    TX-N: 82;
    WV-S: 76.

    Source: GAO analysis of bankruptcy file reviews.

    [End of table]

    While not required information in all reaffirmation agreements, in a
    few reaffirmation agreements in the five districts, creditors or
    debtors included a description of changes to the credit agreement made
    as a part of the reaffirmation. We estimate that 12 percent (in AL-N)
    to 20 percent (in CA-C and WV-S) of all reaffirmations within the five
    districts included a description of such a change. For example, in one
    district we reviewed 36 agreements that had changes identified in the
    agreement. The interest rate was cited as a change in 17 of these 36
    agreements. Other changes described in the remaining 19 agreements
    included reductions in the loan balance, changes to the payment date,
    and changes in the monthly payment amount. Because analysis of these 36
    agreements was conducted in addition to our standardized file review,
    we are not able to generalize these figures to all reaffirmations in
    this district.

    Debtor Attorney Certification Included in Most Reaffirmation
    Agreements, although Notice of Undue Hardship Unclear in Some
    Agreements:

    Debtor attorneys signed reaffirmation agreements in an estimated 90
    percent to 97 percent of all agreements in each of the five
    districts.[Footnote 13] When a debtor attorney signs a reaffirmation
    agreement, the Reform Act requires that a disclosure statement be
    included with the signature. The disclosure statement includes the
    debtor attorney's certification that (1) the agreement represents a
    fully informed and voluntary agreement by the debtor, (2) the agreement
    does not impose an undue hardship on the debtor or any dependent of the
    debtor, and (3) that the attorney has fully advised the debtor of the
    legal effect and consequences of the agreement and any default under
    the agreement. As shown in table 4, we estimate that this required
    attorney disclosure statement was included in 95 percent (in WV-S) to
    100 percent (in CA-C) of reaffirmations signed by attorneys in the five
    districts.

    Table 4: Estimated Percentages for Inclusion of Debtor Attorney
    Certification Statements and in Reaffirmation Agreements Filed in Five
    Selected Bankruptcy Courts:

    Reaffirmation section and description: Part C: Certification by the
    debtor's attorney; Required disclosure statements and other
    information, Disclosure statement: Statement that (1) the agreement is
    a fully informed and voluntary agreement by the debtor, (2) that the
    agreement does not impose an undue hardship on the debtor, and (3) that
    the attorney has fully advised the debtor of the effect of the
    agreement.: 98; Statement that (1) the agreement is a fully informed
    and voluntary agreement by the debtor, (2) that the agreement does not
    impose an undue hardship on the debtor, and (3) that the attorney has
    fully advised the debtor of the effect of the agreement;

    Source: GAO analysis of bankruptcy file reviews.

    [End of table]

    In addition to the disclosure statement, the Reform Act requires that
    when a presumption of undue hardship has been established with respect
    to the agreement, the debtor attorney certify that in his or her
    opinion, the debtor is able to make the reaffirmation payment. We
    estimate that 1 percent (in CA-C) to 11 percent (in WV-S) of all
    reaffirmation agreements with non-credit unions in the five districts
    included an attorney certification statement explicitly identifying
    that a presumed undue hardship was established with respect to the
    agreement, and that in the opinion of the attorney, the debtor could
    make the reaffirmation payment.[Footnote 14] Reaffirmation agreements
    are not required by the Reform Act to include an explicit indication of
    whether a presumed undue hardship has been established with respect to
    the agreement. While we did not formally track the extent to which
    reaffirmation agreements forms included an explicit way for presumed
    undue hardship to be identified, we observed that some reaffirmation
    agreement forms included a way to explicitly identify presumed undue
    hardship in the debtor attorney certification and some did not. For
    example, we observed reaffirmation agreement forms that included the
    following language for debtor attorneys to certify, which has no
    explicit indication of whether a presumption of undue hardship had been
    established: "If a presumption of undue hardship has been established
    with respect to this agreement, in my opinion the debtor is able to
    make the payment." This statement is unclear because it does not
    explicitly identify whether a presumption of undue hardship has been
    established with respect to the reaffirmation agreement. Instead, the
    statement only indicates that "if" a presumption of undue hardship is
    established, the debtor attorney certifies that the debtor can make the
    payment. AOUSC's reaffirmation agreement form dated January 2007
    addresses this ambiguity by placing a checkable box next to an explicit
    statement indicating that there is a presumption of undue hardship and
    that the debtor attorney certifies that the debtor is able to make the
    required payment. As mentioned previously, use of the AOUSC form is
    suggested but not required. Figures 2 and 3 illustrate clear and
    unclear debtor attorney certification of an undue hardship.

    Figure 2: Excerpt of Unclear Attorney Certification Form:

    [See PDF for image]

    This figure is an excerpt of an unclear Attorney Certification form, as
    follows:

    Part C: Certification By Debtor's Attorney (If Any):

    I hereby certify that 1) this agreement represents a fully informed and
    voluntary agreement by the debtor(s); 2) this agreement does not impose
    a hardship on the debtor or any dependent of the debtor; 3) I have
    fully advised the debtor of the legal effect and consequences of this
    agreement and any default under this agreement and; 4) if there was a
    presumption of undue hardship, in my opinion, the debtor is able to
    make this payment.

    Signature of Debtor's Attorney, if any: Date:

    BAPCA Multi-State Reaffirmation Agreement: 9/22/05:

    Source: Federal judiciary's electronic public access service.

    [End of figure]

    Figure 3: Excerpt of Clear Attorney Certification Form:

    [See PDF for image]

    This figure is an excerpt of a clear Attorney Certification form, as
    follows:

    Part C: Certification By Debtor's Attorney (If Any):

    [To be filed only if the attorney represented the debtor during the
    course of negotiating this agreement.]

    I hereby certify that 1) this agreement represents a fully informed and
    voluntary agreement by the debtor(s); 2) this agreement does not impose
    a hardship on the debtor or any dependent of the debtor; 3) I have
    fully advised the debtor of the legal effect and consequences of this
    agreement and any default under this agreement.

    [Check box, if applicable and the creditor is not a Credit Union.] A
    presumption of hardship has been established with respect to this
    agreement. In my opinion, however, the debtor is able to make the
    required payment.

    Printed Name of Debtor's Attorney:

    Signature of Debtor's Attorney:

    Date:

    Source: Administrative Office of the U.S. Courts.

    [End of figure]

    In some reaffirmation agreements, the debtor attorney certification
    portion of reaffirmation agreements included additional language beyond
    the disclosure statement required by the Reform Act. We estimate that
    from 1 percent (in CA-C) to 11 percent (in TX-N) of reaffirmation
    agreements in the five districts included such additional language. We
    observed several instances where the additional language supplemented
    the debtor attorney's certification by indicating that the attorney was
    not guaranteeing the debtor's reaffirmation payment. One example of
    this supplemental information is shown in figure 4.

    Figure 4: Example of Additional Language Added to Debtor Attorney
    Certification:

    [See PDF for image]

    This figure is an example of additional language Added to Debtor
    Attorney Certification, as follows:

    * However, counsel does not warrant the ability of the debtor to
    perform the terms of the Reaffirmation Agreement and the singing of
    this declaration shall in no way be construed as a guaranty by counsel
    of the debtor�s obligations under said Reaffirmation Agreement.

    A presumption of undue hardship has been established with respect to
    this agreement. In my opinion, however, the debtor is able to make the
    required payment.

    Source: Federal judiciary's electronic public access service.

    Note: In the above text, with the exception of the marked out
    signatures and date, the wording is exactly as it appeared in the
    source document, including the asterisk, italics, bolding, and spelling
    errors.

    [End of figure]

    Debtor Statement in Support of Agreement Included in Most Reaffirmation
    Agreements, although Required Data Missing in Some Agreements:

    The Reform Act requires a debtor statement in support of the
    reaffirmation agreement that is to include debtor-inserted data for
    determination of whether a presumption of undue hardship is
    established.[Footnote 15] The data to be inserted include monthly
    income, monthly expenses (which are to include payments on post-
    bankruptcy debt and other reaffirmation payments), and the monthly net
    income remaining to make the monthly payments for the reaffirmed debt.
    If the net income is not sufficient to pay the reaffirmation payments,
    a presumption of undue hardship is established that the debtor may
    overcome if the debtor explains, to the satisfaction of the court, how
    the debtor can afford to make the payments. Specifically, the court is
    required to review reaffirmation agreements where a presumption of
    undue hardship has been established when net income is insufficient for
    the reaffirmation payments. The court may approve or disapprove the
    agreement based on information presented to the court.

    Table 5: Estimated Percentages for Inclusion of Debtor Statement in
    Support of Reaffirmation Agreement and Other Information in
    Reaffirmation Agreements with Non-Credit Unions Filed in Five Selected
    Bankruptcy Courts:

    Reaffirmation section and description: Part D: Debtor statement in
    support of the reaffirmation agreement; Required disclosure statements
    and other information, Disclosure statement: Statement that the
    reaffirmation agreement does not impose an undue hardship on the
    debtor[a];
    AL-N: 89;
    CA-C: 97;
    IL-N: 95;
    TX-N: 92;
    WV-S: 92.

    Reaffirmation section and description: Part D: Debtor statement in
    support of the reaffirmation agreement; Required disclosure statements
    and other information, Disclosure statement: Other information;
    AL-N: [Empty];
    CA-C: [Empty];
    IL-N: [Empty];
    TX-N: [Empty];
    WV-S: [Empty].

    Reaffirmation section and description: Part D: Debtor statement in
    support of the reaffirmation agreement; Required disclosure statements
    and other information, Disclosure statement: Debtor monthly income,
    expense, and net income information to make the determination of
    whether a presumed undue hardship exists[B];
    AL-N: 67;
    CA-C: 71;
    IL-N: 88;
    TX-N: 75;
    WV-S: 67.

    Source: GAO analysis of bankruptcy file reviews.

    [A] Figures are for non-credit unions only. See appendix II for
    information on disclosure inclusion for credit unions.

    [B] Figures are for non-credit unions only. Financial information is
    not required for debtors reaffirming a debt with a credit union where
    the debtor is represented by an attorney.

    [End of table]

    The majority of reaffirmation agreements were with non-credit unions--
    from 80 percent to 94 percent of reaffirmations in the five
    districts.[Footnote 16] As shown in table 5, we estimate that 89
    percent (in AL-N) to 97 percent (in CA-C) of reaffirmation agreements
    with non-credit unions for the five districts included the debtor
    statement that the reaffirmation agreement does not impose an undue
    hardship on the debtor. We also estimate that 67 percent (in AL-N and
    WV-S) to 88 percent (in IL-N) of non-credit union agreements included
    monthly income, expense, and net income information--conversely, an
    estimated 12 percent (in IL-N) to 33 percent (in AL-N and WV-S) were
    missing this required information. This information is a key component
    in the presumption of undue hardship determination.[Footnote 17] While
    information about income, expenses, and net income available can be
    determined from other schedules in the bankruptcy filings or during
    hearings, having that information included in the agreement makes it
    easier for courts to evaluate the debtor's financial situation. For
    example, one case included reaffirmation agreements certified by a
    debtor attorney for two automobiles with monthly payments of $315 and
    $376.[Footnote 18] The debtor's statement in support for each
    reaffirmation agreement was signed by the debtor but did not include
    the required monthly income, expense, and net income data. According to
    monthly expenses and net income reported on other documents the debtor
    provided the court, which included only one of the reaffirmed car
    payment amounts as an expense, the debtor's monthly net income was
    negative $131, reflecting the potential inability of the debtor to
    afford the reaffirmed payment amounts.[Footnote 19]

    Federal Judiciary Has Proposed a New Form to Evaluate Undue Hardship:

    In March 2007, the Judicial Conference's Advisory Committee on
    Bankruptcy Rules proposed the use of a reaffirmation agreement
    coversheet form that, if approved, would make it mandatory for debtors
    to provide financial information on the coversheet, such as amount of
    debt reaffirmed, the annual percentage rate for reaffirmed debt,
    monthly reaffirmation payment, and monthly income and expense
    information at the time of petition and reaffirmation agreement
    filings, to facilitate the evaluation of undue hardship. The coversheet
    form also requires a supplemental debtor certification that any
    explanation of the difference between the income and expenses reported
    on the debtor's bankruptcy petition documents and the income and
    expenses reported in the debtor's statement of support of the
    reaffirmation agreement is true and correct. According to AOUSC, this
    new coversheet form could take effect by December 1, 2009, after
    undergoing a period of at least 6 months for public comment on the new
    coversheet as well as final review by the Judicial Conference. If
    approved, the coversheet would appear to address the issue of missing
    financial information. See appendix V for the proposed reaffirmation
    agreement coversheet.

    Small Percentage of Reaffirmation Agreements Required a Motion for
    Court Approval:

    The Reform Act requires that a motion for court approval be included in
    reaffirmation agreements when the debtor is not represented by an
    attorney. We determined whether debtors were not represented by an
    attorney by noting whether reaffirmation agreements were or were not
    signed by a debtor attorney. Reaffirmation agreements were not signed
    by debtor attorneys in an estimated 3 percent to 10 percent of
    agreements for the five districts.[Footnote 20] In two districts we had
    sufficient data to estimate the extent to which a motion for court
    approval was included when a debtor attorney did not sign the
    agreement. In the two districts (IL-N and WV-S), a motion for court
    approval was included in 62 percent[Footnote 21] (in WV-S) and 80
    percent[Footnote 22] (in IL-N) of agreements. In one of the two
    districts (WV-S) court officials told us that regardless of whether or
    not a motion for court approval is filed, their internal process calls
    for clerk staff to review each reaffirmation agreement and forward
    those with undue hardship or lack of a debtor attorney's signature for
    court review. In the remaining three districts, the number of
    agreements including a debtor attorney signature was not sufficient to
    generate reliable estimates. Our review of cases in these three
    districts showed that 13 of 26 agreements (in AL-N), 28 of 34
    agreements in (TX-N), and 20 of 23 agreements (in CA-C) without debtor
    attorney signatures included the motion.

    Reaffirmation Agreements with Credit Unions Included Required
    Disclosures in Varying Percentages:

    Reaffirmation agreements with credit unions comprised an estimated 6
    percent to 20 percent of all reaffirmations in each of the five
    districts.[Footnote 23] As mentioned previously, under the Reform Act
    credit union reaffirmation agreements have different requirements than
    reaffirmation agreements with other types of creditors. The debtor
    notification statement explaining the reaffirmation agreement process
    is generally the same as the statement for other types of creditors.
    However, the debtor notification statement for credit union
    reaffirmation agreements indicates that the agreement is effective upon
    filing with the court (for non-credit unions, the debtor notification
    statement indicates that the agreement is effective upon filing with
    the court unless the reaffirmation is presumed to be an undue
    hardship). For the five districts, reaffirmation agreements with credit
    unions included the complete credit union debtor notification statement
    that explained the reaffirmation agreement process and stated that
    reaffirmation agreements with credit unions are effective upon filing
    with the court in an estimated 61 percent to 96 percent of
    agreements.[Footnote 24] Another difference for agreements with credit
    unions is that the Reform Act does not require an agreement with credit
    unions to include debtors' monthly income, expense, and net income
    information in the debtor statement in support of the agreement (unless
    the agreement does not include a debtor attorney signature). Instead,
    the disclosure statement indicates that the debtor believes the
    agreement is in his or her financial interest and that he or she can
    afford to make the reaffirmation payments. In four districts[Footnote
    25] we estimate that from 54 percent to 93 percent[Footnote 26] of
    agreements with credit unions included the credit union debtor
    statement in support of the agreement. However, for these same four
    districts, we also estimate that 45 percent to 96 percent[Footnote 27]
    of agreements with credit unions included the debtor statement whereby
    the debtor's income, expense and net income information could be
    recorded even though such data were not required (because the agreement
    was with a credit union and the debtor was represented by an attorney).
    Appendix II includes estimates for inclusion of other required
    disclosure statements in agreements with credit unions for the five
    districts.

    Secured Debts for Autos and Homes Most Frequent Type of Reaffirmed
    Debt; for Most Agreements, Reaffirmed Debt Burden Less than 25 Percent
    of Total Debt:

    Secured Debts Most Frequently Reaffirmed:

    An estimated 90 percent (in AL-N) to 98 percent (in TX-N and WV-S) of
    reaffirmations in the five districts were for secured debts.
    Specifically, debtors more frequently reaffirmed debts for automobiles
    and homes in comparison to debts for other assets. We estimate that 54
    percent (in AL-N) to 87 percent (in CA-C) of reaffirmations in the five
    districts were for automobiles. In addition to automobiles, in four
    districts, we estimate that between 15 percent (in WV-S) to 24 percent
    (in IL-N) of reaffirmation agreements were for homes. Reaffirmations
    for homes in the remaining district (CA-C) occurred in an estimated 2
    percent of agreements. In addition to automobiles and homes, secured
    debts reaffirmed included, among other things, those for boats,
    electronics, and household goods. Appendix IV, table 14, provides more
    information on debts reaffirmed for each district.

    Unsecured debt was reaffirmed infrequently--occurring in an estimated 2
    percent to 10 percent of all reaffirmation agreements in the five
    districts.[Footnote 28] In the one district where an estimated 10
    percent of all reaffirmations were for unsecured debt, almost half of
    these agreements were for electricity service (agreements that
    reaffirmed delinquent payments on electricity service so that the
    service could continue). Because of the small number of reaffirmation
    agreements that were unsecured, the following information about these
    agreements is based on our review of actual reaffirmation agreements
    and is not projected to the entire population of reaffirmation
    agreements in the five districts. Twenty of the 52 unsecured agreements
    reviewed were for some type of credit card debt such as bank charge
    cards, lines of credit, and merchant credit cards. In the remaining 32
    cases, debtors reaffirmed either an unsecured personal loan from a
    bank, a debt to another individual, a tax debt, or electricity service.

    Similar to agreements for non-credit unions, most credit union
    reaffirmation agreements were for automobiles and houses. The types of
    secured and unsecured debts reaffirmed with credit unions generally did
    not differ from the types of secured and unsecured debts reaffirmed
    with non-credit unions. However, we are not able to make statistically
    significant comparisons between the types of debt reaffirmed by credit
    and non-credit unions because of the small number of credit union
    reaffirmation agreements.

    For Most Agreements, Reaffirmed Debt Burden Less than 25 Percent of
    Total Debt:

    One concern that consumer advocates and academics have had is that if
    the debtor reaffirms a high proportion of the total debts owed when
    filing for bankruptcy, the debtor may not obtain the financial "fresh
    start" that is one of the fundamental purposes of bankruptcy. To
    determine whether debtors were reaffirming a large proportion of their
    total debts, we examined reaffirmed debts in each case we reviewed as a
    percentage of the total debts the debtor reported he or she owed when
    he or she filed for bankruptcy.[Footnote 29]

    As shown in table 6, we estimate that in 58 percent (in AL-N) to 68
    percent (in CA-C) of cases in the five districts, total reaffirmed
    debts were less than 25 percent of total debts. By contrast, in 0
    percent (in TX-N) to 8 percent (in IL-N) of cases, reaffirmed debts
    comprised 75 percent or more of total debts. We reviewed 63
    reaffirmation agreements in 26 cases in which reaffirmed debt was 75
    percent or more of total debts. For these 26 cases, automobiles were
    reaffirmed in 20 cases, homes in 18, mobile homes in 2, and household
    goods or other assets in 5 of the cases. In addition, we estimate that
    the average total amount of debt reaffirmed per case for the five
    districts was from $15,000 to $47,000,[Footnote 30] while the average
    of total debts per case was from $120,000 to $189,000.[Footnote 31]

    Table 6: Estimated Percentage of Cases in Five Districts by Total
    Amount Reaffirmed as Percentage of Total Debt:

    Total amount reaffirmed as percent of total debts: 0-24.9%;
    AL-N: 58;
    CA-C: 68;
    IL-N: 62;
    TX-N: 66;
    WV-S: 63.

    Total amount reaffirmed as percent of total debts: 25-49.9%;
    AL-N: 17;
    CA-C: 28;
    IL-N: 15;
    TX-N: 24;
    WV-S: 19.

    Total amount reaffirmed as percent of total debts: 50-74.9%;
    AL-N: 21;
    CA-C: 4;
    IL-N: 16;
    TX-N: 9;
    WV-S: 15.

    Total amount reaffirmed as percent of total debts: 75-100%;
    AL-N: 4;
    CA-C: 1;
    IL-N: 8;
    TX-N: 0;
    WV-S: 2.

    Source: GAO analysis of bankruptcy file reviews.

    Note: Figures may not add to 100 percent due to rounding.

    [End of table]

    The debt burden for debtors after bankruptcy may include debts in
    addition to those reaffirmed. For example, debtors' total debts may
    include student loans, child support obligations, or other financial
    obligations that cannot be discharged in bankruptcy. Our scope of work
    included gathering information about debts reaffirmed and total debts
    at the time of filing, but did not gather data on total debt burdens
    following discharge of all nonreaffirmed debt.

    For the five districts, the average amount reaffirmed per reaffirmation
    agreement was an estimated $12,000 to $31,000 for non-credit union
    reaffirmation agreements.[Footnote 32] For each of the three districts
    for which we are able to estimate the average amount reaffirmed for
    credit unions, the average amount reaffirmed in credit union agreements
    was an estimated $13,000.[Footnote 33]

    Reaffirmed Interest Rates Were Less than or Equal to the Original Rate:

    We estimate that the vast majority of interest rates on reaffirmed debt
    were equal to or less than the interest rate on the original debt, as
    shown in figure 5. As mentioned previously, the Reform Act requires
    that the rate on reaffirmed debt be disclosed as the "Annual Percentage
    Rate," hereafter referred to as the interest rate. While the Reform Act
    requires a brief description of the underlying credit agreement, the
    interest rate for the original debt is not specifically required to be
    included in reaffirmation agreements. However, we found the original
    interest rate in reaffirmation agreements or attached original credit
    agreements in some case files. The original interest rate was available
    in five districts in an estimated 32 percent to 88 percent of
    reaffirmation agreements or their supporting documents.[Footnote 34]
    One district had a high percentage of agreements with the original
    interest rate because the district had a standard form that required
    disclosure of the original interest rate.

    As reflected in figure 5, we estimate that from 91 percent (in IL-N) to
    100 percent (in WV-S) of agreements in each of the five districts had
    reaffirmed interest rates less than or equal to the original rate. In
    one of the five district bankruptcy courts (WV-S), the reaffirmed
    interest rate was less than the original interest rate in an estimated
    44 percent of reaffirmation agreements. In the other four districts,
    interest rates were less than original interest rates in an estimated
    10 percent (in IL-N) to 17 percent (in AL-N) of reaffirmation
    agreements.

    Figure 5: Estimated Percentage of Reaffirmation Agreements with
    Reaffirmed Interest Rates Greater than, Equal to, or Less than Original
    Rates:

    [See PDF for image]

    This figure is a vertical bar graph. The vertical axis of the graph
    represents estimated percentage of reaffirmations from 0 to 90. The
    horizontal axis of the graph represents the five bankruptcy court
    districts. The following data is depicted:

    Bankruptcy Court District: AL-N;
    Reaffirmed rate greater than original rate: 1%;
    Reaffirmed rate equal to original rate: 82%[A];
    Reaffirmed rate less than original rate: 17%[A].

    Bankruptcy Court District: CA-C;
    Reaffirmed rate greater than original rate: 3%;
    Reaffirmed rate equal to original rate: 84%;
    Reaffirmed rate less than original rate: 14%.

    Bankruptcy Court District: IL-N;
    Reaffirmed rate greater than original rate: 8%[B];
    Reaffirmed rate equal to original rate: 81%[B];
    Reaffirmed rate less than original rate: 10%[A].

    Bankruptcy Court District: TX-N;
    Reaffirmed rate greater than original rate: 2%;
    Reaffirmed rate equal to original rate: 83%[C];
    Reaffirmed rate less than original rate: 16%[C].

    Bankruptcy Court District: WV-S;
    Reaffirmed rate greater than original rate: 0;
    Reaffirmed rate equal to original rate: 56%[C];
    Reaffirmed rate less than original rate: 44%[D].

    Source: GAP analysis of bankruptcy file reviews.

    Note: Figures may not add to 100 percent due to rounding.

    [A] The margin of error for this estimate is plus or minus 15 percent.

    [B] The margin of error for this estimate is plus or minus 16 percent.

    [C] The margin of error for this estimate is plus or minus 11 percent.

    [D] The margin of error for this estimate is plus or minus 14 percent.

    [End of figure]

    Average interest rates on reaffirmed debt were similar for the five
    districts. The same was true for original interest rates. For the five
    districts the average interest rate on the debt reaffirmed was an
    estimated 8 percent (in CA-C, IL-N, and TX-N) to 10 percent (in AL-N
    and WV-S), while the average interest rate on the original debt was an
    estimated 9 percent (in TX-N) to 14 percent (in AL-N).

    Moreover, we noted the following characteristics:

    * For 9 (of 1,164) reaffirmation agreements we reviewed where the
    reaffirmed interest rate was greater than the original rate, the amount
    of the interest rate increase ranged from 0.10 percentage points to
    4.25 percentage points. Four of the agreements were for houses, 3 for
    automobiles, 1 for a mobile home, and 1 for household goods. A variety
    of creditors were involved in the 9 agreements--ranging, for example,
    from two credit unions to a mortgage company and a department store.

    * For 72 (of 1,164) reaffirmation agreements we reviewed where the
    reaffirmed interest rate was less than the original rate, the amount of
    the interest rate decrease ranged from 0.01 percentage points to 26.99
    percentage points--which was for a reduction in rate to 0 percent. Over
    half of the 72 reaffirmation agreements were for automobiles and homes-
    -44 were for automobiles and 7 were for homes. The remaining 21
    agreements included 6 agreements for household goods, 5 for mobile
    homes, 8 agreements for a wide variety of debt--including jewelry and
    electronic equipment--and 2 agreements that did not disclose the type
    of debt.

    * For the 61 (of 1,164) reaffirmation agreements we reviewed with
    credit unions (that disclosed both an original and a reaffirmed
    interest rate), in each of the five bankruptcy courts the interest rate
    on the reaffirmed debt was equal to or less than the interest rate on
    the original debt in all but 2 reaffirmation agreements--10 of 10
    agreements in AL-N, 27 of 28 agreements in CA-C, 2 of 2 agreements in
    IL-N, 16 of 17 agreements in TX-N, and 4 of 4 agreements in WV-S.

    We interviewed four creditors who were among the firms that most
    frequently engaged in reaffirmations that we reviewed in the five
    selected districts. Officials from three of these creditors stated that
    during the reaffirmation process their policy was to not adjust credit
    terms, such as interest rates, from the terms established in original
    debt contracts. The fourth creditor said that when reaffirming debt it
    had a policy to consider reducing amounts reaffirmed and interest rates
    based on certain criteria.[Footnote 35]

    As mentioned previously, reaffirmed unsecured debt occurred in a small
    number of reaffirmation agreements reviewed (52 of 1,164).
    Consequently, information about these agreements is based on our review
    of actual reaffirmation agreements and is not projected across the
    entire population of reaffirmed agreements in the five districts.
    Interest rates and amounts reaffirmed for unsecured debt in
    reaffirmations varied in the agreements we reviewed in the five
    districts. Interest rates ranged from 0 to 21 percent among 41 of 52
    unsecured reaffirmations that disclosed a reaffirmed interest rate.
    Nineteen of the 41 agreements were reaffirmed with a 0 percent interest
    rate, while the remaining 22 agreements had interest rates ranging from
    7.99 to 21 percent. Examples of unsecured debt reaffirmed at 0 percent
    interest included electricity service and credit card debt. Examples of
    unsecured debt reaffirmed in the 7.99 to 21 percent range included
    overdraft protection for a checking account reaffirmed at a 12 percent
    interest rate and a credit card reaffirmed at a 21 percent interest
    rate. Amounts reaffirmed for the 52 unsecured agreements also varied
    (all of the agreements had amounts reaffirmed disclosed), ranging from
    $0 (for a line of credit on a credit card) to $25,000 (for a legal fine
    owed by a debtor). While we cannot generalize average amounts for
    unsecured reaffirmations, for the 52 agreements we reviewed, the
    average amount of unsecured debt reaffirmed was $2,300.

    During our review, court officials in one district and academics who
    conduct bankruptcy research that we spoke with expressed concerns that
    debtors who are not represented by an attorney would potentially be at
    a disadvantage. To test this premise, we analyzed interest rate data
    based on whether a debtor attorney had signed an agreement (our proxy
    for whether a debtor was represented by an attorney) and when an
    original interest rate could be determined (disclosure of the original
    interest rate is not required). When a reaffirmation agreement did not
    include a debtor attorney's signature, the interest rate on the
    reaffirmed debt was equal to or less than the interest rate on the
    original debt in all reaffirmations reviewed in each of the five
    bankruptcy courts. In addition, with the exception of one district, we
    estimate that there was no significant difference between the average
    interest rate on reaffirmed debt when a reaffirmation agreement either
    included or did not include a debtor attorney's signature. In one
    district where the difference was statistically significant, however,
    the average reaffirmed interest rate was an estimated 8 percent when
    the agreement was signed by a debtor attorney, and an estimated 12
    percent when the agreement was not signed by a debtor attorney.

    Agency Comments:

    We requested comments on a draft of this report from the Director of
    AOUSC. AOUSC reviewed a draft of this report and had technical
    comments, which we incorporated as appropriate.

    We are sending copies of this report to the Director of AOUSC and
    interested congressional committees and parties. We will also make
    copies available to others upon request. In addition, the report will
    be available at no charge on GAO's Web site at [hyperlink,
    http://www.gao.gov].

    If you or your staff have any questions about this report, please
    contact me at (202) 512-8757 or jenkinswo@gao.gov. Contact points for
    our Offices of Congressional Relations and Public Affairs may be found
    on the last page of this report. GAO staff contributing to this report
    are listed in appendix VI.

    Signed by:

    William O. Jenkins, Jr.,
    Director Homeland Security and Justice Issues:

    [End of section]

    Appendix I: Objectives, Scope, and Methodology:

    Our objectives were to determine the following:

    * To what extent have required Reform Act disclosure statements and
    other required information (such as the annual percentage rate for the
    reaffirmed debt) been incorporated into reaffirmation agreements?

    * What types of debts were reaffirmed and to what extent did reaffirmed
    debt amounts comprise debtors' overall debt burden when they filed for
    bankruptcy?

    * How did the reaffirmed and original interest rates compare?

    To answer these objectives, in five selected bankruptcy court districts
    we reviewed a representative sample of bankruptcy cases that included
    at least one reaffirmation agreement. We selected this sample of
    bankruptcy cases from a universe of bankruptcy case data provided by
    bankruptcy court officials. We determined that these data were
    sufficiently reliable to develop the universe of cases for each of the
    five district bankruptcy courts. To determine the reliability of the
    bankruptcy data, we reviewed documentation about the system that
    produced them and interviewed agency officials knowledgeable about the
    data. Our case file review was performed using a data collection
    instrument that included uniform questions to ensure data were
    collected consistently. We relied on data presented in bankruptcy
    documents filed with the courts by debtors, creditors, and debtor
    attorneys. Bankruptcy courts and U.S. Trustees manage bankruptcy cases
    and perform some measures to verify data that help ensure the
    reliability of information provided. For example, bankruptcy court
    officials have measures to ensure that data entered into information
    systems is accurate. Also, as a part of the bankruptcy process, the
    U.S. Trustee Program verifies selected debtor-reported financial data,
    such as income and assets.

    We also interviewed bankruptcy experts, creditor officials as well as
    bankruptcy court, U.S. Trustee, and bankruptcy administrator officials.
    We used information gathered during these interviews to identify data
    contained in bankruptcy file documents, including reaffirmation
    agreements, that could assist in answering our objectives. We
    considered reviewing reaffirmation agreements from a nationally
    representative sample of bankruptcy cases that included at least one
    reaffirmation agreement. However, because of the nature of the
    bankruptcy courts' data, information needed to develop a sample frame
    of cases with reaffirmation agreements is only available at the
    district level. In addition, we interviewed four creditors that we
    identified during our document review as the creditors that most
    frequently signed reaffirmation agreements in the five selected
    districts.

    When reviewing reaffirmation agreements, we determined both whether
    complete disclosure information was included in the reaffirmation
    agreement and whether the language in the disclosure, while complete,
    varied at all from what is required by the Bankruptcy Abuse Prevention
    and Consumer Protection Act of 2005 (referred to here as the Reform
    Act). Reaffirmation agreements had some variation in disclosure
    language, as is allowed by the Reform Act, but the variations were
    generally minor alterations to the disclosure that did not affect the
    disclosure content. For example, headings were often inserted in the
    Part A disclosure sections that were not prescribed in the Reform Act
    but that did not affect the disclosure content. In another example of
    variation, many agreements also included both credit union and non-
    credit union disclosure information. For purposes of our analysis, we
    combined the data categories indicating inclusion of a verbatim
    disclosure and a nonverbatim (but complete) disclosure.

    To obtain additional information about reaffirmation agreements and the
    bankruptcy process, we reviewed literature from bankruptcy journals and
    attended the American Bankruptcy Institute One-Year Anniversary Program
    on the Bankruptcy Abuse Prevention and Consumer Protection Act, October
    16, 2006, in Washington, D.C.

    Our work was conducted from June 2006 through November 2007 in
    accordance with generally accepted government auditing standards.

    Selection of Five Bankruptcy Court Districts for File Review:

    In selecting bankruptcy court districts in which to conduct reviews of
    cases with reaffirmation agreements, we selected courts based on the
    following criteria: a range of filing volume, proportion of Chapter 7
    filings within the bankruptcy courts,[Footnote 36] whether cases were
    overseen by the U.S. Trustee Program or the Bankruptcy Administrator
    program,[Footnote 37] and the courts' geographic location. During the
    January 1, 2001, to June 30, 2006, time period, the average quarterly
    filing volume for the nation's 90 district bankruptcy courts was
    385,424. The five districts we selected collectively represented about
    12 percent of those quarterly filings. When determining which districts
    to include in our study, we selected the 2001 to 2006 time period to
    gather sufficient historical filing data to determine the average
    number of filings each district had over time.

    Table 7: Characteristics of Five Selected Bankruptcy Court Districts
    Relied upon When Selecting Districts for Review:

    Bankruptcy district: CA-C;
    Geographic region: West;
    Bankruptcy Administrator or U.S. Trustee: U.S. Trustee;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Average quarterly filings: 17,680;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Percent of national filings: 4.6%;
    Proportion Chapter 7[A] (1-1-01 to 6-30-06): Chapter 7 proportion: 87%.

    Bankruptcy district: TX-N;
    Geographic region: South Central;
    Bankruptcy Administrator or U.S. Trustee: U.S. Trustee;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Average quarterly filings: 7,250;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Percent of national filings: 1.9%;
    Proportion Chapter 7[A] (1-1-01 to 6-30-06): Chapter 7 proportion: 50%.

    Bankruptcy district: AL-N;
    Geographic region: South Atlantic;
    Bankruptcy Administrator or U.S. Trustee: Bankruptcy Administrator;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Average quarterly filings: 6,154;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Percent of national filings: 1.6%;
    Proportion Chapter 7[A] (1-1-01 to 6-30-06): Chapter 7 proportion: 50%.

    Bankruptcy district: WV-S;
    Geographic region: South Central East;
    Bankruptcy Administrator or U.S. Trustee: U.S. Trustee;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Average quarterly filings: 1,648;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Percent of national filings: 0.4%;
    Proportion Chapter 7[A] (1-1-01 to 6-30-06): Chapter 7 proportion: 95%.

    Bankruptcy district: IL-N;
    Geographic region: Midwest;
    Bankruptcy Administrator or U.S. Trustee: U.S. Trustee;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Average quarterly filings: 13,664;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Percent of national filings: 3.6%;
    Proportion Chapter 7[A] (1-1-01 to 6-30-06): Chapter 7 proportion: 73%.

    Bankruptcy district: Total for five selected districts;
    Geographic region: Not applicable;
    Bankruptcy Administrator or U.S. Trustee: Not applicable;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Average quarterly filings: 46,396;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Percent of national filings: 12%;
    Proportion Chapter 7[A] (1-1-01 to 6-30-06): Chapter 7 proportion:
    Not applicable.

    Bankruptcy district: National average;
    Geographic region: Not applicable;
    Bankruptcy Administrator or U.S. Trustee: Not applicable;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Average quarterly filings: 385,424;
    Personal bankruptcy filing volume (quarterly data 1-1-01 to 6-30-06),
    Percent of national filings: 100%;
    Proportion Chapter 7[A] (1-1-01 to 6-30-06): Chapter 7 proportion:
    71%.

    Source: GAO analysis of AOUSC data.

    [A] Proportion of Chapter 7 cases was based on comparing the total
    number of Chapter 7 to Chapter 13 cases. Most individuals file for
    bankruptcy under Chapter 7 or Chapter 13. In Chapter 7, debtors are
    discharged of eligible debts and assets are liquidated (unless
    associated debt is reaffirmed). Chapter 13 allows a debtor to keep
    property and pay debts over time, usually 3 to 5 years.

    [End of table]

    Selection of Cases Reviewed within Five Bankruptcy Court Districts:

    At each of the selected bankruptcy court districts, we obtained a
    universe of all cases with at least one reaffirmation agreement filed
    between October 17, 2005, and October 17, 2006. We chose this time
    period because the Reform Act's effective date for reaffirmation
    agreement requirements was October 17, 2005. We selected stratified
    random probability samples of cases from each bankruptcy court. We
    stratified the sampling universe for each district by case status (open
    versus closed) and by pro se status (i.e., debtors who file for
    bankruptcy without attorney representation). For each selected case, we
    examined every reaffirmation agreement on record. We calculated
    estimates of percentages and means/medians at the reaffirmation
    agreement level using methods appropriate for stratified cluster
    samples. Table 8 provides a description of the sampling universe and
    samples for the five selected districts.

    Table 8: Description of Sampling Universe and Samples for Five Selected
    Districts for Cases Filed from October 17, 2005, through October 17,
    2006:

    TX-N: Stratum: (1) Pro se open cases;
    Universe size: 6;
    Sample size: 6.
    TX-N: Stratum: (2) Pro se closed cases;
    Universe size: 15;
    Sample size: 15.
    TX-N: Stratum: (3) Non-pro se open cases;
    Universe size: 228;
    Sample size: 66.
    TX-N: Stratum: (4) Non-pro se closed cases;
    Universe size: 729;
    Sample size: 83.
    TX-N: Stratum: Total;
    Universe size: 978;
    Sample size: 180.

    IL-N: Stratum: (1) Pro se open cases;
    Universe size: 7;
    Sample size: 7.
    IL-N: Stratum: (2) Pro se closed cases;
    Universe size: 49;
    Sample size: 31.
    IL-N: Stratum: (3) Non-pro se open cases;
    Universe size: 161;
    Sample size: 59.
    IL-N: Stratum: (4) Non-pro se closed cases;
    Universe size: 1,607;
    Sample size: 89.
    IL-N: Stratum: Total;
    Universe size: 1,824;
    Sample size: 186.

    WV-S: Stratum: (1) Pro se open cases;
    Universe size: 4;
    Sample size: 4.
    WV-S: Stratum: (2) Pro se closed cases;
    Universe size: 3;
    Sample size: 3.
    WV-S: Stratum: (3) Non-pro se open cases;
    Universe size: 103;
    Sample size: 49.
    WV-S: Stratum: (4) Non-pro se closed cases;
    Universe size: 84;
    Sample size: 45.
    WV-S: Stratum: Total;
    Universe size: 194;
    Sample size: 101.

    AL-N: Stratum: (1) Pro se open cases;
    Universe size: 4;
    Sample size: 4.
    AL-N: Stratum: (2) Pro se closed cases;
    Universe size: 14;
    Sample size: 14.
    AL-N: Stratum: (3) Non-pro se open cases;
    Universe size: 163;
    Sample size: 60.
    AL-N: Stratum: (4) Non-pro se closed cases;
    Universe size: 1,056;
    Sample size: 87.
    AL-N: Stratum: Total;
    Universe size: 1,237;
    Sample size: 165.

    CA-C: Stratum: (1) Pro se open cases;
    Universe size: 87;
    Sample size: 29.
    CA-C: Stratum: (2) Pro se closed cases;
    Universe size: 111;
    Sample size: 37.
    CA-C: Stratum: (3) Non-pro se open cases;
    Universe size: 156;
    Sample size: 45.
    CA-C: Stratum: (4) Non-pro se closed cases;
    Universe size: 342;
    Sample size: 60.
    CA-C: Stratum: Total;
    Universe size: 696;
    Sample size: 171.

    Source: GAO analysis of information provided by district courts:

    [End of table]

    With these probability samples, each case had a nonzero probability of
    being selected, and that probability could be computed for any case.
    Each selected case was subsequently weighted in the analysis to account
    statistically for all the members of the population, including those
    who were not selected.

    Because we followed a probability procedure based on random selections,
    our sample is only one of a large number of samples that we might have
    drawn. Since each sample could have provided different estimates, we
    express our confidence in the precision of our particular sample's
    results as a 95 percent confidence interval (e.g., plus or minus
    percentage points). This is the interval that would contain the actual
    population value for 95 percent of the samples we could have drawn. As
    a result, we are 95 percent confident that each of the confidence
    intervals in this report will include the true values in the study
    population.

    Estimates from these samples are not generalizable to the population of
    all bankruptcy courts; however, they can be generalized to each of the
    selected bankruptcy court districts and are intended for illustrative
    purposes. All percentage estimates in this report have a margin of
    error of plus or minus 10 percent or less, unless otherwise noted. All
    mean and median estimates have a relative error of 20 percent or less,
    unless otherwise noted. Some percentage estimates we present have a
    margin of error greater than plus or minus 10 percent. This occurred
    for percentage estimates based on a small number of cases in the
    district samples with specific characteristics that were unavailable to
    us prior to sampling. For instance, when we present percentage
    estimates for reaffirmation agreements made with credit unions, which
    we estimate comprises only 6 to 20 percent of all reaffirmation
    agreements across the districts, the small number of agreements made
    with credit unions in the samples results in larger margins of error.
    Some mean and median estimates we present in this report have a great
    deal of variance, resulting in large percentages of relative error. For
    instance, when we discuss the mean and median amount of the debt
    reaffirmed per reaffirmation agreement, individual reaffirmation
    agreement debts range from very low amounts (such as a small
    outstanding balance for an automobile) to much higher amounts (as with
    the outstanding balance for the mortgage on a home), these large
    variations result in larger percentages of relative error.

    [End of section]

    Appendix II: Reaffirmation Agreement Disclosures and Required
    Information; Estimates for Credit Unions:

    This appendix includes two tables. Table 9 presents Bankruptcy Abuse
    Prevention and Consumer Protection Act of 2005 (Reform Act)
    reaffirmation agreement disclosure statements and other required
    information. We included disclosure inclusion information for all
    reaffirmation agreements in the letter portion of this report. Because
    some Reform Act provisions apply only to credit unions, we present data
    solely for credit unions in table 10. Table 10 shows estimated
    percentages for inclusion of disclosure statements and other required
    information for reaffirmation agreements with credit unions, for five
    bankruptcy court districts--Northern Alabama (AL-N), Central California
    (CA-C), Northern Illinois (IL-N), Northern Texas (TX-N), and Southern
    West Virginia (WV-S). As the tables indicate, the Reform Act places
    most information on reaffirmation agreements within five separately
    labeled sections--A through E--each with its own set of disclosure
    statements. Italicized areas in table 9 denote disclosure statements
    that GAO assessed were or were not included in reviewed reaffirmation
    agreements.

    Table 9: Reform Act Reaffirmation Agreement Disclosure Statements and
    Other Required Information:

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: All agreements;
    Disclosure number[a]: 1;
    Reaffirmation agreement disclosures[b]: The statement: �Part A: Before
    agreeing to reaffirm a debt, review these important disclosures:�

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: All agreements;
    Disclosure number[a]: 2;
    Reaffirmation agreement disclosures[b]: Under the heading �Summary of
    Reaffirmation Agreement,� the statement: �This Summary is made pursuant
    to the requirements of the Bankruptcy Code.�

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: All agreements;
    Disclosure number[a]: 3;
    Reaffirmation agreement disclosures[b]: The �Amount Reaffirmed,� using
    that term.

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: All agreements;
    Disclosure number[a]: 4;
    Reaffirmation agreement disclosures[b]: In conjunction with the
    disclosure of the �Amount Reaffirmed,� the statements, �(i) �The amount
    of debt you have agreed to reaffirm�; and �(ii) �Your credit agreement
    may obligate you to pay additional amounts which may come due after the
    date of this disclosure. Consult your credit agreement.��

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: All agreements;
    Disclosure number[a]: 5;
    Reaffirmation agreement disclosures[b]: The �Annual Percentage Rate,�
    using that term.

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: Variable rate transactions;
    Disclosure number[a]: 6;
    Reaffirmation agreement disclosures[b]: If the underlying debt
    transaction was disclosed as a variable rate transaction on the most
    recent disclosure given under the Truth in Lending Act, by stating �The
    interest rate on your loan may be a variable interest rate which
    changes from time to time, so that the annual percentage rate disclosed
    here may be higher or lower.�

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: All agreements (secured assets only);
    Disclosure number[a]: 7;
    Reaffirmation agreement disclosures[b]: (1) asset or type of asset.

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: All agreements (secured assets only);
    Disclosure number[a]: 8;
    Reaffirmation agreement disclosures[b]: (2) original purchase price or
    original amount of loan.

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: Optional for all agreements;
    Disclosure number[a]: 9;
    Reaffirmation agreement disclosures[b]: At the election of the
    creditor, a statement of the repayment schedule using one or a
    combination of the following "(i) by making the statement: �Your first
    payment in the amount of $[Empty] is due on [Empty] but the future payment
    amount may be different. Consult your reaffirmation agreement or credit
    agreement, as applicable.,� and stating the amount of the first payment
    and the due date of that payment in the places provided; "(ii) by
    making the statement: �Your payment schedule will be:,� and describing
    the repayment schedule with the number, amount, and due dates or period
    of payments scheduled to repay the debts reaffirmed to the extent then
    known by the disclosing party; or "(iii) by describing the debtor�s
    repayment obligations with reasonable specificity to the extent then
    known by the disclosing party.�

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: All agreements;
    Disclosure number[a]: 10;
    Reaffirmation agreement disclosures[b]: The following statement: �Note:
    When this disclosure refers to what a creditor �may� do, it does not
    use the word �may� to give the creditor specific permission. The word
    �may� is used to tell you what might occur if the law permits the
    creditor to take the action. If you have questions about your
    reaffirming a debt or what the law requires, consult with the attorney
    who helped you negotiate this agreement reaffirming a debt. If you
    don�t have an attorney helping you, the judge will explain the effect
    of your reaffirming a debt when the hearing on the reaffirmation
    agreement is held.�

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: Non-credit unions only;
    Disclosure number[a]: 11;
    Reaffirmation agreement disclosures[b]: The following additional
    statements: "�Reaffirming a debt is a serious financial decision. The
    law requires you to take certain steps to make sure the decision is in
    your best interest. If these steps are not completed, the reaffirmation
    agreement is not effective, even though you have signed it. �1. Read
    the disclosures in this Part A carefully. Consider the decision to
    reaffirm carefully. Then, if you want to reaffirm, sign the
    reaffirmation agreement in Part B (or you may use a separate agreement
    you and your creditor agree on). �2. Complete and sign Part D and be
    sure you can afford to make the payments you are agreeing to make and
    have received a copy of the disclosure statement and a completed and
    signed reaffirmation agreement. �3. If you were represented by an
    attorney during the negotiation of your reaffirmation agreement, the
    attorney must have signed the certification in Part C. �4. If you were
    not represented by an attorney during the negotiation of your
    reaffirmation agreement, you must have completed and signed Part E. �5.
    The original of this disclosure must be filed with the court by you or
    your creditor. If a separate reaffirmation agreement (other than the
    one in Part B) has been signed, it must be attached. �6. If you were
    represented by an attorney during the negotiation of your reaffirmation
    agreement, your reaffirmation agreement becomes effective upon filing
    with the court unless the reaffirmation is presumed to be an undue
    hardship as explained in Part D. �7. If you were not represented by an
    attorney during the negotiation of your reaffirmation agreement, it
    will not be effective unless the court approves it. The court will
    notify you of the hearing on your reaffirmation agreement. You must
    attend this hearing in bankruptcy court where the judge will review
    your reaffirmation agreement. The bankruptcy court must approve your
    reaffirmation agreement as consistent with your best interests, except
    that no court approval is required if your reaffirmation agreement is
    for a consumer debt secured by a mortgage, deed of trust, security
    deed, or other lien on your real property, like your home. �Your right
    to rescind (cancel) your reaffirmation agreement. You may rescind
    (cancel) your reaffirmation agreement at any time before the bankruptcy
    court enters a discharge order, or before the expiration of the 60-day
    period that begins on the date your reaffirmation agreement is filed
    with the court, whichever occurs later. To rescind (cancel) your
    reaffirmation agreement, you must notify the creditor that your
    reaffirmation agreement is rescinded (or canceled). �What are your
    obligations if you reaffirm the debt? A reaffirmed debt remains your
    personal legal obligation. It is not discharged in your bankruptcy
    case. That means that if you default on your reaffirmed debt after your
    bankruptcy case is over, your creditor may be able to take your
    property or your wages. Otherwise, your obligations will be determined
    by the reaffirmation agreement which may have changed the terms of the
    original agreement. �For example, if you are reaffirming an open end
    credit agreement, the creditor may be permitted by that agreement or
    applicable law to change the terms of that agreement in the future
    under certain conditions. �Are you required to enter into a
    reaffirmation agreement by any law? No, you are not required to
    reaffirm a debt by any law. Only agree to reaffirm a debt if it is in
    your best interest. Be sure you can afford the payments you agree to
    make. �What if your creditor has a security interest or lien? Your
    bankruptcy discharge does not eliminate any lien on your property. �A
    ��lien�� is often referred to as a security interest, deed of trust,
    mortgage or security deed. Even if you do not reaffirm and your
    personal liability on the debt is discharged, because of the lien your
    creditor may still have the right to take the security property if you
    do not pay the debt or default on it. If the lien is on an item of
    personal property that is exempt under your State�s law or that the
    trustee has abandoned, you may be able to redeem the item rather than
    reaffirm the debt. To redeem, you make a single payment to the creditor
    equal to the current value of the security property, as agreed by the
    parties or determined by the court.��

    Reform Act reaffirmation agreement section: Part A;
    Requirement applicability: Credit Unions Only;
    Disclosure number[a]: 12;
    Reaffirmation agreement disclosures[b]: If creditor is a credit union,
    the entire above disclosure (#11) should be included except that item 6
    should read as follows: "6. If you were represented by an attorney
    during the negotiation of your reaffirmation agreement, your
    reaffirmation agreement becomes effective upon filing with the court."

    Reform Act reaffirmation agreement section: Part B;
    Requirement applicability: All agreements;
    Disclosure number[a]: 13;
    Reaffirmation agreement disclosures[b]: "'Part B: Reaffirmation
    Agreement. I (we) agree to reaffirm the debts arising under the credit
    agreement described below. �Brief description of credit agreement:
    �Description of any changes to the credit agreement made as part of
    this reaffirmation agreement: �Signature:
    Date:
    �Borrower:
    �Co-borrower, if also reaffirming these debts:
    �Accepted by creditor:
    �Date of creditor acceptance:�

    Reform Act reaffirmation agreement section: Part C;
    Requirement applicability: Attorney-signed agreements only;
    Disclosure number[a]: 14;
    Reaffirmation agreement disclosures[b]: "'Part C: Certification by
    Debtor�s Attorney (If Any).
    �I hereby certify that (1) this agreement represents a fully informed
    and voluntary agreement by the debtor; (2) this agreement does not
    impose an undue hardship on the debtor or any dependent of the debtor;
    and (3) I have fully advised the debtor of the legal effect and
    consequences of this agreement and any default under this agreement.
    �Signature of Debtor�s Attorney: Date:�

    Reform Act reaffirmation agreement section: Part C;
    Requirement applicability: Attorney-signed agreements only;
    non-credit unions only;
    Disclosure number[a]: 15;
    Reaffirmation agreement disclosures[b]: If a presumption of undue
    hardship has been established with respect to such agreement, such
    certification shall state that in the opinion of the attorney, the
    debtor is able to make the payment.

    Reform Act reaffirmation agreement section: Part D;
    Requirement applicability: Credit Unions;
    Disclosure number[a]: 16;
    Reaffirmation agreement disclosures[b]: "I believe this reaffirmation
    agreement is in my financial interest. I can afford to make the
    payments on the reaffirmed debt. I received a copy of the Reaffirmation
    Disclosure Statement in Part A and a completed and signed reaffirmation
    agreement."

    Reform Act reaffirmation agreement section: Part D;
    Requirement applicability: Non-Credit unions (unless credit union
    agreement is not signed by a debtor attorney);
    Disclosure number[a]: 17;
    Reaffirmation agreement disclosures[b]: "'Part D: Debtor�s Statement in
    Support of Reaffirmation Agreement.
    �1. I believe this reaffirmation agreement will not impose an undue
    hardship on my dependents or me. I can afford to make the payments on the
    reaffirmed debt because my monthly income (take home pay plus any other income
    received) is $[Empty], and my actual current monthly expenses including monthly
    payments on post-bankruptcy debt and other reaffirmation agreements total
    $[Empty], leaving $[Empty] to make the required payments on this
    reaffirmed debt. I understand that if my income less my monthly
    expenses does not leave enough to make the payments, this reaffirmation
    agreement is presumed to be an undue hardship on me and must be
    reviewed by the court. However, this presumption may be overcome if I
    explain to the satisfaction of the court how I can afford to make the
    payments here:[Empty].
    �2. I received a copy of the Reaffirmation Disclosure Statement in
    Part A and a completed and signed reaffirmation agreement.�

    Reform Act reaffirmation agreement section: Part E;
    Requirement applicability: Agreements not signed by attorneys;
    Disclosure number[a]: 18;
    Reaffirmation agreement disclosures[b]: "'Part E: Motion for Court
    Approval (To be completed only if the debtor is not represented by an
    attorney.) I (we), the debtor(s), affirm the following to be true and
    correct:
    �I am not represented by an attorney in connection with this
    reaffirmation agreement.
    �I believe this reaffirmation agreement is in my best interest based on
    the income and expenses I have disclosed in my Statement in Support of
    this reaffirmation agreement, and because (provide any additional relevant
    reasons the court should consider):
    �Therefore, I ask the court for an order approving this reaffirmation
    agreement.�

    Source: GAO analysis of the Reform Act.

    [A] Each reaffirmation agreement section corresponds with specific
    disclosure statements required by the Reform Act. While the Reform Act
    includes the identification of Parts A through E, GAO independently
    numbered the corresponding disclosure statements.

    [B] Shaded area denotes disclosure statements that GAO determined were
    or were not included in reviewed reaffirmation agreements.

    [End of table]

    Table 10 lists disclosure information for reaffirmation agreements with
    credit unions. The percentage estimates can be generalized to all
    reaffirmation agreements with credit unions in cases filed in the five
    districts between October 17, 2005, and October 17, 2006. Unless
    otherwise noted, our percentage estimates in table 10 fall within a
    margin of error of plus or minus 20 percent or less.

    Table 10: Estimated Percentage of Reaffirmation Agreements with Credit
    Unions That Included Disclosure Statements and Required Information for
    Five Selected Bankruptcy Court Districts:

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 1;
    AL-N: 80;
    CA-C: 96;
    IL-N: 98;
    TX-N: 89;
    WV-S: 61.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 2;
    AL-N: 80;
    CA-C: 96;
    IL-N: 98;
    TX-N: 89;
    WV-S: 61.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 3;
    AL-N: 90;
    CA-C: 96;
    IL-N: 98;
    TX-N: 90;
    WV-S: 61.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 4;
    AL-N: 80;
    CA-C: 96;
    IL-N: 98;
    TX-N: 83;
    WV-S: 61.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 5;
    AL-N: 86;
    CA-C: 96;
    IL-N: 98;
    TX-N: 89;
    WV-S: 58.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 6;
    AL-N: [B];
    CA-C: [B];
    IL-N: [B];
    TX-N: [B];
    WV-S: [B].

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 7;
    AL-N: 99;
    CA-C: 97;
    IL-N: 97;
    TX-N: 94;
    WV-S: 65.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 8;
    AL-N: 74;
    CA-C: 97;
    IL-N: 97;
    TX-N: 83;
    WV-S: 62.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 9;
    AL-N: 87;
    CA-C: 100;
    IL-N: 97;
    TX-N: 93;
    WV-S: 100.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 10;
    AL-N: 80;
    CA-C: 96;
    IL-N: 96;
    TX-N: 83;
    WV-S: 57.

    Reaffirmation Agreement Section: Part A:
    Disclosure number[A]: 12;
    AL-N: 80;
    CA-C: 96;
    IL-N: 96;
    TX-N: 82;
    WV-S: 61.

    Reaffirmation Agreement Section: Part B:
    Disclosure number[A]: 13;
    AL-N: 80;
    CA-C: 96;
    IL-N: 98;
    TX-N: 83;
    WV-S: 61.

    Reaffirmation Agreement Section: Part C:
    Disclosure number[A]: 14;
    AL-N: 100;
    CA-C: 100;
    IL-N: [B];
    TX-N: 97;
    WV-S: 89.

    Reaffirmation Agreement Section: Part D:
    Disclosure number[A]: 16;
    AL-N: 77;
    CA-C: 93;
    IL-N: [B];
    TX-N: 65;
    WV-S: 54.

    Reaffirmation Agreement Section: Part E:
    Disclosure number[A]: 18;
    AL-N: [B];
    CA-C: [B];
    IL-N: [B];
    TX-N: [B];
    WV-S: [B].

    Source: GAO analysis of bankruptcy file reviews.

    [A] The disclosure numbers correspond to those listed in table 9,
    although only disclosure numbers that apply to credit unions are listed
    in table 10.

    [B] Because of the low numbers of reaffirmation agreements with these
    characteristics, we are not able to generate reliable estimates for
    these reaffirmation agreement sections.

    [End of table]

    [End of section]

    Appendix III: Federal Judiciary Reaffirmation Agreement Form, January
    2007:

    Form 240A - Reaffirmation Agreement (1/07):

    Presumption of Undue Hardship: No Presumption of Undue Hardship: (Check
    box as directed in Part D: Debtor's Statement in Support of
    Reaffirmation Agreement.)

    United States Bankruptcy Court: District of:
    In re: [Empty] (Debtor)
    Case No.:
    Chapter:

    Reaffirmation Agreement:
    [Indicate all documents included in this filing by checking each
    applicable box.]

    Part A: Disclosures, Instructions, and Notice to Debtor (pages 1 - 5):
    Part B: Reaffirmation Agreement:
    Part C: Certification by Debtor's Attorney:
    Part D: Debtor's Statement in Support of Reaffirmation Agreement:
    Part E: Motion for Court Approval:

    [Note: Complete Part E only if debtor was not represented by an
    attorney during the course of negotiating this agreement. Note also: If
    you complete Part E, you must prepare and file Form 240B - Order on
    Reaffirmation Agreement.]

    Name of Creditor:

    [Check this box if] Creditor is a Credit Union as defined in �
    9(b)(1)(a)(iv) of the Federal Reserve Act.

    Part A: Disclosure Statement, Instructions And Notice To Debtor

    1. Disclosure Statement:
    Before Agreeing to Reaffirm a Debt, Review These Important Disclosures:

    Summary Of Reaffirmation Agreement: This Summary is made pursuant to
    the requirements of the Bankruptcy Code.

    Amount Reaffirmed:

    The amount of debt you have agreed to reaffirm:	$[Empty];

    The amount of debt you have agreed to reaffirm includes all fees and
    costs Of any) that have accrued as of the date of this disclosure. Your
    credit agreement may obligate you to pay additional amounts which may
    come due after the date of this disclosure. Consult your credit
    agreement.

    2. Annual Percentage Rate:

    [The annual percentage rate can be disclosed in different ways,
    depending on the type of debt.]

    a. If the debt is an extension of "credit" under an "open end credit
    plan," as those terms are defined in � 103 of the Truth in Lending Act,
    such as a credit card, the creditor may disclose the annual percentage
    rate shown in (i) below or, to the extent this rate is not readily
    available or not applicable, the simple interest rate shown in (ii)
    below, or both.

    (i) The Annual Percentage Rate disclosed, or that would have been
    disclosed, to the debtor in the most recent periodic statement prior to
    entering into the reaffirmation agreement described in Part B below or,
    if no such periodic statement was given to the debtor during the prior
    six months, the annual percentage rate as it would have been so
    disclosed at the time of the disclosure statement:

    (ii) The simple interest rate applicable to the amount reaffirmed as of
    the date this disclosure statement is given to the debtor:	%. If
    different simple interest rates apply to different balances included in
    the amount reaffirmed, the amount of each balance and the rate
    applicable to it are:

    b. If the debt is an extension of credit other than under than an open
    end credit plan, the creditor may disclose the annual percentage rate
    shown in (I) below, or, to the extent this rate is not readily
    available or not applicable, the simple interest rate shown in (ii)
    below, or both.

    (i) The Annual Percentage Rate under �128(a)(4) of the Truth in Lending
    Act, as disclosed to the debtor in the most recent disclosure statement
    given to the debtor prior to entering into the reaffirmation agreement
    with respect to the debt or, if no such disclosure statement was given
    to the debtor, the annual percentage rate as it would have been so
    disclosed:

    (ii) The simple interest rate applicable to the amount reaffirmed as of
    the date this disclosure statement is given to the debtor:	%. If
    different simple interest rates apply to different balances included in
    the amount reaffirmed, the amount of each balance and the rate
    applicable to it are:

    $[Empty] @ [Empty]%;
    $[Empty] @ [Empty]%;
    $[Empty] @ [Empty]%.

    c. If the underlying debt transaction was disclosed as a variable rate
    transaction on the most recent disclosure given under the Truth in
    Lending Act:

    The interest rate on your loan may be a variable interest rate which
    changes from time to time, so that the annual percentage rate disclosed
    here may be higher or lower.

    d. If the reaffirmed debt is secured by a security interest or lien,
    which has not been waived or determined to be void by a final order of
    the court, the following items or types of items of the debtor's goods
    or property remain subject to such security interest or lien in
    connection with the debt or debts being reaffirmed in the reaffirmation
    agreement described in Part B.

    Item or Type of Item:
    Original Purchase Price or Original Amount of Loan:

    Optional---At the election of the creditor, a repayment schedule using
    one or a combination of the following may be provided:

    Repayment Schedule:

    Your first payment in the amount of $[Empty] is due on [Empty] (date),
    but the future payment amount may be different. Consult your
    reaffirmation agreement or credit agreement, as applicable.

    Or:

    Your payment schedule will be: [Empty] (number) payments in the amount
    of $[Empty] each, payable (monthly, annually, weekly, etc.) on the
    [Empty] (day) of each [Empty] (week, month, etc.), unless altered later
    by mutual agreement in writing.

    Or:

    A reasonably specific description of the debtor's repayment obligations
    to the extent known by the creditor or creditor's representative.

    2. Instructions And Notice To Debtor:

    Reaffirming a debt is a serious financial decision. The law requires
    you to take certain steps to make sure the decision is in your best
    Interest. If these steps are not completed, the reaffirmation agreement
    is not effective, even though you have signed it.

    1. Read the disclosures in this Part A carefully. Consider the decision
    to reaffirm carefully. Then, if you want to reaffirm, sign the
    reaffirmation agreement in Part B (or you may use a separate agreement
    you and your creditor agree on).

    2. Complete and sign Part D and be sure you can afford to make the
    payments you are agreeing to make and have received a copy of the
    disclosure statement and a completed and signed reaffirmation agreement.

    3. If you were represented by an attorney during the negotiation of
    your reaffirmation agreement, the attorney must have signed the
    certification in Part C.

    4. If you were not represented by an attorney during the negotiation of
    your reaffirmation agreement, you must have completed and signed Part E.

    5. The original of this disclosure must be filed with the court by you
    or your creditor. If a separate reaffirmation agreement (other than the
    one in Part B) has been signed, it must be attached.

    6. If the creditor is not a Credit Union and you were represented by an
    attorney during the negotiation of your reaffirmation agreement, your
    reaffirmation agreement becomes effective upon filing with the court
    unless the reaffirmation is presumed to be an undue hardship as
    explained in Part D. If the creditor is a Credit Union and you were
    represented by an attorney during the negotiation of your reaffirmation
    agreement, your reaffirmation agreement becomes effective upon filing
    with the court.

    7. If you were not represented by an attorney during the negotiation of
    your reaffirmation agreement, it will not be effective unless the court
    approves it. The court will notify you and the creditor of the hearing
    on your reaffirmation agreement. You must attend this hearing in
    bankruptcy court where the judge will review your reaffirmation
    agreement. The bankruptcy court must approve your reaffirmation
    agreement as consistent with your best interests, except that no court
    approval is required if your reaffirmation agreement is for a consumer
    debt secured by a mortgage, deed of trust, security deed, or other lien
    on your real property, like your home.

    Your Right To Rescind (Cancel) Your Reaffirmation Agreement:

    You may rescind (cancel) your reaffirmation agreement at any time
    before the bankruptcy court enters a discharge order, or before the
    expiration of the 60-day period that begins on the date your
    reaffirmation agreement is filed with the court, whichever occurs
    later. To rescind (cancel) your reaffirmation agreement, you must
    notify the creditor that your reaffirmation agreement is rescinded (or
    canceled).

    Frequently Asked Questions:

    What are your obligations if you reaffirm the debt? A reaffirmed debt
    remains your personal legal obligation. It is not discharged in your
    bankruptcy case. That means that if you default on your reaffirmed debt
    after your bankruptcy case is over, your creditor may be able to take
    your property or your wages. Otherwise, your obligations will be
    determined by the reaffirmation agreement which may have changed the
    terms of the original agreement. For example, if you are reaffirming an
    open end credit agreement, the creditor may be permitted by that
    agreement or applicable law to change the terms of that agreement in
    the future under certain conditions.

    Are you required to enter into a reaffirmation agreement by any law?
    No, you are not required to reaffirm a debt by any law. Only agree to
    reaffirm a debt if it is in your best interest. Be sure you can afford
    the payments you agree to make.

    What if your creditor has a security interest or lien? Your bankruptcy
    discharge does not eliminate any lien on your property. A "lien" is
    often referred to as a security interest, deed of trust, mortgage or
    security deed. Even if you do not reaffirm and your personal liability
    on the debt is discharged, because of the lien your creditor may still
    have the right to take the security property if you do not pay the debt
    or default on it. If the lien is on an item of personal property that
    is exempt under your State's law or that the trustee has abandoned, you
    may be able to redeem the item rather than reaffirm the debt. To
    redeem, you make a single payment to the creditor equal to the current
    value of the security property, as agreed by the parties or determined
    by the court.

    Note: When this disclosure refers to what a creditor "may" do, it does
    not use the word "may" to give the creditor specific permission. The
    word "may" is used to tell you what might occur if the law permits the
    creditor to take the action. If you have questions about your
    reaffirming a debt or what the law requires, consult with the attorney
    who helped you negotiate this agreement reaffirming a debt. If you
    don't have an attorney helping you, the judge will explain the effect
    of your reaffirming a debt when the hearing on the reaffirmation
    agreement is held.

    Part B: Reaffirmation Agreement:

    I (we) agree to reaffirm the debts arising under the credit agreement
    described below.

    1. Brief description of credit agreement:

    2. Description of any changes to the credit agreement made as part of
    this reaffirmation agreement:

    Signature(s):
    Borrower: (Print Name):
    Signature:
    Date:
    Co-borrower, if also reaffirming these debts: (Print Name):
    Signature:
    Date:

    Accepted by creditor: (Printed Name of Creditor):
    Address of Creditor:
    Signature:
    Printed Name and Title of Individual Signing for Creditor:
    Date of creditor acceptance:

    Part C: Certification By Debtor's Attorney (If Any):

    [To be filed only if the attorney represented the debtor during the
    course of negotiating this agreement]

    I hereby certify that (1) this agreement represents a fully informed
    and voluntary agreement by the debtor; (2) this agreement does not
    impose an undue hardship on the debtor or any dependent of the debtor;
    and (3) I have fully advised the debtor of the legal effect and
    consequences of this agreement and any default under this agreement.

    [Check box, if applicable and the creditor is not a Credit Union.] A
    presumption of undue hardship has been established with respect to this
    agreement. In my opinion, however, the debtor is able to make the
    required payment.

    Printed Name of Debtor's Attorney:

    Signature of Debtor's Attorney:

    Date:

    Part D: Debtor's Statement In Support Of Reaffirmation Agreement:

    [Read and complete sections 1 and 2, OR, if the creditor is a Credit
    Union and the debtor is represented by an attorney, read section 3.
    Sign the appropriate signature line(s) and date your signature. If you
    complete sections 1 and 2 and your income less monthly expenses does
    not leave enough to make the payments under this reaffirmation
    agreement, check the box at the top of page 1 indicating "Presumption
    of Undue Hardship." Otherwise, check the box at the top of page 1
    indicating "No Presumption of Undue Hardship']

    1. I believe this reaffirmation agreement will not impose an undue
    hardship on my dependents or me. I can afford to make the payments on
    the reaffirmed debt because my monthly income (take home pay plus any
    other income received) is $[Empty], and my actual current monthly
    expenses including monthly payments on post-bankruptcy debt and other
    reaffirmation agreements total $[Empty], leaving $[Empty] to make the
    required payments on this reaffirmed debt.

    I understand that if my income less my monthly expenses does not leave
    enough to make the payments, this reaffirmation agreement is presumed
    to be an undue hardship on me and must be reviewed by the court.
    However, this presumption may be overcome if I explain to the
    satisfaction of the court how I can afford to make the payments
    here: (Use an additional page if needed for a full explanation.)

    2. I received a copy of the Reaffirmation Disclosure Statement in Part
    A and a completed and signed reaffirmation agreement.
    Signed:
    (Debtor):
    (Joint Debtor, if any):
    Date:

    Or:
    [If the creditor is a Credit Union and the debtor is represented by an
    attorney]

    3. I believe this reaffirmation agreement is in my financial interest.
    I can afford to make the payments on the reaffirmed debt. I received a
    copy of the Reaffirmation Disclosure Statement in Part A and a
    completed and signed reaffirmation agreement.
    Signed:	(Debtor):
    (Joint Debtor, if any):
    Date:

    Part E: Motion For Court Approval:

    [To he completed and filed only if the debtor is not represented by an
    attorney during the course of negotiating this agreement.]

    Motion For Court Approval Of Reaffirmation Agreement:

    I (we), the debtor(s), affirm the following to be true and correct:

    I am not represented by an attorney in connection with this
    reaffirmation agreement.

    I believe this reaffirmation agreement is in my best interest based on
    the income and expenses I have disclosed in my Statement in Support of
    this reaffirmation agreement, and because (provide any additional
    relevant reasons the court should consider):

    Therefore, I ask the court for an order approving this reaffirmation
    agreement under the following provisions (check all applicable boxes):

    11 U.S.C. � 524(c)(6) (debtor is not represented by an attorney during
    the course of the negotiation of the reaffirmation agreement):

    11 U.S.C. � 524(m) (presumption of undue hardship has arisen because
    monthly expenses exceed monthly income):

    Signed:	(Debtor):
    (Joint Debtor, if any):
    Date:

    Source: Administrative Office of the U.S. Courts.

    [End of section]

    Appendix IV: Additional Estimates on Cases and Reaffirmation Agreements
    Filed in Five Bankruptcy Court Districts:

    As part of our review, we collected information not reported in the
    body of this letter that provides context about the extent to which
    reaffirmations are included in Chapter 7 cases, the financial
    circumstances of debtors, and content of reaffirmation agreements. For
    example, we collected information at the case-level about the debtor's
    assets, liabilities, income, and expenses reported on the petition
    filed with the court and whether the court waived the requirement for
    the filer to pay filing fees. We also collected additional data about
    the reaffirmation agreements that included whether or not (1) the
    agreement was with a credit union, (2) a debtor attorneys signed the
    agreement, (3) the court approved or disapproved the agreement, (4) the
    agreement was rescinded, and (5) the agreement was filed after a case
    was closed. The following figures and tables provide estimates for the
    additional information. Unless otherwise noted, our percentage
    estimates in this appendix fall within a margin of error of plus or
    minus 10 percent or less, and our mean and median estimates fall within
    a relative error of 20 percent or less. In addition, for some items we
    are able to provide estimates for means but not medians, or vice versa.
    This is because the estimates of means and medians can be different in
    terms of their distributions and so can the variances of the estimates.
    Two of the factors that control the sampling error of an estimate are
    sample size and the estimated variation of the parameter we are
    estimating (mean and median). The difference between the sampling error
    of the means and medians is most likely due to the estimated variance
    of the parameters. Also, our samples were not designed to generate
    precise estimates of means or medians, so the results (in terms of
    sampling error) are sensitive to relatively small differences in
    distributions.

    Case-Level Information:

    Figure 6: Estimated Percentage of Chapter 7 Cases with at Least One
    Reaffirmation Agreement in the Five Bankruptcy Court Districts (October
    17, 2005, through October 17, 2006):

    [See PDF for image]

    This figure is a vertical bar graph depicting the Estimated Percentage
    of Chapter 7 Cases with at Least One Reaffirmation Agreement in the
    Five Bankruptcy Court Districts (October 17, 2005, through October 17,
    2006). The vertical axis of the graph represents percent from 0 to 30.
    The horizontal axis of the graph represents the five bankruptcy court
    districts. The following data is depicted:

    Bankruptcy Court District: AL-N;
    Estimated Percentage of Chapter 7 Cases with at Least One
    Reaffirmation Agreement: 25%.

    Bankruptcy Court District: CA-C;
    Estimated Percentage of Chapter 7 Cases with at Least One
    Reaffirmation Agreement: 5%.

    Bankruptcy Court District: IL-N;
    Estimated Percentage of Chapter 7 Cases with at Least One
    Reaffirmation Agreement: 16%.

    Bankruptcy Court District: TX-N;
    Estimated Percentage of Chapter 7 Cases with at Least One
    Reaffirmation Agreement: 18%.

    Bankruptcy Court District: WV-S;
    Estimated Percentage of Chapter 7 Cases with at Least One
    Reaffirmation Agreement: 12%.

    Source: GAO analysis of bankruptcy file reviews and AOUSC data.

    [End of figure]

    Table 11: Estimated Mean and Median Dollar Amounts for Debtor Assets,
    Liabilities, Income, and Expenses in Case Petitions That Included
    Reaffirmation Agreements in Five Bankruptcy Court Districts (October
    17, 2005, through October 17, 2006):

    Item in petition: Total assets;
    AL-N Mean: $78,000;
    AL-N Median: $57,000[A];
    CA-C Mean: $108,000[A];
    CA-C Median: $24,000;
    IL-N Mean: $115,000;
    IL-N Median: [E];
    TX-N Mean: $137,000;
    TX-N Median: $113,000;
    WV-S Mean: $81,000;
    WV-S Median: $80,000.

    Item in petition: Total liabilities;
    AL-N Mean: 149,000[A];
    AL-N Median: 93,000;
    CA-C Mean: 161,000[A];
    CA-C Median: 68,000;
    IL-N Mean: 180,000[A];
    IL-N Median: [E];
    TX-N Mean: 189,000;
    TX-N Median: 139,000;
    WV-S Mean: 120,000;
    WV-S Median: 99,000.

    Item in petition: Total secured claims [B];
    AL-N Mean: 75,000;
    AL-N Median: [E];
    CA-C Mean: 85,000[A];
    CA-C Median: 16,000[A];
    IL-N Mean: 108,000[A];
    IL-N Median: [E];
    TX-N Mean: 116,000[A];
    TX-N Median: 76,000[A];
    WV-S Mean: 71,000;
    WV-S Median: 57,000.

    Item in petition: Total unsecured priority claims [C];
    AL-N Mean: [E];
    AL-N Median: [E];
    CA-C Mean: [E];
    CA-C Median: [E];
    IL-N Mean: [E];
    IL-N Median: [E];
    TX-N Mean: [E];
    TX-N Median: [E];
    WV-S Mean: [E];
    WV-S Median:[E].

    Item in petition: Total unsecured nonpriority claims [D];
    AL-N Mean: [E];
    AL-N Median: 32,000[A];
    CA-C Mean: 75,000[A];
    CA-C Median: 41,000;
    IL-N Mean: 75,000[A];
    IL-N Median: 38,000;
    TX-N Mean: 76,000;
    TX-N Median: 50,000;
    WV-S Mean: 49,000;
    WV-S Median: 39,000.

    Item in petition: Monthly income;
    AL-N Mean: 2,200;
    AL-N Median: 2,000;
    CA-C Mean: 2,800;
    CA-C Median: 2,600;
    IL-N Mean: 2,700;
    IL-N Median: 2,700;
    TX-N Mean: 3,100;
    TX-N Median: 2,800;
    WV-S Mean: 2,800[A];
    WV-S Median: 2,300.

    Item in petition: Monthly expenses;
    AL-N Mean: 2,500;
    AL-N Median: 2,300;
    CA-C Mean: 3,200;
    CA-C Median: 2,900;
    IL-N Mean: 2,700;
    IL-N Median: 2,700;
    TX-N Mean: 3,600;
    TX-N Median: 3,000;
    WV-S Mean: 2,700;
    WV-S Median: 2,500.

    Source: GAO analysis of bankruptcy file reviews.

    [A] The relative errors for these estimates are greater than plus or
    minus 20 percent, but less than plus or minus 30 percent.

    [B] Secured claims are those for which the creditor has a lien and can
    seek to foreclose on or repossess if the debtor does not pay the
    underlying debt.

    [C] Unsecured priority claims are debts that the creditor has no right
    to collect against any particular property and have been granted
    special status by the bankruptcy law such as taxes and the cost of
    bankruptcy proceedings.

    [D] Unsecured nonpriority claims are debts that the creditor has no
    right to collect against any particular property and have been not
    granted special status by the bankruptcy law.

    [E] Because of the low numbers of reaffirmation agreements with these
    characteristics, we are not able to generate reliable mean or median
    estimates for these items in the petition.

    [End of table]

    Figure 7: Estimated Average Number of Days from Date when Petition was
    Filed to Date Case was Closed (October 17, 2005, through October 17,
    2006):

    [See PDF for image]

    This figure is a vertical bar graph depicting the estimated average
    number of days from date when petition was filed to date case was
    closed (October 17, 2005, through October 17, 2006). The vertical axis
    of the graph represents number of days from 0 to 250. The horizontal
    axis of the graph represents the five bankruptcy court district. The
    following data is depicted:

    Source: GAO analysis of bankruptcy file reviews.

    [End of figure]

    Reaffirmation-level Information:

    Table 12: Estimated Percentages for Certain Characteristics in
    Reaffirmation Agreements Filed in Five Bankruptcy Court Districts
    (October 17, 2005, through October 17, 2006):

    Description of reaffirmation agreement characteristics: Reaffirmation
    agreements that included a debtor attorney's signature;
    AL-N: 94;
    CA-C: 90;
    IL-N: 97;
    TX-N: 97;
    WV-S: 94.

    Description of reaffirmation agreement characteristics: Reaffirmation
    agreements that that did not include a debtor attorney's signature;
    AL-N: 6;
    CA-C: 10;
    IL-N: 3;
    TX-N: 3;
    WV-S: 6.

    Description of reaffirmation agreement characteristics: Reaffirmations
    whereby court documentation indicated approval of the reaffirmation;
    AL-N: 3;
    CA-C: 6;
    IL-N: 17;
    TX-N: 6;
    WV-S: 40.

    Description of reaffirmation agreement characteristics: Reaffirmations
    whereby court documentation indicated disapproval of the reaffirmation;
    AL-N: 1;
    CA-C: 6;
    IL-N: 2;
    TX-N: 0;
    WV-S: 6.

    Description of reaffirmation agreement characteristics: Reaffirmations
    with indication in the court records that the agreement was rescinded;
    AL-N: 1;
    CA-C: 1;
    IL-N: 3;
    TX-N: 4;
    WV-S: 4.

    Description of reaffirmation agreement characteristics: Reaffirmations
    with no indication in the court records that the agreement was
    rescinded;
    AL-N: 99;
    CA-C: 99;
    IL-N: 97;
    TX-N: 96;
    WV-S: 96.

    Description of reaffirmation agreement characteristics: Reaffirmations
    where creditor was credit union;
    AL-N: 20;
    CA-C: 17;
    IL-N: 6;
    TX-N: 16;
    WV-S: 18.

    Description of reaffirmation agreement characteristics: Reaffirmations
    where creditor was not a credit union;
    AL-N: 80;
    CA-C: 83;
    IL-N: 94;
    TX-N: 84;
    WV-S: 82.

    Description of reaffirmation agreement characteristics: Reaffirmation
    agreements filed after case closed;
    AL-N: 3;
    CA-C: 1;
    IL-N: 2;
    TX-N: 1;
    WV-S: 0.

    Source: GAO analysis of bankruptcy file reviews.

    Note: Totals may not add to 100 percent due to rounding.

    [End of table]

    Table 13: Estimated Dollar Amounts for Debtor Monthly Income and
    Expenses Based on Information from Reaffirmation Agreements in Five
    Bankruptcy Court Districts (October 17, 2005, through October 17, 2006):

    Item in petition: Monthly income;
    AL-N Mean: 2,600;
    AL-N Median: 2,500;
    CA-C Mean: 3,000;
    CA-C Median: 2,800;
    IL-N Mean: 3,000;
    IL-N Median: 3,000;
    TX-N Mean: 3,900[A];
    TX-N Median: 3,400;
    WV-S Mean: 2,500;
    WV-S Median: 2,500.

    Item in petition: Monthly expenses;
    AL-N Mean: 2,100;
    AL-N Median: 2,000[A];
    CA-C Mean: 2,800;
    CA-C Median: 2,500;
    IL-N Mean: 2,600;
    IL-N Median: 2,500;
    TX-N Mean: 3,500[A];
    TX-N Median: 2,900;
    WV-S Mean: 2,300;
    WV-S Median: 2,300.

    Item in petition: Net income;
    AL-N Mean: 560[A];
    AL-N Median: 450[A];
    CA-C Mean: 430[A];
    CA-C Median: 380;
    IL-N Mean: 470[A];
    IL-N Median: 360[A];
    TX-N Mean: 520;
    TX-N Median: 430;
    WV-S Mean: 360[A];
    WV-S Median: 360[A].

    Source: GAO analysis of bankruptcy file reviews.

    [A] The relative errors for these estimates are greater than plus or
    minus 20 percent but less than plus or minus 30 percent.

    [End of table]

    Table 14: Total Dollar Amount of Debt Reaffirmed Per Agreement in Five
    Bankruptcy Court Districts (October 17, 2005, through October 17, 2006):

    Item in petition: Auto;
    AL-N Mean: 11,000;
    AL-N Median: 9,000[A];
    CA-C Mean: 13,000;
    CA-C Median: 11,000;
    IL-N Mean: 11,000;
    IL-N Median: 9,000[A];
    TX-N Mean: 15,000;
    TX-N Median: 13,000;
    WV-S Mean: 10,000;
    WV-S Median: 9,000[A].

    Item in petition: House;
    AL-N Mean: 60,000[A];
    AL-N Median: [B];
    CA-C Mean: [B];
    CA-C Median: [B];
    IL-N Mean: 82,000[A];
    IL-N Median: [B];
    TX-N Mean: 63,000[A];
    TX-N Median: [B];
    WV-S Mean: 59,000;
    WV-S Median: [B].

    Item in petition: Mobile Home;
    AL-N Mean: 44,000[A];
    AL-N Median: [B];
    CA-C Mean: [B];
    CA-C Median: [B];
    IL-N Mean: [B];
    IL-N Median: [B];
    TX-N Mean: 26,000;
    TX-N Median: [B];
    WV-S Mean: 38,000;
    WV-S Median: [B].

    Item in petition: Boat;
    AL-N Mean: [B];
    AL-N Median: [B];
    CA-C Mean: [B];
    CA-C Median: [B];
    IL-N Mean: [B];
    IL-N Median: [B];
    TX-N Mean: [B];
    TX-N Median: [B];
    WV-S Mean: [B];
    WV-S Median: [B].

    Item in petition: Household Good;
    AL-N Mean: 1,100[A];
    AL-N Median: [B];
    CA-C Mean: [B];
    CA-C Median: [B];
    IL-N Mean: [B];
    IL-N Median: [B];
    TX-N Mean: [B];
    TX-N Median: [B];
    WV-S Mean: [B];
    WV-S Median: [B].

    Item in petition: Other;
    AL-N Mean: [B];
    AL-N Median: [B];
    CA-C Mean: [B];
    CA-C Median: [B];
    IL-N Mean: [B];
    IL-N Median: [B];
    TX-N Mean: [B];
    TX-N Median: [B];
    WV-S Mean: [B];
    WV-S Median: [B].

    Item in petition: All items;
    AL-N Mean: 22,000[A[;
    AL-N Median: 10,000[A];
    CA-C Mean: 12,000;
    CA-C Median: 10,000;
    IL-N Mean: 30,000[A];
    IL-N Median: 11,000[A];
    TX-N Mean: 24,000;
    TX-N Median: 15,000;
    WV-S Mean: 18,000;
    WV-S Median: 10,000[A].

    Source: GAO analysis of bankruptcy file reviews.

    [A] The relative errors for these estimates are greater than plus or
    minus 20 percent but less than plus or minus 30 percent.

    [B] Because of the low numbers of reaffirmation agreements with these
    characteristics, we are not able to generate reliable mean or median
    estimates for these items.

    [End of table]

    Table 15: Estimated Average and Median Dollar Amount of Debt Reaffirmed
    per Reaffirmation Agreement and Average and Median Original Debt Amount
    or Original Purchase Price:

    Description of dollar amount: Average amount of debt reaffirmed per
    reaffirmation agreement;
    AL-N: $22,000[A];
    CA-C: $12,000;
    IL-N: $30,000[B];
    TX-N: $24,000;
    WV-S: $18,000.

    Description of dollar amount: Average original debt amount or original
    purchase price;
    AL-N: 31,000[A];
    CA-C: 19,000;
    IL-N: 34,000[B];
    TX-N: 30,000;
    WV-S: 23,000.

    Description of dollar amount: Median amount of debt reaffirmed per
    reaffirmation agreement;
    AL-N: 10,000[C];
    CA-C: 10,000;
    IL-N: 11,000[D];
    TX-N: 15,000;
    WV-S: 10,000[E].

    Description of dollar amount: Median original debt amount or original
    purchase price:
    AL-N: 17,000[D];
    CA-C: 17,000;
    IL-N: 19,000;
    TX-N: 22,000;
    WV-S: 16,000].

    Source: GAO analysis of bankruptcy file reviews.

    [A] The relative error for this estimate is plus or minus 21 percent.

    [B] The relative error for this estimate is plus or minus 24 percent.

    [C] The relative error for this estimate is plus or minus 26 percent.

    [D] The relative error for this estimate is plus or minus 29 percent.

    [E] The relative error for this estimate is plus or minus 22 percent.

    [End of table]

    Table 16: Estimated Average Interest Rates on Original Debt for
    Reaffirmation Agreements Filed in Five Bankruptcy Court Districts
    (October 17, 2005, through October 17, 2006):

    Item reaffirmed: Auto;
    AL-N: 13[A];
    CA-C: 9;
    IL-N: 12;
    TX-N: 9;
    WV-S: 12.

    Item reaffirmed: House;
    AL-N: 11[A];
    CA-C: 10;
    IL-N: 7;
    TX-N: 8;
    WV-S: [B].

    Item reaffirmed: Mobile home;
    AL-N: 7;
    CA-C: [B];
    IL-N: [B];
    TX-N: 13[A];
    WV-S: 9.

    Item reaffirmed: Boat;
    AL-N: [B];
    CA-C: [B];
    IL-N: [B];
    TX-N: [B];
    WV-S: [B].

    Item reaffirmed: Household good;
    AL-N: 21;
    CA-C: 19[A];
    IL-N: [B];
    TX-N: [B];
    WV-S: 22.

    Item reaffirmed: Other;
    AL-N: 21;
    CA-C: [B];
    IL-N: [B];
    TX-N: 8;
    WV-S: [B].

    Item reaffirmed: All items;
    AL-N: 14;
    CA-C: 10;
    IL-N: 11;
    TX-N: 9;
    WV-S: 13.

    Source: GAO analysis of bankruptcy file reviews.

    [A] The relative errors for these estimates are greater than plus or
    minus 20 percent, but less than plus or minus 30 percent.

    [B] Because of the low numbers of reaffirmation agreements with these
    characteristics, we are not able to generate reliable average interest
    rate estimates for these reaffirmed items.

    [End of table]

    Table 17: Estimated Average Interest Rates on Reaffirmed Debt for
    Reaffirmation Agreements Filed in Five Bankruptcy Court Districts
    (October 17, 2005, through October 17, 2006):

    Item reaffirmed: Auto;
    AL-N: 10;
    CA-C: 9;
    IL-N: 8;
    TX-N: 9;
    WV-S: 9.

    Item reaffirmed: House;
    AL-N: 9;
    CA-C: 9;
    IL-N: 8;
    TX-N: 7;
    WV-S: 8.

    Item reaffirmed: Mobile home;
    AL-N: 9;
    CA-C: 11;
    IL-N: [B];
    TX-N: 12;
    WV-S: 10.

    Item reaffirmed: Boat;
    AL-N: [B];
    CA-C: [B];
    IL-N: [B];
    TX-N: [B];
    WV-S: [B].

    Item reaffirmed: Household good;
    AL-N: 21;
    CA-C: [B];
    IL-N: [B];
    TX-N: [B];
    WV-S: 19[B].

    Item reaffirmed: Other;
    AL-N: [B];
    CA-C: [B];
    IL-N: [B];
    TX-N: 7[A];
    WV-S: 12[A].

    Item reaffirmed: All items;
    AL-N: 10;
    CA-C: 8;
    IL-N: 8;
    TX-N: 8;
    WV-S: 10.

    Source: GAO analysis of bankruptcy file reviews.

    [A] The relative errors for these estimates are greater than plus or
    minus 20 percent, but less than plus or minus 30 percent.

    [B] Because of the low numbers of reaffirmation agreements with these
    characteristics, we are not able to generate reliable average interest
    rate estimates for these reaffirmed items.

    [End of table]

    Figure 8: Estimated Average Number of Days from Date When Reaffirmation
    Agreement Was Filed to Date Case Was Closed (October 17, 2005, through
    October 17, 2006):

    [See PDF for image]

    This figure is a vertical bar graph depicting the Estimated Average
    Number of Days from Date When Reaffirmation Agreement Was Filed to Date
    Case Was Closed (October 17, 2005, through October 17, 2006). The
    vertical axis of the graph represents number of days from 0 to 160. The
    horizontal axis of the graph represents the five bankruptcy court
    districts. The following data is depicted:

    Bankruptcy court district: AL-N;
    Estimated average number of days from date when reaffirmation agreement
    petition was filed to date case was closed: 75.

    Bankruptcy court district: CA-C;
    Estimated average number of days from date when reaffirmation agreement
    was filed to date case was closed: 117.

    Bankruptcy court district: IL-N;
    Estimated average number of days from date when reaffirmation agreement
    was filed to date case was closed: 83.

    Bankruptcy court district: TX-N;
    Estimated average number of days from date when reaffirmation agreement
    was filed to date case was closed: 69.

    Bankruptcy court district: WV-S;
    Estimated average number of days from date when reaffirmation agreement
    was filed to date case was closed: 143.

    Source: GAP analysis of bankruptcy file reviews.

    [End of figure]

    [End of section]

    Appendix V: Federal Judiciary Proposed Coversheet for Reaffirmation
    Agreements:

    827 (Official Form 27) (12/09):

    United States Bankruptcy Court: [Empty] District of [Empty]
    In re: Debtor:
    Case No:
    Chapter:

    Reaffirmation Agreement:

    Cover Sheet:

    This form must be completed in its entirety and filed within the time
    set under Rule 4008. It may be filed by any party to the reaffirmation
    agreement. The filer also must attach a copy of the reaffirmation
    agreement to this cover sheet.

    Debtor's name and Address:

    Creditor's Name	and Address:

    1. Amount of debt as of commencement of case:
    2. Describe if any,
    securing debt:
    3. Amount of debt being reaffirmed:
    4. Repayment term of
    reaffirmation: [Empty] months.
    5. Monthly payment under reaffirmation:
    6. Annual percentage rate under reaffirmation:
    7. Debtor's monthly income at reaffirmation:
    8. Income from Schedule I, line 16:
    9. Explain any difference in the amounts set out on lines 7 and 8:
    10. Debtor's monthly expenses at reanimation (without this
    reaffirmed debt:
    11. Current expenditures from Schedule J, line 18:
    12. Explain any difference in the amounts set out on lines 10 and 11:

    Check this box if the amount on Line 10 of this form exceeds the amount
    on Line 7 of this form. If these expenses exceed the income, a
    presumption of undue hardship arises.

    Check this box if the debtor was not represented by counsel during the
    course of negotiating this reaffirmation agreement.

    Filer's Certification:

    I [Empty] hereby certify that the attached agreement is a true and
    correct copy of the reaffirmation agreement between the parties
    identified on this Reaffirmation Agreement Cover Sheet.

    Signature:

    Debtor's Certification:

    I certify that any explanation contained on lines 9 or 12 of this form
    is true and correct.

    Signature (Debtor):

    Signature (Joint Debtor, if any):

    Form 27:

    Committee Note:

    This form is new. It requires the disclosure of financial information
    necessary for the court to make its determination under section 524(m)
    of the Code as to whether the reaffirmation agreement creates a
    presumption of undue hardship.

    The form also includes a supplemental debtor's certification that any
    explanation of the difference between the income and expenses reported
    on schedules I and J and the income and expenses reported in the
    debtor's statement in support of the reaffirmation agreement is true
    and correct. This supplemental debtor's certification is designed to
    implement the requirements of Bankruptcy Rule 4008(b).

    Source: Administrative Office of the U.S. Courts.

    [End of figure]

    [End of section]

    Appendix VI: GAO Contact and Staff Acknowledgments:

    Contact:

    William O. Jenkins Jr. at (202) 512-8777 or jenkinswo@gao.gov.

    Acknowledgments:

    In addition to the contact named above, Linda Watson, Assistant
    Director; Pille Anvelt; James Ashley; Ben Atwater; Amy Bernstein;
    Carlos Garcia; Daniel Garcia; Geoffrey Hamilton; Lemuel Jackson; Ronald
    La Due Lake; Brian Lipman; Grant Mallie; Jamilah Moon; and Johanna Wong
    made significant contributions to this report.

    [End of section]

    Footnotes:

    [1] Not all debts are discharged. Discharged debts are those for which
    the debtor's personal liability is discharged at the end of the
    bankruptcy process (i.e., eligible debts). Section 523 of the code
    specifically excepts various categories of debts, such as tax
    obligations, from the discharge granted to individual debtors.
    Therefore, the debtor must still repay those types of nondischargable
    debts after bankruptcy.

    [2] Such a debt could otherwise be discharged by the bankruptcy court.

    [3] A debtor, for the purposes of this report, is an individual who has
    filed for personal bankruptcy in order to reduce his debt obligations
    by having the bankruptcy court discharge his eligible debts.

    [4] National Bankruptcy Review Commission, Bankruptcy: The Next Twenty
    Years (Oct. 20, 1997). Congressional Research Service, Consumer
    Bankruptcy Reform: Proposals before the 105th Congress (Mar. 20, 1998).

    [5] Pub. L. No. 109-8, 119 Stat. 23 (2005).

    [6] We examined the proportion of Chapter 7 cases filed in each
    district because reaffirmation agreements are more likely to be found
    in Chapter 7 cases. According to the Administrative Office of the U.S.
    Court's Bankruptcy Basics guide, Chapter 7 debtors may continue paying
    a dischargeable debt (such as an auto loan) after the bankruptcy
    through a reaffirmation agreement, usually for the purpose of keeping
    collateral (i.e., the car) that would otherwise be subject to
    repossession.

    [7] The U.S. Trustee Program is the component of the Department of
    Justice responsible for supervising the administration of bankruptcy
    cases and private trustees in all but the six bankruptcy court
    districts in Alabama and North Carolina. Separate from the U.S. Trustee
    Program, these six districts, also known as the Bankruptcy
    Administrator program, have judicial branch bankruptcy administrators
    perform duties similar to those of the U.S. Trustee program, including
    overseeing the administration of bankruptcy cases, maintaining a panel
    of private trustees, and monitoring the transactions and conduct of
    parties in bankruptcy.

    [8] The majority of reaffirmation agreements were with non-credit
    unions--from an estimated 80 percent (in AL-N) to 94 percent (in IL-N)
    in the five districts.

    [9] Appendix III includes the most recent AOUSC reaffirmation agreement
    form.

    [10] Where debtors are not represented by an attorney, the Bankruptcy
    Code, as amended by the Reform Act, provides that the bankruptcy court
    must approve the debtor's reaffirmation agreement as consistent with
    the debtor's best interests, except that no court approval is required
    if the debtor's reaffirmation agreement is for a consumer debt secured
    by a mortgage, deed of trust, security deed, or other lien on the
    debtor's real property, like a home. 11 U.S.C. � 524 (c)(6) and �
    524(k)(3)(J)(i).

    [11] We estimate that 5 percent (in CA-C) to 25 percent (in AL-N) of
    Chapter 7 cases filed in the five bankruptcy court districts during the
    period of our review included at least one reaffirmation agreement.
    Appendix IV lists the percentage of Chapter 7 cases by district that we
    estimate had reaffirmation agreements during our period of review.

    [12] The Judicial Conference of the United States operates through a
    network of committees created to address and advise on a wide variety
    of subjects, such as information technology, personnel, court
    administration, and rules of practice and procedure. The Committee on
    Rules of Practice and Procedure reviews recommendations submitted by
    the Advisory Committee and approves, modifies, disapproves, or returns
    those recommendations to the Advisory Committees, as appropriate. The
    Committee on Rules of Practice and Procedure also transmits proposed
    rules changes to the Judicial Conference.

    [13] The estimates are 90 percent for CA-C, 94 percent for AL-N and for
    WV-S, and 97 percent for IL-N and for TX-N.

    [14] Under the Reform Act, the debtor attorney certification where a
    presumption of undue hardship is established is not applicable to
    reaffirmation agreements with credit unions.

    [15] Not applicable to agreements with attorney-represented debtors
    reaffirming a debt with a credit union or when the agreement is for
    consumer debt secured by real property.

    [16] The estimates are 80 percent for AL-N, 82 percent for WV-S, 83
    percent for CA-C, 84 percent for TX-N, and 94 percent for IL-N.

    [17] An article in The American Bankruptcy Law Journal, volume 81,
    issue 3, 2007 (pp. 266-270) discusses determination of the presumption
    of an undue hardship.

    [18] Under the Reform Act, the creditor may elect to include a
    repayment schedule in a reaffirmation agreement.

    [19] There was no indication in the case files whether one or both
    reaffirmation agreements were approved or disapproved by the court.

    [20] The estimates are 3 percent for IL-N and for TX-N, 6 percent for
    AL-N and for WV-S, and 10 percent for CA-C.

    [21] The margin of error for this estimate is at most plus or minus 14
    percent.

    [22] The margin of error for this estimate is at most plus or minus 14
    percent.

    [23] The estimates are 6 percent for IL-N, 16 percent for TX-N, 17
    percent for CA-C, 18 percent for WV-S, and 20 percent for AL-N.

    [24] The estimates are 61 percent for WV-S, 80 percent for AL-N, 82
    percent for TX-N, and 96 percent for CA-C and for IL-N. Each of these
    estimates has a margin of error of plus or minus 18 percent or less.

    [25] We are not able to generalize to credit union reaffirmation
    agreements in IL-N due to the small sample of credit union agreements
    in this district.

    [26] The estimates are 54 percent for WV-S, 65 percent for TX-N, 77
    percent for AL-N, and 93 percent for CA-C. Each of these estimates has
    a margin of error of plus or minus 18 percent or less.

    [27] The estimates are 45 percent for TX-N and for WV-S, 80 percent for
    AL-N, and 96 percent for CA-C. Each of these estimates has a margin of
    error of plus or minus 18 percent or less. We are not able to
    generalize to all credit union reaffirmation agreements in IL-N due to
    the small sample of credit union agreements in this district.

    [28] The estimates are 2 percent for TX-N and for WV-S, 3 percent for
    IL-N, 4 percent for CA-C and 10 percent for AL-N.

    [29] Individual bankruptcy cases may contain more than one
    reaffirmation agreement. We estimate that the average number of
    reaffirmations per case was from one to two for the five districts.
    While most cases that we reviewed included one or two reaffirmation
    agreements, we examined cases that had as many as eight reaffirmation
    agreements.

    [30] The estimates and relative error for these estimates are $15,000
    plus or minus 11 percent for CA-C, $28,000 plus or minus 17 percent for
    WV-S, $34,000 plus or minus 22 percent for AL-N, $35,000 plus or minus
    21 percent for TX-N, and $47,000 plus or minus 30 percent for IL-N.

    [31] The estimates and relative error for these estimates are $120,000
    plus or minus 12 percent for WV-S, $149,000 plus or minus 26 percent
    for AL-N, $161,000 plus or minus 24 percent for CA-C, $180,000 plus or
    minus 21 percent for IL-N, and $189,000 plus or minus 16 percent for TX-
    N.

    [32] The estimates and relative error for these estimates are $12,000
    plus or minus 11 percent for CA-C, $20,000 plus or minus 17 percent for
    WV-S, $25,000 plus or minus 22 percent for AL-N, $26,000 plus or minus
    18 percent for TX-N, and $31,000 plus or minus 23 percent for IL-N.

    [33] The estimates and relative error for the estimates are $13,000
    plus or minus 19 percent for CA-C, $13,000 plus or minus 29 percent for
    TX-N, and $13,000 plus or minus 28 percent for WV-S.

    [34] The estimates are 32 percent for IL-N, 43 percent for AL-N and for
    WV-S, 44 percent for TX-N, and 88 percent for CA-C.

    [35] According to officials with one creditor, the firm's policy was to
    offer debtors reaffirming automobile debt reduced interest rates and
    principal balances if the reductions were within ranges established by
    the creditor. For example, interest rates may be reaffirmed at the
    original rate or 8 percent, whichever is less.

    [36] According to the Administrative Office of the U.S. Court's (AOUSC)
    Bankruptcy Basics guide, Chapter 7 debtors may continue paying a
    dischargeable debt (such as an auto loan) after the bankruptcy, usually
    for the purpose of keeping collateral (i.e., the car) that would
    otherwise be subject to repossession.

    [37] The U.S. Trustee Program is the component of the Department of
    Justice responsible for supervising the administration of bankruptcy
    cases and private trustees in all but the six bankruptcy court
    districts in Alabama and North Carolina. Separate from the U.S. Trustee
    Program, these six districts, also known as the Bankruptcy
    Administrator program, have judicial branch bankruptcy administrators
    perform duties similar to those of the U.S. Trustee program, including
    overseeing the administration of bankruptcy cases, maintaining a panel
    of private trustees, and monitoring the transactions and conduct of
    parties in bankruptcy.

    [End of section]

    GAO's Mission:

    The Government Accountability Office, the audit, evaluation, and
    investigative arm of Congress, exists to support Congress in meeting
    its constitutional responsibilities and to help improve the performance
    and accountability of the federal government for the American people.
    GAO examines the use of public funds; evaluates federal programs and
    policies; and provides analyses, recommendations, and other assistance
    to help Congress make informed oversight, policy, and funding
    decisions. GAO's commitment to good government is reflected in its core
    values of accountability, integrity, and reliability.

    Obtaining Copies of GAO Reports and Testimony:

    The fastest and easiest way to obtain copies of GAO documents at no
    cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
    weekday, GAO posts newly released reports, testimony, and
    correspondence on its Web site. To have GAO e-mail you a list of newly
    posted products every afternoon, go to [hyperlink, http://www.gao.gov]
    and select "E-mail Updates."

    Order by Mail or Phone:

    The first copy of each printed report is free. Additional copies are $2
    each. A check or money order should be made out to the Superintendent
    of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or
    more copies mailed to a single address are discounted 25 percent.
    Orders should be sent to:

    U.S. Government Accountability Office: 441 G Street NW, Room LM:
    Washington, DC 20548:

    To order by Phone: Voice:
    (202) 512-6000:
    TDD: (202) 512-2537:
    Fax: (202) 512-6061:

    To Report Fraud, Waste, and Abuse in Federal Programs:

    Contact:

    Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]
    E-mail: fraudnet@gao.gov:
    Automated answering system: (800) 424-5454 or (202) 512-7470:

    Congressional Relations:

    Gloria Jarmon, Managing Director, jarmong@gao.gov:
    (202) 512-4400:
    U.S. Government Accountability Office:
    441 G Street NW, Room 7125:
    Washington, DC 20548:

    Public Affairs:

    Chuck Young, Managing Director, youngc1@gao.gov:
    (202) 512-4800:
    U.S. Government Accountability Office:
    441 G Street NW, Room 7149:
    Washington, DC 20548:

    *** End of document. ***