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35–112 PDF 2007

SECOND ANNIVERSARY OF THE ENACTMENT OF

THE BANKRUPTCY ABUSE PREVENTION AND

CONSUMER PROTECTION ACT OF 2005: ARE

CONSUMERS REALLY BEING PROTECTED?

HEARING

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MAY 1, 2007

Serial No. 110–13

Printed for the use of the Committee on the Judiciary

(

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

(II)

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

LINDA T. SA ́ NCHEZ, California, Chairwoman 

JOHN CONYERS, JR., Michigan 

HANK JOHNSON, Georgia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

MELVIN L. WATT, North Carolina 

STEVE COHEN, Tennessee 

CHRIS CANNON, Utah 

JIM JORDAN, Ohio 

RIC KELLER, Florida 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona

MICHONE JOHNSON, Chief Counsel 

DANIEL FLORES, Minority Counsel 

(III)

C O N T E N T S 

MAY 1, 2007

OPENING STATEMENT 

Page 

The Honorable Linda T. Sa ́nchez, a Representative in Congress from the 

State of California, and Chairwoman, Subcommittee on Commercial and 

Administrative Law ............................................................................................. 1

The Honorable Chris Cannon, a Representative in Congress from the State 

of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law ........................................................................................................... 2

WITNESSES 

Mr. Steve Bartlett, President and CEO, Financial Services Roundtable, Washington, DC 

Oral Testimony ..................................................................................................... 8

Prepared Statement ............................................................................................. 10

Ms. Shirley Jones Burroughs, Gastonia, NC 

Oral Testimony ..................................................................................................... 15

Prepared Statement ............................................................................................. 16

Mr. Henry J. Sommer, President, National Association of Consumer Bankruptcy Attorneys, Philadelphia, PA 

Oral Testimony ..................................................................................................... 18

Prepared Statement ............................................................................................. 21

Ms. Yvonne D. Jones, Director, Financial Markets and Community Investment, U.S. Government Accountability Office, Washington, DC 

Oral Testimony ..................................................................................................... 49

Prepared Statement ............................................................................................. 51

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Letter and study by the American Bankers Association, the Consumer Bankers Association, et al., submitted by the Honorable Chris Cannon, a Representative in Congress from the State of Utah, and Ranking Member, 

Subcommittee on Commercial and Administrative Law .................................. 4

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Chairman, Committee on the 

Judiciary, and Member Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 7

Prepared Statement of Eugene Crane, President, National Association of 

Bankruptcy Trustees ........................................................................................... 71

Letter and supporting documents from the American Bar Association, submitted by the Honorable Linda Sa ́nchez, a Representative in Congress 

from the State of California, and Chairwoman, Subcommittee on Commercial and Administrative Law ............................................................................... 74

Letter and supporting documents from Chad Wm. Schulze, Esquire, Milavetz, 

Gallop & Milavetz, P.A., submitted by the Honorable Linda Sa ́nchez, a 

Representative in Congress from the State of California, and Chairwoman, 

Subcommittee on Commercial and Administrative Law .................................. 113

Official Form 22A (Chapter 7), submitted by the Honorable Linda Sa ́nchez, 

a Representative in Congress from the State of California, and Chairwoman, Subcommittee on Commercial and Administrative Law .................... 159

Page

IV

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Report on Personal Bankruptcy Statistical Study by SMR Research Corp., 

submitted by the Financial Services Roundtable, to the Honorable Howard 

Berman, Chairman, Subcommittee on Courts, the Internet, and Intellectual 

Property ................................................................................................................ 180

Response to Post-Hearing Questions from Steve Bartlett, President and CEO, 

Financial Services Roundtable, Washington, DC .............................................. 204

Response to Post-Hearing Questions from Henry J. Sommer, President, National Association of Consumer Bankruptcy Attorneys, Philadelphia, PA ...... 208

Response to Post-Hearing Questions from Yvonne D. Jones, Director, Financial Markets and Community Investment, U.S. Government Accountability 

Office, Washington, DC ....................................................................................... 211

Documents of personal bankruptcy filing of Shirley Jones Burroughs, Gastonia, NC ............................................................................................................... 213

Prepared Statement of David C. Jones, President, Association of Independent 

Consumer Credit Counseling Agencies .............................................................. 259

(1)

SECOND ANNIVERSARY OF THE ENACTMENT 

OF THE BANKRUPTCY ABUSE PREVENTION 

AND CONSUMER PROTECTION ACT OF 2005: 

ARE CONSUMERS REALLY BEING PROTECTED? 

TUESDAY, MAY 1, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 10:30 a.m., in 

Room 2141, Rayburn House Office Building, the Honorable Linda 

T. Sa ́nchez (Chairwoman of the Subcommittee) presiding. 

Present: Representatives Sa ́nchez, Johnson, Lofgren, Delahunt, 

Watt, Cannon, and Feeney. 

Staff Present: Susan Jensen, Counsel; Michone Johnson, Chief 

Counsel; Daniel Flores, Minority Counsel; James Paul, Professional 

Staff; Norberto Salinas, Counsel; Elias Wolfberg, Professional Staff; 

Alexandrine DiBianchi; Erik Stallman, Senior Counsel to Representative Lofgren; Jason Everett, Legislative Assistant to Representative Watt; and James Paul, Professional Staff. 

Ms. SA ́ NCHEZ. This hearing of the Committee on the Judiciary, 

Subcommittee on Commercial and Administrative Law will now 

come to order. I will recognize myself first for a short statement. 

Two years ago last month, President Bush signed into law the 

Bankruptcy Abuse Prevention and Consumer Protection Act, pushing through the most complex and dramatic changes of our Nation’s bankruptcy law in more than 25 years. Today’s hearing, 

which focuses on consumer bankruptcy, is one of a series that our 

Subcommittee will conduct on the impact of the 2005 amendments 

on the bankruptcy system. 

We have heard extensively from the consumer community that 

many of the consumer bankruptcy reforms were problematic. In 

particular, the act’s means testing requirement to determine a 

debtor’s ability to repay debts and mandate that consumer debtors 

receive credit counseling prior to filing for bankruptcy relief were 

two provisions that have proved to be problematic. 

Recent developments in the subprime mortgage industry have 

brought to light additional problems with the act. After being lured 

into easy mortgage refinancing arrangements with teaser interest 

rates, more and more American homeowners find they are unable 

to make their monthly mortgage payments. As a result, many atVerDate 0ct 09 2002 10:51 Jul 03, 2007 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 F:\WORK\COMM\050107\35112.000 HJUD1 PsN: 35112
2

tempt to enter into bankruptcy to minimize the risk of losing their 

homes through foreclosure. 

However, bankruptcy, which once served as a safety net for the 

honest, but unfortunate debtor, has now become a minefield of 

‘‘gotchas.’’ According to a recent survey of bankruptcy attorneys by 

the National Association of Consumer Bankruptcy Attorneys, 81 

percent agreed that it is more difficult for people facing foreclosure 

to obtain bankruptcy relief since the 2005 act became law. 

Let me give just one example. To satisfy the means test, a chapter 7 debtor must now complete Official Form 22, this form right 

here, that consists of 57 sections. This complex form requires a 

debtor to supply extensive financial information and supporting 

documentation. We are putting people through a bureaucratic maze 

while they are trying desperately to regain their financial footing. 

I challenge my colleagues as homework this evening to see how 

long it takes you to complete this form. I have looked at it, and it 

looks substantially more difficult than our own Federal employee 

disclosure forms. 

So it is against this backdrop and with the benefit of 2 years 

having passed since the enactment of the 2005 act that we look forward to hearing from today’s witnesses. 

To help us further explore these issues, we have a truly notable 

witness panel. We are pleased to have former Congressman Steve 

Bartlett, President of the Financial Services Roundtable; Ms. Shirley Jones Burroughs; Mr. Henry Sommer, President of the National 

Association of Consumer Bankruptcy Attorneys; and Ms. Yvonne 

Jones, the Financial Markets and Community Investment Director 

at the Government Accountability Office, or GAO. 

I now, at this time, would like to recognize my colleague and 

Ranking Member, Mr. Cannon, the distinguished Member from 

Utah, for any opening remarks he may have. 

Mr. CANNON. Thank you, Madam Chair. 

The Bankruptcy Abuse Prevention and Consumer Protection Act 

of 2005 was signed into law by President George W. Bush on April 

20, 2005. The act represents one of the most comprehensive overhauls of the Bankruptcy Code in more than 25 years, particularly 

with respect to its consumer bankruptcy reforms. These consumer 

bankruptcy reforms include, for example, the establishment of a 

means test, a mechanism to determine a debtor’s ability to repay 

debts; and the requirement of that debt is that the consumer debtor receives credit counseling prior to filing for bankruptcy relief. 

Most of the act’s provisions went into effect October 17, 2005. 

This Subcommittee held a hearing in July 2005 to assess how the 

executive order for United States Trustees and the Judicial Conference were proceeding regarding the formation and issuance of 

various rules, forms, guidelines, and procedures that were required 

under the law. In addition, the Senate Judiciary Committee held 

a hearing on the implementation of this law in December of last 

year. The upshot of both of those hearings is that, while it is a little too early to tell, there are some indicators that the law may 

have had a dramatic, positive effect on the American bankruptcy 

system. 

For example, after the initial spike in personal bankruptcy filings, there were almost 620,000 filings in the first 2 weeks of OctoVerDate 0ct 09 2002 10:51 Jul 03, 2007 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6601 F:\WORK\COMM\050107\35112.000 HJUD1 PsN: 35112
3

ber 2005. The number of filings has dropped to almost 20-year 

lows. The number of filings has gradually increased but remains 

significantly below the pre-reform numbers. 

Another major focus of the reforms was to get debtors who can 

pay some of their unsecured loans, generally things like credit card 

debt, to pay what they can afford under a chapter 13 bankruptcy. 

The post-reform numbers do show that chapter 13 bankruptcies 

form a larger share of personal filings than they did at pre-reform. 

This is despite the fact that the Director of the Executive Office of 

the U.S. Trustees stated, at least at the bankruptcies conference, 

that only one half of 1 percent of all chapter 7 bankruptcies are 

being converted to chapter 13 bankruptcies under the means test. 

That low number of conversions may be reflected in the IRS methodology, which is more generous to filers post-reform than it was 

pre-reform, but again, data remains preliminary. 

One interesting aspect of bankruptcy reform was the requirement that filers obtain credit counseling before filing for bankruptcy. This provision was put into place to educate debtors about 

their options and to give them some sound money management 

tools in the hopes that consumers would be able to avoid bankruptcy and the black mark on their credit history, if they could. 

While a recent GAO study shows that the benefits of that provision is disputed, there have been some salutary aspects. For example, credit counseling services have essentially obtained a new Federal regulator in the form of the U.S. Trustees. GAO reports that 

the great majority of representatives are consumer advocacy 

groups, Federal agencies, industry participants, and other stakeholders. 

Those we spoke with believe that credit counseling agencies approved by the trustee program have been reputable. In addition, no 

Federal or State law enforcement officials we spoke with identified 

any Federal or State enforcement actions related to consumer protection issues against any providers subsequent to their approval. 

While the data, the hard data, are not readily available, the 

trustees report that nearly 10 percent of all credit counseling certificates have gone unused, indicating that many individuals may 

have been steered into alternative paths to bankruptcy. If those 

numbers hold up, it would mean that almost 37,000 individuals 

were saved from bankruptcy from May to October of last year 

alone. That is a significant achievement. 

I would like to introduce a letter and a study into the record by 

the American Bankers Association, the Consumer Bankers Association, the Independent Community Bankers of America, the Financial Services Roundtable, and the Mortgage Bankers Association, 

among others. 

Ms. SA ́ NCHEZ. Without objection, so ordered. 

[The information referred to follows:]

4

LETTER AND STUDY BY THE AMERICAN BANKERS ASSOCIATION, THE CONSUMER BANKERS ASSOCIATION, ET AL., SUBMITTED BY THE HONORABLE CHRIS CANNON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF UTAH, AND RANKING MEMBER, 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW


1-1.eps
5


1-2.eps
6


1-3.eps
7

Mr. CANNON. Thank you, Madam Chair. 

Ms. SA ́ NCHEZ. Thank you. 

Mr. CANNON. That speaks to the importance of these bankruptcy 

reforms. 

Finally, the Subcommittee is intending to hold a series of hearings on bankruptcy, and I would like to place on the record two 

topics which I believe are worthy of discussion: first, the need for 

more bankruptcy judges, which has been approved by the House 

and has failed in the other body on several occasions; second, the 

compensation of trustees in chapter 7 cases, who are paid $60 per 

case regardless of the time it takes to settle. 

I thank you, Madam Chair. I appreciate your consideration. I 

yield back the balance of my time. 

Ms. SA ́ NCHEZ. I thank the gentleman for his statement. 

Our honorable Chairman of the full Committee, Mr. Conyers, 

who was here moments ago, had to leave for a memorial service. 

So, without objection, I would like to enter his opening statement 

into the record. 

[The prepared statement of Mr. Conyers follows:]

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, CHAIRMAN, COMMITTEE ON THE JUDICIARY, AND MEMBER SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

It is no secret that I was strongly opposed to the bankruptcy legislation signed 

into law two years ago. In my judgment, the bill favored credit card companies and 

corporations over ordinary consumers; it exposed women and children to major new 

debts; and it did little to anything to crack down on abusive lending practices. 

The bill’s proponents asserted that it was a fair compromise that only punished 

wealthy debtors. But the bill I saw appeared to give creditors massive new rights 

to bring threatening motions against low income debtors. It permitted credit card 

companies to reclaim common household goods which are of little value to them, but 

very important to the debtor’s family, and made it next to impossible for people 

below the poverty line to keep their house or their car in bankruptcy. 

The bill’s supporters argued it protected alimony and child support. But the bill 

I reviewed seemed to create major new categories of nondischargeable debt that 

compete directly against the collection of child support and alimony payments; and 

allowed landlords to evict battered women without bankruptcy court approval, even 

if the eviction posed a threat to the woman’s physical well being. 

At the same time the legislation appeared to do little to discourage abusive underage lending, nothing to discourage reckless lending to the developmentally disabled, 

nothing to regulate the practice of so-called ‘‘subprime’’ lending to persons with no 

means or little ability to repay their debts, and nothing to crack down on unscrupulous pay-day lenders that prey on members of the armed forces. 

Today, at long last, we begin the process of evaluating this bill in cold hard light 

of day. We have asked the GAO to study many of these issues that I have raised, 

and I hope we can use the hearing process to further educate the Members about 

the real life impact of this legislation. 

Once we obtain the facts, we can consider what actions are needed to relevel the 

playing field and allow hard working families the opportunity to begin their lives 

again.

Ms. SA ́ NCHEZ. And without objection, other Members’ opening 

statements will also be included in the record. 

Without objection, the Chair will be authorized to declare a recess of the hearing. 

I am now pleased to introduce the witnesses on our panel for today’s hearing. Our first witness, former Congressman Steve Bartlett, is the President of the Financial Services Roundtable. Mr. 

Bartlett served as a Member of Congress for the Third District of 

8

Texas from 1983 to 1991 and as Mayor of Dallas, Texas, from 1991 

to 1995. 

Our second witness is Shirley Jones Burroughs. Ms. Burroughs 

is a resident of Gastonia, North Carolina, and has recently participated in the chapter 13 filing process. 

Our third witness is Henry Sommer. Mr. Sommer is the President of the National Association of Consumer Bankruptcy Attorneys and a member of the National Bankruptcy Conference. Mr. 

Sommer is also the supervising attorney at the pro bono Consumer 

Bankruptcy Assistance Project in Philadelphia and is Editor in 

Chief of ‘‘Collier on Bankruptcy’’ and the entire Collier line of bankruptcy publications. 

Our final witness is Yvonne Jones. Ms. Jones is the Director of 

the Financial Market and Community Investment Team at GAO. 

Prior to joining GAO in 2003, Ms. Jones worked at the World 

Bank, developing projects in the education sector in East Asian 

countries, assisting sub-Saharan African countries to reduce their 

commercial bank debt levels and help design financial restructuring programs in Eastern and Central Europe and the former Soviet Union. 

I thank all of you for your willingness to participate in today’s 

hearing. Without objection, your written statements will be placed 

into the record in their entirety, and we would ask that you limit 

your oral remarks to 5 minutes. 

You will note that we have a lighting system that starts with a 

green light. At 4 minutes, it will turn yellow to warn you that you 

have a minute to wrap up, and then at 5 minutes, it will turn red. 

If you do notice that the light turns red, we would appreciate your 

best efforts to try to quickly wrap up your testimony. 

After all of the witnesses have presented their testimony, Subcommittee Members will be permitted to ask a round of questions, 

subject to the 5-minute rule. 

Mr. Bartlett, will you please now proceed with your testimony. 

TESTIMONY OF MR. STEVE BARTLETT, PRESIDENT AND CEO, 

FINANCIAL SERVICES ROUNDTABLE, WASHINGTON, DC 

Mr. BARTLETT. Thank you, Madam Chair and Ranking Member 

Cannon and Members of the Committee. It is a pleasure to be here. 

My name is Steve Bartlett. I am the President and CEO of the Financial Services Roundtable. 

I do appreciate this Committee holding this oversight hearing. 

There is much to be learned about the bankruptcy reform law, and 

this Subcommittee helps us to understand it. I have attached several attachments to my statement, and I would ask that they be 

included in the record. 

Ms. SA ́ NCHEZ. Without objection, so ordered. 

Mr. BARTLETT. Madam Chair, bankruptcy reform is still new. It 

was passed 2 years ago, as you noted, by overwhelming bipartisan 

support; and our organization has been quite involved in the implementation of it. 

So far, from the perspective of the American consumer and the 

economy, the new bankruptcy reform law is working quite well. 

Bankruptcy filings are down; more Americans than ever are getting 

9

quality credit counseling, and as a result, consumers have the opportunity to become better educated about financial management. 

A few statistics: Consumer bankruptcy filing rates have dropped 

from an annualized rate of 1.5 million a year in the previous 5 

years down to, last year, 573,000. We think they will normalize at 

around 700,000 to perhaps 800,000 a year. It dropped by about 

half. 

Second, more consumers are choosing chapter 13 repayment 

plans over chapter 7, and that is as the law intended. 

Third is counseling. We have conducted some surveys of the certified counselors, and our estimates are that about 57,000 traditional credit counseling sessions were occurring per month prior to 

the law, and that is now a total of 148,000 per month, so it, roughly, tripled as to the number of counseling sessions. 

Now, recall that the principal policy objective of bankruptcy reform was the following: that people with above-median, income who 

can repay some or all of their debts, ought to do so while making 

chapter 7 bankruptcy a relief available to those who cannot. That 

was the intent, and that is what is happening. 

Bankruptcy reform has also strengthened the ability of homeowners to use chapter 13 to stop foreclosures and to catch up on 

past-due mortgages. Several reforms were made on that. That is 

the intent of chapter 13; that is one of the outcomes. In these difficult times of an increased foreclosure rate, that is what is happening. 

Third, credit counseling is now more readily available and is 

quality credit counseling. As the GAO report noted on credit counseling, the credit counseling reinforces the potential for good coming from the new law’s credit counseling mandates. 

According to the GAO, the Justice Department has generally 

done a good job in weeding out potential bad actors among counselors. We, in our industry, found that there was a large need 

which, frankly, we had not expected that is being filled, and that 

is the certification process of being able to certify the quality, nonprofit, good-guy counselors from the others. 

There have been few complaints, if any, that I know of about 

competency of approved counselors. More consumers are getting 

better counseling and financial education than ever before. In fact, 

the Justice Department estimated that about 10 percent of consumers who get prebankruptcy counseling do not file for bankruptcy. 

Now, as an industry, we are working to build on the law mechanisms to reach consumers sooner rather than later. We think that 

credit counseling can live up to its full potential better if we bring 

people in earlier for earlier counseling. We have instituted 

MyMoneyManagement.net over the Internet as a way of reaching 

consumers at the earliest indications that they have difficulties. 

We have also instituted a program called ‘‘Hope’’ in which we 

reach out to homeowners who own mortgages, borrowers or homeowners, to say, ‘‘At the earliest signs of trouble, please call. We will 

work with you. We will work with the lenders by using independent counselors to try to settle the situation and to try to prevent foreclosing.’’

10

Counseling is good; earlier counseling is better than later counseling, and certified counselors are essential to the process. These 

agencies that have been certified are doing a good job. They are 

reaching out to consumers. We are getting no complaints. In fact, 

these agencies are quite beneficial to the American consumer. We 

are better off for the efforts of these agencies. They are on the front 

lines. They bear the heavy load. 

Based on the reports that we received from the approved agencies, these agencies are working as Congress had intended. They 

are waiving counseling fees for those who cannot pay. Our reports 

indicate about 22 percent of those who come in for counseling have 

the fee waived. The fee itself is nominal, an average of about $50. 

Now, much of the attention has been focused on prebankruptcy 

counseling, and I think the GAO did note, as did my stop sign, that 

it is time to stop. 

Madam Chair, may I conclude with several points? 

The bankruptcy reform legislation passed by the House by wide 

bipartisan margins is working. It is working for the consumer and 

the economy. Those who have need have access, full access, to 

bankruptcy; and above-median-income people who can repay a portion of their debts do so. Bankruptcies are down; credit counseling 

is up. 

We urge you to continue to give the law a chance to work with 

adequate oversight. 

Ms. SA ́ NCHEZ. Thank you, Mr. Bartlett. 

[The prepared statement of Mr. Bartlett follows:]

PREPARED STATEMENT OF STEVE BARTLETT

SUMMARY OF TESTIMONY

Good morning, Madam Chair and Ranking Member Cannon, my name is Steve 

Bartlett and I am President & CEO of The Financial Services Roundtable. Thank 

you for inviting me to participate in this hearing to examine the implementation of 

Public Law 109–8, the bankruptcy reform statute that was signed into law two 

years ago. 

I have several attachments to my statement and I would ask that they be included in the record. 

The Financial Services Roundtable represents 100 of the largest integrated financial services companies providing banking, insurance, and investment products and 

services to the American consumer. Our companies account directly for $65.8 trillion 

in managed assets, $1 trillion in revenue, and more than 2.4 million jobs. 

The American consumer is the lifeblood of the economy and it is in the best of 

interests of Roundtable member companies to have well-educated consumers who 

manage debt prudently. With such breadth and debt, Roundtable members are in 

a good position to assess impact of legislative changes such as bankruptcy reform. 

Bankruptcy Reform is still new. So far, from the perspective of the American consumer and the economy, the new bankruptcy reform law is working quite well. 

Bankruptcy filings are down, more Americans than ever are getting credit counseling and, as a result, consumers have the opportunity to become educated about 

prudent financial management. Let me cite some statistics to demonstrate my point:

• consumer bankruptcy filing rates have dropped dramatically to 573,203 in 

2006 from an average annualized rate of 1.5 million for the prior 5 five years; 

private sector estimates for 2007 range from 500,000 to 800,000 consumer 

bankruptcies

• more consumers are choosing Chapter 13 repayment plans over Chapter 7 

than under the old law; 27.5% consumer elected Chapter 13 under the old law 

or as compared to 35–40% under the new law who select Chapter 13 under 

the new law

11

• there were 1,230,195 total credit counseling sessions at Justice Departmentaccredited agencies as of March, 2007, compared to an average of 57,087 total 

counseling sessions per month for 2005, the year before bankruptcy reform

These numbers indicate that the means-test and the pre-bankruptcy credit counseling mandate are working. Recall that the principal policy objective of bankruptcy 

reform was to say that people with above-median income who can repay some or 

all of their debts ought to do so while leaving in place bankruptcy relief for those 

who really need it. That seems to be happening under the new law. 

In addition, bankruptcy reform has strengthened the ability of homeowners to use 

Chapter 13 to stop foreclosures and catch up on past due mortgages. Even prior to 

the reform law, Chapter 13 was often used by consumers to save their home. Now, 

if mortgage lenders misapply mortgage payments in a Chapter 13 plan, they can 

be subject to punitive damages. As lenders adjust to this new requirement, Chapter 

13 will be an even better option for saving the family home. 

One major result of bankruptcy reform is increased credit counseling, which educates consumers. Credit counseling can help keep consumers from getting into financial trouble and, for those consumers for whom bankruptcy is an appropriate option, 

credit counseling keeps consumers out of financial trouble in the future. 

In fact, the Department of Justice has estimated that 10% of consumers who get 

pre-bankruptcy counseling do not file for bankruptcy. This means that counseling 

is important and meaningful for some consumers, even if there is anecdotal evidence 

that it may not help others. Counseling is widely available from numerous sources 

through multiple channels-in-person counseling, telephone counseling and Internet 

counseling. To the extent that the counseling program could be made to work better 

for more consumers, we should do so. It would be a mistake to cut consumers off 

from financial education. We think the number of consumers who decide not to file 

for bankruptcy could be higher. Industry is working to build on the law to reach 

consumers much sooner in the financial cycle so that credit counseling can live up 

to its full potential. If consumers wait until they are completely underwater, counseling may not live up to its full potential. At the Roundtable, we have started 

mymoneymanagement.net as a way of providing consumers early access to quality 

credit counseling. In addition, we have instituted a program called HOPE to help 

homeowners and mortgage lenders negotiate win-win solutions when a mortgage becomes past due. 

The non-profit counseling agencies have stepped up to the plate to make bankruptcy reform work. They applied to become certified agencies and promised to live 

by the ethical requirements established by the Justice Department. As the GAO 

noted, there have been few, if any, complaints about DOJ approved agencies. They 

perform a valuable public service by providing financial management advice to consumers and the lending industry is pleased they choose to participate in the prebankruptcy counseling process. 

We are all better off for the efforts of these agencies. They are on the front lines 

and bear the heavy load. Based on the reports we have received from most of the 

approved agencies, it seems clear these agencies are acting as Congress intended. 

For instance, they are waiving counseling fees for those who can’t pay. According 

to our statistics, counseling fees were waived for 22% of counseling sessions. And 

fees are relatively modest. At the Roundtable, the lending industry created a grant 

program to support credit counseling approved agencies, of which there are 157. 

The credit lending industry has also created a website—

mymoneymanagement.com—which guides consumers to DOJ-approved agencies. 

Some of our member companies are already directing customers to this site as soon 

as they show signs of financial difficulties to assist consumers earlier in the process. 

It is important to understand that Justice Department certification is a significant 

enhancement for the quality of credit counseling available to consumers. There has 

not been a governmental ‘‘seal of approval’’ that identifies quality agencies before. 

Also, the increased attention around bankruptcy reform and credit counseling seems 

to have driven up demand for credit counseling. 

While much of the attention has focused on pre-bankruptcy counseling, post-bankruptcy educational counseling is immensely important as well. This counseling 

comes at a very important time for the average consumer. The consumer, having 

filed for bankruptcy, will be ready to learn new financial skills. 

The Roundtable believes that counseling requirements could be improved by regulations. In a comment letter, we suggested that pre-bankruptcy certificates should 

be valid for one year, rather than merely 6 months, to allow consumers more time 

to consider alternatives to bankruptcy. The Roundtable submitted a letter to the Department of Justice detailing regulatory changes and I have attached that letter to 

my statement. The Roundtable has also joined with the Consumer Federation of 

12

America and a leading counseling trade association proposing consensus recommendations for regulatory changes to make the system work for all stakeholders—lenders, borrowers and counselors. 

The Roundtable strongly believes each issue can be addressed through regulatory 

implementation strategies designed to further Congressional intent. 

Prior to enacting Public Law 109–8, Congress had not reformed bankruptcy laws 

since 1978. We need to let the law mature before understanding its real impact. 

Congress did the right thing for consumer and the economy in passing bankruptcy 

reform; now it’s time to make sure that this legislative success is implemented correctly. Time will tell if the major consumer protection provisions in bankruptcy reform will work as intended. Under the new law, mortgage lenders can be subject 

to punitive damages for misconduct in Chapter 13 cases. And unsecured lenders 

have to consider voluntarily reducing balances or take increased losses in bankruptcy. And single moms and custodial parents have much-enhanced access to the 

assets of people who owe child support. Finally, the Federal Reserve is now engaged 

in a rulemaking process to improve the quality of financial disclosures made to consumers. When Congress voted for bankruptcy reform, Congress voted for these crucial consumer protections. 

However, there are implementation challenges. For instance, as will be discussed 

in my full statement, the forms being produced by the Judicial Conference have the 

potential to disrupt the means-test by allowing debtors to claim deductions for nonexistent expenses, for a car they do not own, for example. Bankruptcy reform was 

surely not intended to allow above-median income debtors to escape repayment by 

deducting expenses they don’t actually have. We feel that this issue, as well as any 

others, should be addressed through the rulemaking process. 

In conclusion, I would make several points. The bankruptcy reform legislation 

passed both the House and the Senate by wide, bi-partisan margins. The new law 

is working for the consumer and the economy. Those in need still have full access 

to bankruptcy and above median income people who can repay a portion of their 

debts do so. Bankruptcies are down; quality credit counseling is up; consumers have 

access to better information about financial management. What we need now is 

careful, bi-partisan oversight. 

I thank the Subcommittee for conducting this hearing, and I am grateful for this 

opportunity to testify. I look forward to answering your questions. 

ATTACHMENT

TESTIMONY OF STEVE BARTLETT 

Good morning, Mr. Chairman and Ranking Member Schumer, my name is Steve 

Bartlett and I am President & CEO of The Financial Services Roundtable. Thank 

you for inviting me to participate in this hearing to examine the implementation of 

Public Law 109–8, the bankruptcy reform statute that became effective on October 

17, 2005. I would also like to express my appreciation to the Department of Justice 

for providing leadership in implementing the provisions of Public Law 109–8. 

Mr. Chairman, I have several attachments to my statement and I would ask that 

they be included in the record. 

THE FINANCIAL SERVICES ROUNDTABLE

The Financial Services Roundtable represents 100 of the largest integrated financial services companies providing banking, insurance, and investment products and 

services to the American consumer. Member companies participate through the 

Chief Executive Officer and other senior executives nominated by the CEO. Roundtable member companies provide fuel for America’s economic engine, accounting directly for $50.5 trillion in managed assets, $1.1 trillion in revenue, and more than 

2.4 million jobs. As you might imagine, Roundtable members are in a pretty good 

position to assess impact of legislative changes such as bankruptcy reform. 

OVERVIEW OF IMPLEMENTATION AND MACROECONOMIC PERSPECTIVE ON REFORM

Mr. Chairman, at least since the turn of the twentieth-century, the American people have always had access to bankruptcy when overwhelmed and unable to repay 

their debts. This is as it should be. There is no reason to force people to toil under 

the burden of debts they can never repay. For this reason, we have had a ‘‘fresh 

start’’ enshrined in our bankruptcy laws since 1898. During the Great Depression 

in 1930s, Congress created voluntary repayment plans as an alternative to straight 

liquidation. 

13

However, as originally envisioned, straight liquidation under Chapter 7 was 

meant to be a last resort for people with no ability to pay. Congress continued 

America’s progressive tradition by enacting Public Law 109–8 to channel higher income consumers into repayment plans while permitting the truly destitute and the 

poor to go into straight liquidation. The Roundtable supports both the letter and 

spirit of these important reforms. 

Mr. Chairman, to provide a quick explanation of how the new law is being implemented, I would say the sense of the Roundtable member companies is that the law 

is working well and consumers as well as the economy are benefiting. 

The number of bankruptcy filings has plummeted since 2004 and 2005. Some of 

this was certainly due to people rushing to file under the old law. Our companies 

and most analysts who have looked at the situation believe the drop off in filings 

is due to more than just people filing in 2005 to beat the new law. 

We agree with those in Congress who have recently pointed out that losses to the 

economy that result from bankruptcy filings slow economic growth to some extent. 

When a business—any business, large or small—loses money because a customer 

files for bankruptcy, the business often has to increase what it charges other customers. I would submit that this is not good for consumers or the economy. 

I know that some, including Senator Grassley who sits on this Subcommittee, 

have considered the effect of Public Law 109–8 and have put the total costs savings 

to the American economy at around $60 billion. Reduced losses of this size are a 

positive for the economy. 

This leads me to my first question I would identify for the Subcommittee: How 

has bankruptcy reform affected the American economy? The answer to that question 

will take a cumulative effect over the next few years, but it is an important question 

to ask. 

The low rate of consumer bankruptcies presents other significant questions for the 

Subcommittee as it tries to assess the success or failure of Public Law 109–8.

• Is the infrastructure in place to handle a surge in filings; specifically, are 

there enough certified credit counselors?

• Does the Department of Justice have enough resources to implement the 

means test?

I don’t know the answers to these questions yet. I would, however, urge diligent 

monitoring of the implementation of the new law to ensure there are adequate resources available to make the system work. 

CREDIT COUNSELING

I would also like to mention the potential for social and economic good coming 

from the pre-bankruptcy credit-counseling mandate. As the Subcommittee knows, in 

order to file for bankruptcy under the new law, a consumer must first get a certificate from an approved counseling agency attesting to the fact that the consumer has 

completed a counseling session. A certificate is good for 6 months. And, prior to receiving a discharge of debt, a consumer must undergo another counseling session 

designed to teach on-going financial skills. 

The Department of Justice has publicly stated that they believe around 10% of 

the pre-bankruptcy certificates issued have not been used yet. This is a positive 

sign. But I think we can do better. 

The industry funded a ‘‘no-strings-attached’’ grants program for every approved 

agency that sought a grant. There are 153 approved pre-bankruptcy counseling 

agencies and another 275 agencies have been approved to provide post-bankruptcy 

educational counseling. 

These non-profit agencies, both NFCC and AICCA agencies, perform a valuable 

public service by providing financial management advice to consumers and we are 

pleased they choose to participate in the pre-bankruptcy counseling process. Based 

on the reports we have received from over 70% of approved agencies, it seems clear 

these agencies are acting as Congress intended. For instance, we believe they are 

waiving counseling fees about for those who can’t pay. In October, 2006, fees were 

waived for 22% of counseling sessions. And fees are relatively modest at about $36 

per session. 

In addition, there has been a dramatic increase in traditional credit counseling 

sessions this year as compared to last year, which may be linked to the new law. 

I have attached to my statement a report prepared for the Roundtable that discusses what most approved counseling agencies are telling us about the situation 

on the ground. 

One difficulty the Roundtable has identified is how to get to consumers sooner in 

the financial cycle. If we just wait until consumers are completely ‘‘under water,’’ 

14

it may be that the counseling mandate will not live up to its full potential. To make 

counseling more effective, the Roundtable has created a website—

mymoneymanagement.com—that refers consumers to DOJ-approved agencies for 

credit counseling before they are considering bankruptcy. In fact, some of our member companies are now directing their customers who fall behind in payments to 

this website so those consumers can get help earlier. All of us in the responsible 

lending community hope this will help consumers sooner, to the benefit of everybody. 

I have one final note on credit counseling. As can be seen in my attachment, the 

Roundtable has received scattered reports that bankruptcy attorneys have been 

seeking to blunt the effect of the counseling mandate by steering clients to agencies 

they consider ‘‘friendly.’’ We have been told by counseling agencies that in some 

cases attorneys pay directly for the counseling services. I would suggest to the Subcommittee that these business practices, if they continue, could erode the significant 

potential consumer benefits of pre-bankruptcy counseling. I am aware that members 

of the Subcommittee have written a letter to the Deputy Attorney General about 

one specific agency and the Roundtable applauds this oversight initiative. 

THE MEANS TEST

In addition to credit counseling, one of the centerpieces of bankruptcy reform was 

the means test. In this regard, I would make several observations to the Subcommittee. The good news is that during the last year, the number of objections to 

the means-testing filed in court has been modest. The Department of Justice is diligently implementing the means-test. 

In addition, to date, no creditor has filed a means-test objection as it has the right 

to do under the new law. I think this is so in part because higher income debtors 

are either skipping bankruptcy or are self-selecting to go into Chapter 13. Thus, 

there is no evidence at all to support the fears expressed by some before enactment 

of Public Law 109–8 that creditors would use this new right inappropriately. 

The Subcommittee should know that one positive effect of the new law which I 

attribute to the means test is an increase in the number of Chapter 13 cases relative to Chapter 7 cases. It seems as if more consumers are opting for Chapter 13 

in light of the new law. This is certainly a positive trend and one of the major goals 

of the legislation. 

The final point I would make regarding the means-test involves the Judicial Conference rule making process. In particular, I would call the Subcommittee’s attention to the fact that the forms created to measure repayment capacity to implement 

the means test seems to allow debtors to calculate repayment ability by deducting 

for expenses they don’t actually have. For instance, consumers are directed to deduct an expense for owning a car even if they don’t own one. 

The Roundtable believes that this creates an inaccurate measure of repayment 

ability. The means test was designed by Congress to accurately measure repayment 

ability; allowing debtors to deduct phantom expenses is not consistent with Congressional intent. I have attached to my statement a letter submitted by associations 

commenting on the Interim Rules and making this point. 

CONSTITUTIONAL CHALLENGES TO PUBLIC LAW 109–8

Mr. Chairman, the very full legislative record developed by Congress before the 

enactment of Public Law 109–8 focused on the manner in which debtor attorneys 

were responsible for abuses of the system. I certainly would never want to paint all 

attorneys as corrosive to the bankruptcy process. I know there are many well-intentioned and serious attorneys who represent consumers considering bankruptcy in an 

appropriate way. But, as the hearing record makes clear, there were bankruptcy 

mills that simply processed consumers without providing meaningful legal advice or 

looking out for the best interests of consumers. The Federal Trade Commission even 

issued a warning to the public about deceptive advertising by attorneys. 

Congress sensibly reacted by imposing disclosure requirements on attorneys and 

prohibiting them from advising consumers to defraud creditors. These consumer protections were designed to help consumers by giving them full access to all the information they need to make informed choices. 

So, it is with some concern that I must call the Subcommittee’s attention to a lawsuit filed in Connecticut to have these consumer protections declared unconstitutional. The plaintiffs in this case believe that attorneys have a right under the Constitution to deceive the public or hide information from clients or advise consumers 

to commit fraud by running up debts just before filing for bankruptcy to game the 

means-test. 

15

The Justice Department is aggressively litigating on the other side of the issue. 

However, if these consumer protections are invalided by judges, I hope Congress can 

find some way to protect unwary and unsophisticated consumers from the kinds of 

deceptive practices the Federal Trade Commission warned about. 

CONCLUSION

In conclusion, I would make several points. The Roundtable supported bankruptcy 

reform and was pleased to see the legislation pass both the House and the Senate 

by wide, bi-partisan margins. The new law seems to be working for the consumer 

and the economy. It is working better than anticipated—those in need still have full 

access to bankruptcy and upper income people seem to be skipping bankruptcy or 

opting for repayment plans. Bankruptcies are down; more Americans are getting 

quality credit counseling; consumers have access to better information about financial management. What we need now is careful, bi-partisan oversight. 

I believe that Public Law 109–8 has the potential to be of continuing great benefit 

to consumers and to the economy. As I said at the beginning of my testimony—‘‘so 

far, so good.’’ The work of the Congress is not over. There are challenges and surely 

there will be unforeseen bumps in the road. I thank the Subcommittee for conducting this hearing, and I am grateful for this opportunity to testify. I look forward 

to answering your questions.

Ms. Burroughs, will you now proceed with your testimony. 

TESTIMONY OF SHIRLEY JONES BURROUGHS, GASTONIA, NC 

Ms. BURROUGHS. Well, I am here today because I had to file 

bankruptcy due to, I guess, just not knowing what everything was 

that was in the contract when I first signed. I know there is no law 

to excuse not reading everything in a contract, but when we got to 

the closure, it was just not what I expected. You wanted to get it 

over with; you just rush and you sign papers. 

I did not get, you know, anyone to explain what half the meanings of the documentations were. And then, when you cannot make 

payments, it is just a hard thing because you have no one to really 

explain what you did not do. And that is why I am here today, to 

try to help someone else. 

Ms. SA ́ NCHEZ. You are talking, of course, about the closing on a 

house that you purchased——

Ms. BURROUGHS. Right. 

Ms. SA ́ NCHEZ [continuing]. and the documentation that was required for that? 

Ms. BURROUGHS. Correct. 

Ms. SA ́ NCHEZ. Can you tell us just a little bit about how that sort 

of put you into the circumstance of having to consider bankruptcy 

as an option? 

Ms. BURROUGHS. Just the fact that, you know, the payments—

we had to refinance a couple of times because—due to the fact of 

my husband’s losing income and that I lost my job at once. And we 

just had to refinance to try to stay on top of things, and refinancing 

was only making the rates go up instead of lowering the rates, and 

it just got to a point where, you know, what do we do? 

Ms. SA ́ NCHEZ. As a result of not being able to make the payments, you considered bankruptcy as an option? 

Ms. BURROUGHS. Correct. 

Ms. SA ́ NCHEZ. Can you tell us a little bit about how you came to 

consider that as an option and what you decided to do, ultimately? 

Ms. BURROUGHS. In November, I think it was, as a last resort, 

we decided, you know, we could not just keep not paying. We had 

to find an option. So we decided to file for bankruptcy and try to 

16

make things—you know, we wanted to make payments, but we 

knew we was just falling behind. 

Ms. SA ́ NCHEZ. Did you consult with somebody before you decided 

to enter the bankruptcy process? 

Ms. BURROUGHS. We did not consult with anyone. We found Attorney Wayne Sigmon, and I think we went to the Internet, and 

we found him, and we met him in court on the day of foreclosure, 

and we went through all the options with him. My husband did, 

anyway. 

Ms. SA ́ NCHEZ. And was your decision to enter into bankruptcy 

sort of your attempt to save your home? 

Ms. BURROUGHS. It was. 

Ms. SA ́ NCHEZ. Okay. 

Do you feel that the process that you went through in terms of 

buying your house, you know, the folks who did the financing for 

the house—do you feel they explained things adequately or honestly and gave you an assessment of what your payments would 

look like in the future? 

Ms. BURROUGHS. No. Because when we went in—you know, our 

mortgage has changed so much. I mean, I think the mortgage has 

changed three times with new buyers and, you know, refinancing 

with different companies. It was just getting out of control. We 

never knew what to expect with payments, and it just was out of 

control. 

Ms. SA ́ NCHEZ. Have you found the bankruptcy process to be an 

easy, straightforward, and clear process for you? 

Ms. BURROUGHS. No, it was not easy. I mean, it is a lot of paperwork. But you do what you need to do. It is less stressful now, 

going through, you know, knowing I can make a payment, and everything is okay. 

Ms. SA ́ NCHEZ. So how have your payments changed since going 

through the bankruptcy process? 

Ms. BURROUGHS. I think we are making payments around, 

maybe, $2,000, I will just say, for the second and first mortgage all 

together. The payments went down at least $1,000, and they decreased even more since my husband has been placed on active 

duty, so——

Ms. SA ́ NCHEZ. Okay. Thank you so much for your participation. 

I am sure other Members of the panel will have questions for you. 

Thank you again, Ms. Burroughs. 

[The prepared statement of Ms. Burroughs follows:]

PREPARED STATEMENT OF SHIRLEY JONES BURROUGHS

I am Shirley Jones Burroughs and I reside in Gastonia, North Carolina with my 

husband and two children, ages 16 and 19. My husband and I have worked all our 

lives to provide for our family. My husband is a truck mechanic and I work for an 

insurance company. We purchased our home in December, 1999. Our joint gross income for 2004 was $92,745.00 including $5,931 we withdrew from our retirement 

plans to make debt payments. In 2005 our gross income was $74,288.00 for my husband and $23,392.00 for me. In 2006 our gross income was $55,681.01for my husband, $28,220.00 for me, and $4,270.00 withdrawal from his retirement. We hated 

to dip into our retirement savings, but we were trying to keep up with our debts 

and avoid bankruptcy. 

When we purchased our home, we entered into a first mortgage with Homecomings Mortgage and a second mortgage with EMMCO THE MORTGAGE SERVICE STATION INC., which was assigned to Associates Financial Services of America, Inc. (‘‘Associates’’). In March, 2000, and approximately four months after we 

17

purchased our residence, Associates contacted us and offered to refinance our mortgages. They stated that we could lower our payments through refinancing and consolidate all of our debts. 

On March 30, 2000 we refinanced both mortgages through Associates. Our new first mortgage in the sum of $109,730.75 was used to pay the balance due to Homecomings Mortgage of $91,808.19 and the balance due to Associates of $16,374.12. 

The second mortgage in the sum of $10,199.98 was used to pay other debts including $2,888.55 to American General and $6,396.21 to CitiFinance. We received no 

cash proceeds from the refinancings. The new first mortgage payment was $1,170.22 

per month with interest at 12.49 percent per annum and the new second mortgage 

payment was $214.37 with interest at 18 percent per annum. 

On June 29, 2001 we again refinanced our second mortgage with CitiFinancial 

Services, Inc., (formerly Associates). In this refinancing our new loan amount was 

$9,990.24 with an Annual Percentage Rate of 15.45 percent. Our first payment was 

$184.86, and then we had 29 scheduled payments of $179.94 and then 90 more 

scheduled payments of $153.07. To my knowledge, we received no cash proceeds 

from this refinancing. 

On August 16, 2002 we once again refinanced our two mortgages with 

CitiFinancial. These refinancings were done upon CitiFinancial’s promise that our 

monthly payments would be reduced. In the 2002 first mortgage we financed 

$113,938.76 with interest at an annual percentage rate of 11.95 percent, a first payment of $1,621.41 and 359 payments of $1,167.57. $113,630.87 of the cash proceeds 

of this loan were paid to CitiFinancial. In the 2002 second mortgage we financed 

$10,350.57 with interest at an annual percentage rate of 14.61 percent payable in 

30 scheduled payments of $186.43 and then 90 more scheduled payments of $150.11. 

The cash proceeds of this second mortgage refinancing went to payoff the June 29, 

2001 CitiFinancial second mortgage. Again, we received no cash proceeds from either refinancing. All of the amounts added to our mortgages went to the fees and 

charges in the multiple refinancings. 

In 2006 we began to fall behind in our mortgage payments to CitiFinancial mainly 

because I was unemployed for some time. On November 22, 2006 CitiFinancial commenced a foreclosure proceeding in the State Court to foreclose upon the first mortgage. The foreclosure sale date was scheduled for January 24, 2007. 

After exploring available options to try to save our home from foreclosure, we 

found that our only real option was to file a Chapter 13 bankruptcy case. Through 

the Internet, we found our bankruptcy attorney, Mr. Wayne Sigmon. He explained 

that we could file a Chapter 13 case and cure the payment arrears on the first mortgage to CitiFinancial in monthly court payments over a 60 month period while continuing to make our regular monthly payments due to CitiFinancial after the filing 

of our bankruptcy case directly to CitiFinancial. As to the second mortgage, he advised that we could ‘‘lien strip’’ the second mortgage through a lawsuit he would file 

in our bankruptcy case against CitiFinancial since the market value of our residence 

was less than the principal balance due upon the first mortgage. In this way the 

second mortgage would no longer be a lien upon our residence and the balance due 

would be treated as unsecured debt in our Chapter 13 case. 

Our Chapter 13 case was filed on January 22, 2007. Our plan called for monthly 

payments to the Chapter 13 Trustee of $1,050.00 plus direct payments to 

CitiFinancial ‘‘outside of the plan’’ of $1,160.00. These payments were feasible because our combined monthly net income was $4,332.64 which consisted of $3,132.65 

from my husband’s job and $1,200.00 from my unemployment compensation. 

In our Chapter 13 case we scheduled CitiFinancial’s first mortgage arrears to be 

$5,800.00 which was 5 monthly payments of $1,160.00 each. We scheduled the outstanding principal balance to be $132,802.53. Both of these figures came from 

monthly statements we had received from CitiFinancial. At our Chapter 13 meeting 

of creditors, we were shocked to learn that CitiFinancial filed a proof of claim in 

our case alleging that the first mortgage arrears as of our Chapter 13 filing date 

were $14,789.03 and that the total balance due is $135,218.81. A copy of this proof 

of claim is attached hereto as Exhibit ‘‘A’’. Obviously, if our arrears are $14,789.03, 

our Chapter 13 payments will increase significantly. Our attorney advised us that 

mortgage servicers often inflate claims in Chapter 13 cases and that he would review the documents and file a formal objection to this claim. 

Our attorney has now reviewed our CitiFinancial mortgage documents and he has 

objected to the proof of claim. He has advised that our mortgage is a classic example 

of predatory mortgage lending. The mortgage interest is compounded on a daily 

rather than monthly basis. This is why we now owe somewhere between $132,000 

and $135,000 on the mortgage while the original amount financed was $113,938.76. 

He advised that he has seen this type of interest computation in numerous 

CitiFinancial mortgages. Attached hereto as Exhibit ‘‘B’’ is an amortization schedule 

18

that shows how our mortgage balance would have been reduced if our loan had interest compounded monthly rather than daily. To my knowledge, we were never 

warned by CitiFinancial about the possibility that we would make numerous payments on our loan and still owe substantially more than we borrowed. 

Our attorney has also advised that our mortgage contains an arbitration provision. CitiFinancial never explained to us how an arbitration provision works and I 

had never even heard of arbitration until my attorney brought it to my attention. 

On March 22, 2007 my husband, a member of the Army reserve, was called to 

active duty and he has been deployed to Iraq. His net monthly military pay after 

taxes is $1,141.75 so that our combined monthly income has dropped from $4,332.64 

to $3,024.27, a difference of $1,307.97 per month. With this decrease in income, I 

cannot afford to make both my Chapter 13 Trustee payments and my monthly mortgage payments to CitiFinancial. My attorney has filed a motion in the bankruptcy 

court requesting that, pursuant to the Servicemembers Civil Relief Act, the interest 

rate on our secured debts be reduced to 6 percent per annum while my husband 

is on active duty. If this motion is allowed, my direct monthly payment to 

CitiFinancial should be $767.07 (Exhibit ‘‘C’’ hereto), plus a monthly payment upon 

the alleged $14,789.03 arrears through the Trustee of $285.91 (Exhibit ‘‘D’’), and an 

approximately 5% Trustee’s commission on the arrearage payment ($14.29) for a 

total monthly payment to CitiFinancial of $1,067.27. 

Even this payment will be a real struggle for us to make now that we have reduced income and greater expenses due to my husband’s service in Iraq. If, as proposed by the consumer groups, the Bankruptcy Code allowed us to reamortize the 

CitiFinancial mortgage at a 6 percent per annum fixed rate over a thirty year term 

from the bankruptcy petition date, even with CitiFinancial’s alleged balance due of 

$135,218.81, the payment would be $810.71 (Exhibit ‘‘E’’), a monthly savings of 

$256.56. My children and I could dearly use this money to live on.

Ms. SA ́ NCHEZ. Mr. Sommer, will you please begin your testimony. 

TESTIMONY OF HENRY J. SOMMER, PRESIDENT, NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS, 

PHILADELPHIA, PA 

Mr. SOMMER. Thank you, Madam Chair and Members of the 

Committee. My name is Henry Sommer, and I am an attorney who 

specializes in bankruptcy and consumer law matters. For over 32 

years, I have represented families and individuals in Philadelphia 

who have sought my help with serious debt problems, often involving foreclosure. 

I am President of the National Association of Consumer Bankruptcy Attorneys, and I am testifying today on behalf of our 2,700 

members. I would like to address my testimony to two principal 

topics: one, how the 2005 amendments have impacted consumer 

debtors, and two, how the bankruptcy laws should be amended to 

give homeowners a more effective remedy to deal with the foreclosure crisis our Nation is now facing. 

In answering the fundamental question posed by this hearing, I 

would say that the 2005 amendments to the Bankruptcy Code are 

not protecting consumers; they are hurting consumers. To call this 

a ‘‘consumer protection act’’ is a classic example of George Orwell’s 

‘‘Newspeak.’’ In fact, it is widely recognized as one of the most 

anticonsumer pieces of legislation ever passed by Congress. 

The amendments were premised upon allegations that there was 

widespread abuse in the consumer bankruptcy system and that 

many who filed chapter 7 bankruptcy cases could afford to pay a 

significant portion of their debts. The reality is, this was never 

true, and the experience since the effective date of the amendments 

has borne that out. Very few debtors, only about one half of 1 percent, have been charged with abuse under the bill’s vaunted means 

test, even though its threshold of abuse is very low. A debtor can 

19

be charged with abuse if a debtor is deemed able to pay as little 

as $100 a month toward her debts or deemed able to pay only a 

tiny percentage of what is owed. Not surprisingly, we have seen no trace of the $400-to-$550 benefit which the bill’s backers promised would redound from its passage to every household in the country. Indeed, abusive credit card 

practices, including higher and higher late charges, have only increased, at least until some companies recently agreed to change 

a few of those practices while testifying at hearings in this new 

Congress. 

The biggest impact of the new law has been the enormous increase in the cost and burdens of filing a bankruptcy case. I doubt 

that it was the intention of even those who voted for the bill to increase documentation requirements, bureaucratic paperwork and 

other costs so much that honest, low-income and working families, 

not the high rollers at whom the amendments were supposedly 

aimed, are deterred or prevented from obtaining the bankruptcy relief they need. But that is what has happened. 

The filing fee has increased by 50 percent. There are new fees 

for credit counseling and education which usually total another 

$100, and there has been such a great increase in the documentation required in every case that attorneys have had to increase 

their fees at least 50 percent. Bankruptcy has gone from being a 

relatively low-priced proceeding that can be handled quickly and efficiently to being an expensive minefield of new requirements, 

tricks and traps that can catch the innocent and unsuspecting 

debtor. 

There is simply no reason, especially in the cases of lower-income 

debtors, that all of this extensive documentation demanded by the 

amendments is necessary. Every consumer bankruptcy attorney 

has had the experience of explaining these requirements to prospective clients only to have the clients go away discouraged and 

never return. 

Every consumer debtor must obtain all payment advices for the 

60 days before the bankruptcy is filed, a tax return or a tax transcript for the most recent year and sometimes additional years. 

They must provide an attorney with information detailing every 

penny of their income for the 6 months before the petition is filed; 

they must provide bank statements to the trustee and evidence of 

current income. They must attend a prepetition credit counseling 

briefing even if their problems are unavoidable medical catastrophes and not unwise spending. They must attend a financial 

management course in order to receive a discharge. 

Attorneys must complete numerous additional forms, including a 

6-page means test form that requires arcane calculations about 

which there are many different legal interpretations, and this is on 

top of the 20 or 30 pages of forms that were already required in 

every bankruptcy case. 

According to the United States Trustee Program, attorneys must 

also provide clients with pages and pages of so-called disclosures, 

many of which are irrelevant to the client’s case or inaccurate, 

which then requires additional time explaining them. And trustees 

in some districts demand even more documents. And if a consumer 

debtor is subject to an audit they have to provide even more, inVerDate 0ct 09 2002 10:51 Jul 03, 2007 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6601 F:\WORK\COMM\050107\35112.000 HJUD1 PsN: 35112
20

cluding 6 months worth of income documentation, 6 months of 

bank statements and an explanation of each and every deposit and 

withdrawal from any account over those 6 months. And the bankruptcy credit counseling requirement is primarily yet another barrier to bankruptcy. Even the credit counselors report that only 2 

to 3 percent of the perspective debtors they see can even contemplate a debt management plan. 

Now, most of this documentation is unnecessary, even to the ostensible goals of the 2005 amendments. In the vast majority of 

cases consumers are nowhere near the thresholds at which the 

abuse provisions kick in. 

Ms. SA ́ NCHEZ. Mr. Sommer, your time is expired, so if you can 

conclude, and then we’ll get back to you with questions. 

Mr. SOMMER. Well, let me just say that the second thing I wanted to talk about was some amendments we proposed that would 

help people facing foreclosure. We think the Bankruptcy Code 

needs to be amended to deal with the new kind of mortgages, the 

exploding ARMs that were not present in 1978 when chapter 13 

was drafted. And the details are attached to my testimony. Thank 

you. 

[The prepared statement of Mr. Sommer follows:]

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PREPARED STATEMENT OF HENRY J. SOMMER


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ATTACHMENT


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Ms. SA ́ NCHEZ. Thank you, Mr. Sommer, we appreciate your testimony. And as I said, your written testimony will be submitted fully 

for the record. 

Ms. Jones, if you would please proceed. 

TESTIMONY OF YVONNE D. JONES, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC 

Ms. JONES. Madam Chairwoman and Members of the Subcommittee, I appreciate the opportunity to participate in today’s 

hearing on the impact of the Bankruptcy Abuse Prevention and 

Consumer Protection Act of 2005. My statement focuses on the 

credit counseling and debtor education requirements of the act and 

is based on our report that was released last month. 

The Bankruptcy Act requires individuals to receive credit counseling before filing for bankruptcy and to take a debtor education 

course before having their debts discharged. According to the act’s 

legislative history, a goal of the prefiling credit counseling requirement is to ensure that consumers understand the options available 

to them and the consequences of filing for bankruptcy. 

However, the requirement raised a number of concerns, in part 

due to ongoing investigations of some practices in the credit counseling industry, such as steering clients to inappropriate debt repayment plans. Also, some Members of Congress and others were 

concerned that the cost and availability of counseling and education services could be barriers to people wishing to file for bankruptcy. 

Responding to those concerns, Congress required that providers 

of credit counseling and debtor education meet certain criteria and 

obtain approval from the U.S. Trustee Program. 

Overall, we found that the Trustee Program’s process for approving credit counseling and debtor education providers was generally 

systematic and thorough. As of April 2007, the Trustee Program 

had approved 159 credit counseling and 285 debtor education providers. Few formal complaints have been made against these providers and Federal and State law enforcement authorities with 

whom we spoke did not identify any recent enforcement actions 

against them under consumer protection laws. 

And as of last month no credit counseling provider approved by 

the Trustee Program had had its tax exempt status revoked. However, the Internal Revenue Service told us it was examining the tax 

exempt status for these providers. The Trustee Program said it was 

carefully monitoring the situation. 

We also found that the content of the credit counseling and debtor education sessions generally complied with statutory and program requirements. We did not find evidence that prefiling credit 

counseling agencies discourage clients from filing for bankruptcy. 

And very few clients appear to enter into debt repayment plans administered by these agencies. 

At the same time, however, we found that the value of the credit 

counseling requirement is not clear. Anecdotal evidence suggests 

that by the time most clients receive counseling their financial situations are dire, leaving them with no viable alternative to bankruptcy. The requirement for credit counseling may thus be more of 

50

an administrative obstacle than a timely presentation of meaningful options. Because there’s currently no mechanism for tracking 

the results of counseling sessions it is difficult to assess how well 

the counseling requirement is serving its purpose. 

In our report we recommended that the Trustee Program develop 

the capacity to track and analyze the results of the prefiling counseling. The Trustee Program agreed with this recommendation. 

We also found that there was less debate about the debtor education requirement. Most participants in the bankruptcy process 

believed this requirement was beneficial. 

Concerning fees, we found that consumers are generally charged 

$50 or less per session, which industry observers and consumer advocates generally believe to be reasonable. The Bankruptcy Act requires that counseling be offered without regard to a client’s ability 

to pay, and evidence suggests that fees are generally being waived 

as appropriate. 

However, we found that providers’ policies on fee waivers varied. 

To help ensure that all providers waive fees as appropriate, we recommended that the Trustee Program issue formal guidance on 

what constitutes a client’s ability to pay. The program agreed with 

this recommendation and will begin developing such guidance later 

this year. 

Finally, we found that the number of approved counseling and 

education providers appear sufficient to give consumers timely access to these services. And although in-person counseling and education sessions are not available in certain parts of the country, 

this concern is somewhat mitigated because the great majority of 

clients appear to be counseled by telephone or via the Internet. 

Accessing services in foreign languages has been a challenge for 

some consumers. We found the Trustee Program is taking steps to 

better communicate providers’ language and translation services. 

Currently, 64 credit counseling and 48 debtor education providers 

offer courses in Spanish, and two large nationwide providers can 

hold sessions in up to 150 languages. 

In conclusion, we found that within a limited time frame the 

Trustee Program established policies and procedures for selecting 

credit counseling and debtor education providers, and thus far relatively few concerns have been raised about the competence of approved providers. 

Madam Chairwoman, this completes my prepared statement. I 

would be happy to respond to any questions that you or other 

Members of the Subcommittee may have. 

[The prepared statement of Ms. Jones follows:]

51

PREPARED STATEMENT OF YVONNE D. JONES


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Ms. SA ́ NCHEZ. Thank you, Ms. Jones, for your testimony. 

Before we begin the first round of questions there are several 

documents that I would ask be admitted into the record without objection. I would like to submit the National Association of Bankruptcy Trustees’ statement of President Eugene Crane on the Second Anniversary of the Bankruptcy Abuse and Consumer Protection Act. 

[The prepared statement of Mr. Crane follows:]

PREPARED STATEMENT OF EUGENE CRANE, PRESIDENT,

NATIONAL ASSOCIATION OF BANKRUPTCY TRUSTEES

Madam Chair Sa ́nchez, Ranking Member Cannon, and other distinguished Members of the Subcommittee, let me thank you for the opportunity to provide the views 

of our Association to your Subcommittee on this very important subject. 

The National Association of Bankruptcy Trustees (NABT) is an organization of 

panel trustees, independent fiduciaries appointed in every chapter 7 bankruptcy 

case. Of the approximate 1,200 such Trustees nationwide, the vast majority are 

members of the organization. Our organization carries out the major work involved 

in the bankruptcy system, handling thousands upon thousands of cases each year. 

We protect both debtors and creditors from abuse of the system. 

We carry out important public policy priorities as directed by the Congress, such 

as insuring that child support orders are enforced, safeguarding patient health care 

needs and records, and protecting pensions obligations. We help local, state and federal governments by being one of the largest collectors of back taxes in the U.S. 

In most chapter 7 cases, the Debtors never appear before a judge, but are examined by the Trustees beginning with a review of the petitions filed, and a hearing 

conducted by the Trustees to which creditors may appear and participate. Many 

functions and required performance duties are contained in the Bankruptcy Act and 

Bankruptcy Rules and the Office of the United States Trustee (U.S.T.) Acts to oversee the carrying out of such duties. The U.S.T. is a part of the Justice Department. 

The activities carried out are mandated by many provisions of the law, rules and 

regulations, and are necessary and crucial to the operation of bankruptcy. The 

Bankruptcy Abuse and Consumer Protection Act , (the ‘‘ACT’’) effective October 

2005, added many new and different duties to the Trustee. Trustees have an obligation to secure relief for honest but unfortunate debtors and to investigate filings for 

abuse, wrongdoing and improper filings as well as to protect the interests of all parties to a proceeding and, pursue and reduce to cash all assets available to insure 

an equitable distribution of assets. 

The NABT is committed to maintaining the effectiveness and fairness of the system and to that end we believe there are several areas of the law that Congress 

may want to look at with an eye toward implementation, in appropriate instances, 

to allow trustees to effectively perform their duties and achieve the intended legislative purposes. Most importantly, adequate compensation will be needed to insure 

continued operation by Trustees. 

As with many complex and detailed new laws, some untested provisions proved 

to be contradictory, burdensome and in some instances, difficult or too elaborate to 

perform. NABT urges Congress to promptly address and remedy the ACT’s defects 

and unforeseen consequences. 

Let me discuss a few key aspects of the law and other key issues related to the 

bankruptcy system. 

ACT PROVISIONS

1. Notification of Child Support Claimants 

Sec. 704(a)(10) of the ACT imposes a new notice requirement mandating service 

of notices at filing and at discharge to all agencies and persons to whom a support 

obligation is due. NABT is at work developing methods to implement the new 

§ 704(a)(10), through which child support claimants will be notified of their rights 

as creditors in Chapter 7 classes of Debtors from whom a support obligation is due. 

We envision that this provision will, with the cooperation of the EQUST, be effectively implemented through a series of procedures and notices provided by the panel 

Trustee throughout the case. We believe that, through this process, claimants owed 

domestic support obligations can and will be made aware of the options available 

to them to enforce Court-ordered support. 

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2. Additional Information Required of Debtors 

NABT believes that the additional information which is required to be furnished 

to the Trustee (and others), prior to the first meeting of creditors, will aid in the 

identification and liquidation of assets for the benefit of creditors. We are actively 

working on methods of delivery which allow us to effectively utilize the volume of 

information which will be provided to us by each Debtor. Additionally, we will attempt to insure that this information will remain confidential, and be used solely 

for the purposes intended by the statute. 

Review of this required information will serve to insure that all assets are disclosed and, where appropriate, applied to the payment of creditors’ claims. It will 

also, in many cases, more adequately define the Debtors’ circumstances, which will 

allow the panel Trustee to perform the job more effectively. 

3. Waiver of Filing Fee 

The amended 28 U.S.C. § 1930 (f) (1) provides for the waiver of Chapter 7 case 

filing fees for individuals with ‘‘income less than 150 percent of the income official 

poverty line’’ if the Court determines the individual is unable to pay the fee in installments. Trustees are paid compensation of $60 for administering cases in which 

no assets are available for liquidation. The funding for these fees is derived from 

the Chapter 7 case filing fee [see 11 U.S.C. § 330(b)(1 )j and Miscellaneous Bankruptcy Court Fees prescribed by the Judicial Conference of the United States [see 

11 U.S.C. § 330(b)(2)]. 

There is no provision in the ACT for payment to Trustees where the filing fees 

are waived. A statistical survey shows that the number of informa pauperis cases 

where filing fees are waived ranges as high as 9.78% in some jurisdictions. Trustees 

are now faced with a reduction in compensation for their work in administering 

those cases. This apparent oversight needs to be corrected and a system established 

to provide adequate funding for payment of Trustee fees in these cases. 

4. Protecting Patient Records 

The ACT adds a new § 351 to the Code that provides a procedure for notification 

and disposal of patient records in cases where the Trustee does not have sufficient 

funds to pay for the storage of records in the manner required under applicable federal or state laws. The ACT fails to take into account that in some circumstances 

Trustees will lack sufficient funds to comply with the procedure established under 

§ 351. For example, under § 351 Trustees are required to undertake various costly 

actions including: storing records for one year; publishing a notice in one or more 

appropriate newspapers; notifying every patient and appropriate insurance carrier 

by mail; communicating by certified mail with each appropriate federal agency; and 

destroying the records, It is estimated that these costs could range anywhere from 

$3,500.00 in smaller cases (500 or fewer patients) to $35,000.00 in medium cases 

(10,000 patients) and higher in large cases (up to 100,000 patients and more). If 

Trustees do not have the funds to pay for the storage and notices required in § 351, 

patient records may not be administered properly and could be lost. 

The problem can be corrected by allowing a court in no asset or limited asset 

cases, upon motion of the Trustee, to direct the person or persons responsible for 

maintaining, storing or disposing of patient records under state law, prior to the appointment of the Trustee, to resume the responsibility of preserving the records. In 

such circumstances, the responsible party would be directed, by court order, to perform the functions required under § 351. 

5. Payment in Converted Cases 

The ACT was intended to provide a mechanism and payment schedule for Chapter 7 Trustees to receive compensation in cases converted or dismissed pursuant to 

707(b). The ACT included changes to § 1326(b) of the Code specifying the payment 

schedule to be applied if Trustees are allowed compensation due to the conversion 

or dismissal of case under § 707(b). These changes are inadvertently ineffective, 

however, unless § 326 of the Code is also modified to provide for Trustee compensation in converted or dismissed cases. Under current judicial interpretations of § 326, 

Trustees have been denied compensation in cases converted or dismissed under 

§ 707(b) because Trustees have not actually disbursed or turned over monies to parties in interest in such cases (which that statute requires as a prerequisite). 

The problem can be corrected by adding a new subsection (e) to § 326 to provide 

that the Court may allow reasonable compensation for services rendered by the 

Trustee, if the Debtor in a Chapter 7 case commences a motion to dismiss or convert 

and such motion is granted, or if the case is converted from Chapter 7 to another 

chapter, and the actions or positions of the Chapter 7 Trustee were a factor in the 

conversion of the case. Since cases are most often converted from Chapter 7 to 13 

73

without the processing of a formal § 707(b) motion (a threat of a motion is often sufficient), Trustees should be allowed compensation if their actions or positions were 

a factor in the conversion of the case (i.e., discovery of undisclosed or undervalued 

assets). 

Trustees have and will continue to direct those Debtors who have an ability to 

repay some or all of their debts into a Chapter 13 repayment plan. It was the intent 

of Congress to reward us for these efforts, and encourage our continued vigilance. 

6. Avoiding Automatic Dismissal in Asset Cases 

The ACT modifies § 521 of the Code to compel an automatic dismissal of cases 

where certain information is not timely provided. If a Debtor does not reaffirm or 

surrender collateral within 45 days after the first meeting of creditors, the automatic stay under § 362(a) is terminated and the property ‘‘shall no longer be property of the estate,’’ even if there is equity in that property for the benefit of the estate. 

The automatic dismissal language raises concerns insofar as it renders valuable 

property ‘‘no longer property of the estate’’ and places it beyond the reach of the 

Trustee or the court. Trustees may not be able to determine whether there are 

unencumbered non-exempt assets to administer by the deadlines imposed under 

§ 521, in part, because debtors who are dilatory in reaffirming/surrendering are 

often unresponsive to trustees. Although trustees may ask for extensions of the 

§ 521 deadlines, circumstances may prevent the trustee from having sufficient information to support a motion for an extension of time. 

7. Increase in ‘‘No Asset’’ Fee 

Under the present law, Trustees receive $60 for administering Chapter 7 cases 

in which ‘‘no assets’’ are liquidated. The last increase in this Trustee compensation 

occurred in 1994, when the fee was raised from $45 to $60. 

The ACT imposes new, and more duties on Chapter 7 Trustees. There are significantly more documents to review, notification of specific classes of creditors (child 

support claimants), a higher degree of scrutiny of the true economic status of individual Debtors (review of income tax returns and payment advices prior to conducting a Section 341 meeting of creditors), and more statistical reporting in order 

to allow a monitoring of the effectiveness of the system. 

NABT is actively involved in educating Trustees as to implementation of the ACT 

and fulfillment of these new requirements. It is the statutory duty of Chapter 7 

Trustees to acclimate themselves to the new system, so that they can continue to 

properly administer bankruptcy cases. 

Sixty dollars (the fee for the last 12 years) is not fair and adequate compensation 

to administer a bankruptcy case. Our Association strongly believes that an increase 

in this fee, even if it is moderately less than the $40 per case increase Congress 

passed last year, is in order. Without a fee increase, many young attorneys will 

choose not to become Trustees. This will make the system slower, more cumbersome 

and less efficient for all parties involved, both debtors and creditors. There has been 

bipartisan support for raising Trustee compensation for no asset cases. We again 

urge the Congress to act on this increase without delay. We would also request that 

any increase be subject to a consumer price index adjustments so that are fees are 

not frozen as they have been for the past 12 years. 

8. Percentage Compensation in Cases with Assets 

Section 326 needs to be amended to address and provide for increased percentage 

applications, particularly to small asset cases, if not to all asset cases. Trustees are 

not paid on surplus distribution to debtors, but only on ‘‘all moneys disbursed or 

turned over in the case by the trustee to parties in interest, excluding the debtor. . . .’’ The section should be amended to increase the percentage applications extending the 25% on the first $5,000 to the first $25,000, with commensurate adjustments thereafter. An increase in this category would offset the small fee compensation we receive per case. Additionally, creditors and the public benefit if trustees 

are adequately incentivized to locate assets that might be hidden from the bankruptcy court. 

As we mentioned above, the figures in Sec. 326 should also be subject to consumer 

price index adjustments every three years, like other parts of the bankruptcy code. 

We know the Act provides for increases automatically for chapter 13 trustees (5 

U.S.C. 5303); debtors’ exemptions (11 U.S.C. 522); involuntary case qualifying 

amounts; chapter 13 qualifying amounts; preference actions; and many more, but 

there is no increase for trustees. 

This concludes my statement. NABT looks forward to working with you during 

this Congress, particularly on the compensation issue which affects our members 

ability to carry out this Act. 

74

Thank you.

Ms. SA ́ NCHEZ. Also, a document from the American Bar Association with respect to the subject of today’s hearing, ‘‘Are Consumers 

Really Being Protected Under the Act?’’

[The information referred to follows:]

LETTER AND SUPPORTING DOCUMENTS FROM THE AMERICAN BAR ASSOCIATION, SUBMITTED BY THE HONORABLE LINDA SA ́ NCHEZ, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF CALIFORNIA, AND CHAIRWOMAN, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW


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Ms. SA ́ NCHEZ. Also, testimony—it’s actually a letter attaching the 

decision of a District Court in Minnesota regarding the term ‘‘debt 

relief agency,’’ as defined in the appropriate U.S. Code. 

[The information referred to follows:]

LETTER AND SUPPORTING DOCUMENTS FROM CHAD WM. SCHULZE, ESQUIRE, 

MILAVETZ, GALLOP & MILAVETZ, P.A., SUBMITTED BY THE HONORABLE LINDA

SA ́ NCHEZ, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND

CHAIRWOMAN, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW


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Ms. SA ́ NCHEZ. And, lastly for the record, I would also like to submit the infamous Form 22 with its 57 parts of inquiry that folks 

who are interested in filing bankruptcy claims must fill out to 

begin that process. 

[The information referred to follows:]

OFFICIAL FORM 22A (CHAPTER 7), SUBMITTED BY THE HONORABLE LINDA SA ́ NCHEZ, 

A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND CHAIRWOMAN, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW


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Ms. SA ́ NCHEZ. And without objection, so ordered. 

We are now going to begin a round of questioning. Members will 

each have 5 minutes to question the witnesses. I would ask the 

witnesses to be mindful of the fact that we have but little time 

each to ask questions, so try to be brief in your responses. 

And I would like to begin with Mr. Bartlett with my first question. You’ve testified also before the Senate Judiciary Committee 

last December, and in that testimony you stated that, quote, ‘‘We 

need to reach consumers much sooner in the financial cycle so that 

credit counseling can live up to its full potential. If consumers wait 

until they are completely under water, counseling may not live up 

to its full potential.’’

How would you propose to reach consumers much sooner in the 

financial cycle? Because apparently, as we’ve seen from Ms. Burroughs, sometimes people with the best of intentions have to begin 

the bankruptcy process, and that is really when the counseling 

kicks in. 

Mr. BARTLETT. Madam Chair, ironically one of the probably unintended or at least undiscussed outcomes of the new law is that consumers are getting to counseling earlier, but they’re not getting in 

in a way that shows up in the statistics. We survey all the certified 

credit counseling agencies and we’ve determined that about 30,000 

counseling sessions a month, additional sessions happen with these 

certified agencies more than were happening in prior years. And 

we think that is because these agencies are certified, consumers 

can find them on the Internet, they’ve been certified by the U.S. 

Justice Department, so it gives the consumers a much higher sense 

of satisfaction. 

We think the other thing that is happening is that with the publicity about it, with the conversations about it, we think that consumers are increasingly aware that the earlier they get to the 

counseling the better they are and the easier it will be and easier 

to accommodate. 

And then third is we as an industry, we are pushing all kinds 

of information to consumers to say get thee to a counselor. If you’re 

having difficulty, then counselors can help because they can help 

you with your money management. 

So is it going to be perfect? Is everyone going to get to a counselor early in the process? No. 

Ms. SA ́ NCHEZ. So you believe the majority of consumers are getting the credit counseling that they need early enough in the process? 

Mr. BARTLETT. No, I wouldn’t say majority. I wish life were that 

good. I would say that a lot more today because of this new law 

than were prior to the law, because of the certification process and 

the industry is promoting it, is telling consumers to get to a counselor and we’re making it available. 

Ms. SA ́ NCHEZ. Mr. Sommer, do you have any thoughts about 

whether or not debtors are getting their credit counseling advice in 

a way that is timely given the circumstances that they’re in in 

terms of thinking about bankruptcy? 

Mr. SOMMER. Unfortunately, most debtors go to counseling only 

when they find out the requirement to file bankruptcy. And by 

165

then, as the counselors themselves say, hardly any of them are financially capable of doing a debt management plan. 

The counseling is particularly a problem in timing when people 

are facing foreclosure, such as Ms. Burroughs, because it can serve 

as an impediment when the foreclosure sale may be very imminent. 

And there are courts that have said that people who get counseling 

on the same day as they file bankruptcy can’t file bankruptcy. 

So we think there are certain categories of people at a minimum 

who ought to be exempted from counseling when it’s clear counseling can’t stop a mortgage foreclosure. 

Ms. SA ́ NCHEZ. Thank you. Mr. Bartlett, in his prepared testimony 

described a lawsuit filed in Connecticut in which he said the plaintiffs in this case believe that attorneys have a right under the Constitution to deceive the public, hide information from clients, or advise consumers to commit fraud by running up debts just before filing for bankruptcy to gave the means test. Are you familiar with 

that lawsuit, Mr. Sommer? 

Mr. SOMMER. Actually, our organization is a plaintiff along with 

the Connecticut Bar Association in that lawsuit. 

Ms. SA ́ NCHEZ. What would your response be to Mr. Bartlett’s 

characterization? 

Mr. SOMMER. Well, that is simply a false characterization of a 

lawsuit. It would be ridiculous to argue that attorneys have the 

right to counsel their clients to commit fraud, and we made no such 

argument, as the papers would demonstrate. Our argument was 

that professional ethics already prohibit that kind of activity. And 

really the provisions of the law which prohibit advice about lawful 

activity impair attorneys’ ethical duties to fully advise their clients 

about lawful means of dealing with their problems. 

Ms. SA ́ NCHEZ. Thank you. Mr. Bartlett, over the nearly 8 years 

that the BAPCPA was under consideration by Congress, we continuously heard that each American family was paying a $400 to 

$550 ‘‘bankruptcy tax’’ for bankruptcy filing. Since the enactment 

2 years ago have interest rates dropped significantly? 

Mr. BARTLETT. I don’t know that they have, and I don’t know 

that you could point to one law as either increasing or decreasing 

interest rates. 

Ms. SA ́ NCHEZ. Have the costs of goods and services been lowered 

in response to the perceived savings resulting from the enactment 

of the act? 

Mr. BARTLETT. I would say the cost have declined. We’re running 

at an average of about a 1.5 million consumer bankruptcies a year 

prior to the law. And last year it was 537,000. We think it will be 

about half, about 700,000. So it would be 700,000 fewer bankruptcies. 

Ms. SA ́ NCHEZ. But I’m specifically referring to this ‘‘bankruptcy 

tax’’ that we heard about over and over and over again. I mean, 

I can only tell you what my experience is. I get solicitations for 

credit cards in the mail every day. And the interest rates that 

they’re asking me to pay are 24.99 percent. I think the lowest one 

I have recently received, and I have an excellent credit rating, I 

might add, was like for 19.99 percent. 

I haven’t seen a significant decrease in the interest rates on credit cards that are being offered as a result of the enactment 2 years 

166

ago. And yet one of the major arguments we heard over and over 

and over again in response to why we should support this bill was 

that consumers are paying this huge ‘‘bankruptcy tax’’ and that if 

we just cut down all the frivolous bankruptcy filings every consumer’s interest rates are going to go down. 

Mr. BARTLETT. Madam Chair, the purpose of the new law, the reform, is to stipulate that those consumers who can pay some or all 

of their debts and who are above the median income are expected 

to do so. That is exactly what’s happening. And those that cannot 

can go into chapter 7. And that is what’s happening also, about 

700,000 chapter 7s. And then the—about 700,000 in bankruptcy. 

And the rest are not filing for bankruptcy because they can pay 

some or all of their debts. And that was what the law intended and 

that is what’s happening. 

Ms. SA ́ NCHEZ. So the argument about ‘‘bankruptcy tax’’ was just 

a specious argument then; it was never intended to save consumers 

money through lower interest rates? 

Mr. BARTLETT. I don’t think it was specious at all. I think the 

total savings are the total savings and those are reflected in the 

total cost of goods and services in the economy. If people file for 

bankruptcies and don’t pay their debts and they could pay their 

debts, that is a bad thing. We think that is a bad thing if someone 

can pay their debts and aren’t required to. 

Ms. SA ́ NCHEZ. I’m just going to interrupt you and say I take offense at the argument that it was going to have this effect that 

consumers were going to pay less in interest rates if we could reduce the number of actual bankruptcy filings. 

My time has expired. I would now like to recognize my distinguished Ranking Member for 5 minutes of questioning. 

Mr. CANNON. Madam Chair, I’m happy to defer to Mr. Feeney, 

who I think has another obligation, and to the other Members of 

the Committee who may have other interests or commitments, and 

I would be happy to go last. 

Ms. SA ́ NCHEZ. I appreciate your generosity. 

Mr. Feeney. 

Mr. FEENEY. I thank the Chairwoman, and I thank the Ranking 

Member for his hospitality. 

On that last point, Mr. Bartlett, is it your position that there are 

dozens, hundreds, perhaps thousands of variables, including international markets, that affect interest rates on an ongoing basis and 

the cost of goods? 

Mr. BARTLETT. Of course. There are a lot of things that set the 

interest rates, Chief among them the Federal Reserve. The cost of 

bankruptcy is a real cost and it’s a cost that is spread out throughout the economy. 

Mr. FEENEY. Is it your position marginally of the thousands of 

variables, including international variables, one variable that tends 

to lower in your opinion the cost of interest and the cost of goods 

would be relatively tight bankruptcy rules so that fewer people are 

availing themselves of them? 

Mr. BARTLETT. I think that’s correct. I think bankruptcy should 

be available to people that cannot pay their debts and not available 

to those who can, roughly speaking. 

167

Mr. FEENEY. And in general, losses to the economy that result 

from, I don’t want to say frivolous, but liberal bankruptcy applications, what will they tend to do to job creation for Americans, prosperity and the national economy, realizing again that it’s just one 

of thousands of potential variables? 

Mr. BARTLETT. We have two effects. If bankruptcy allows people 

who otherwise can pay their debts not to do so, as it did prior to 

this law, two things happen. One is that credit tightens up for everyone because creditors are then much stricter on offering the 

credit. So those that can and would pay their debts are sometimes 

denied and they shouldn’t be. 

Secondly, the costs go up. So those goods that someone purchased 

and didn’t pay for have to be paid for by everyone else. 

Mr. FEENEY. Have you seen any studies or have you reviewed 

any work of others or do you have an opinion as to the rough percentage of bankruptcies that come about because of poor decisions 

and poor understanding of financial literacy versus bad luck, people that have a bad health situation, people that get thrown out of 

a job. At the turn of the century if you were an expert in manufacturing buggy whips, when the automobile came along you were in 

some trouble. Do you have an opinion relatively what the preponderance of the burden is? 

Mr. BARTLETT. The survey I’ve seen that is most on point to your 

question was done by the gold standard group of credit counselors, 

the National Federation of Credit Counselors. Most of their agencies are certified by the Justice Department. And they asked their 

consumers or their clients who would call for credit counseling, and 

they would ask them what do you think got you into trouble? And 

I think it was about 69 percent of those debtors self-identified. 

They said what got us into trouble was poor money management. 

About 30 percent was a major loss of job or loss of income. And 

the rest was medical or divorce or disability. About 4 percent, 

something like that. So about 69 percent, according to that study, 

is poor money management. Other counselors I talked with confirmed that that’s about the right ratio. 

Now, that leaves a large group that is loss of income, and if that 

loss of income is permanent, well, then some kind of restructuring 

has to occur. If it’s temporary, then lenders can figure out some 

way to accommodate. 

Mr. FEENEY. Well, I don’t think—my guess is you don’t, and I 

don’t want to blame the victim here, but a big part of the problem—you talked about early counseling and education if somebody 

gets into trouble and before they get above their head in hot water, 

but the truth is that a significant portion of the problem, perhaps 

the 70 percent figure, give or take, that you cited comes from lack 

of parents and especially our public education system early on, 

having people understand things like the Rule of 72, compound interest of money, what happens to savings. I mean, America’s savings rates is one of the real problems for our economy. And so are 

there things that the Business Roundtable can suggest over time 

that will help all Americans avoid unnecessary problems as opposed to people that just have a horrible misfortune? 

Mr. BARTLETT. We see it as a shared responsibility. We as an industry, we have the responsibility to explain the terms clearly, and 

168

we sometimes fall short of that, with all candor, but we work at 

it every day. We have the responsibility then to reach out to consumers that get in trouble, provide counseling, try to help them refinance if we need to, try to provide some way that they can get 

out of trouble, provide for counseling so that they can make better 

management decisions. The consumers, the borrowers, also have a 

responsibility to avail themselves of that counseling early to make 

better management decisions. Congress has a responsibility to provide oversight of this law, the courts have a responsibility, the attorneys, the bankruptcy attorneys have a responsibility to explain 

clearly what——

Mr. FEENEY. I want to ask one more quick one. On balance 

you’ve got $1.1 trillion worth of activity that your companies represent on an annual basis. On balance are those companies much 

better off if we have fewer people get in hot water or more people 

get in hot water? 

Mr. BARTLETT. The companies are better off when the consumers 

are better off and the consumers are better off when the companies 

are better off, so it’s a shared responsibility. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

Mr. Johnson is recognized for 5 minutes. 

Mr. JOHNSON. Thank you, Madam Chair. 

Mr. Bartlett, it wasn’t the consumer debtors lobby that was responsible for causing the passage of this so-called Consumer Protection Act of 2005, was it? It wasn’t the debtors lobby or the consumers who were itching for a change, was it? 

Mr. BARTLETT. Well, the consumers are our customers. 

Mr. JOHNSON. Well, no, no, no, no, no. Answer my question. It 

wasn’t the consumer lobby that was asking for a change in the 

Bankruptcy Code? 

Mr. BARTLETT. Right, I think that is accurate. 

Mr. JOHNSON. It was actually the creditors lobby, those who extend credit, isn’t that correct? 

Mr. BARTLETT. Congressman, I think it was the Members of Congress that voted for the bill. 

Mr. JOHNSON. But there was a sustained lobbying effort that 

brought about a change in the existing bankruptcy law, and that 

effort was led by the creditors lobby, isn’t that correct? 

Mr. BARTLETT. On the lobbying side, yes, sir. 

Mr. JOHNSON. And the creditors, what they wanted to do was 

make it more difficult for debtors to be able to file for relief under 

the Bankruptcy Code, either 7 or 13, isn’t that true, they wanted 

to make it more difficult? 

Mr. BARTLETT. No, sir. 

Mr. JOHNSON. Well, they actually succeeded though in making it 

more difficult and onerous for people who were in dire straits to actually file a successful petition for either 13 or 7, isn’t that correct? 

Mr. BARTLETT. No, sir. 

Mr. JOHNSON. Okay. Well, you disagree and I disagree with you 

on that. But a person such as Ms. Burroughs—Ms. Burroughs, I 

think you testified that you read some papers, you had to refinance 

your home a couple of times because of a job loss and your husband 

was deployed to Iraq, he’s still serving over there. You apparently 

signed some papers to close a loan that provided for accelerated 

169

payments, your mortgage payments were going up and it was just 

difficult for you all to be able to make it under those circumstances, 

and so you got to the point where you had no alternative but to 

declare bankruptcy, is that correct? 

Ms. BURROUGHS. Right. 

Mr. JOHNSON. And you went in and filed a chapter 13. 

Now, how, Mr. Bartlett, has this so-called Consumer Protection 

Act of 2005 helped people such as Ms. Shirley Jones Burroughs? 

Mr. BARTLETT. It continued to make it possible for her to file for 

bankruptcy if she could not pay her debts. 

Mr. JOHNSON. It made it more difficult for her to file, didn’t it? 

Mr. BARTLETT. No, sir, I don’t believe so. That is why she filed 

and she successfully filed for chapter 13, because she can pay some 

of her debts. 

Mr. JOHNSON. It cost her more to file though, didn’t it? 

Mr. BARTLETT. Congressman, it allowed her to keep her home, 

which is what chapter 13 is for. Among other things, it allows her 

to keep her home as a secured debt so as she makes her payments 

on the home she can keep it. Without the protection of bankruptcy, 

of chapter 13, she could not do that. 

Ms. SA ́ NCHEZ. Will the gentleman yield for a quick second? 

Mr. JOHNSON. Yes. 

Ms. SA ́ NCHEZ. But, Mr. Bartlett, that relief was available prior 

to the changes in the act in 2005, is that not correct? 

Mr. BARTLETT. That’s correct. We strengthened the act in some 

ways. 

Ms. SA ́ NCHEZ. But the ability for a debtor who experiences a job 

loss or some loss in income to keep their home was available prior 

to the changes in the act? That is the question I’m asking you. A 

simple yes or no question. 

Mr. BARTLETT. Yes, it was. 

Ms. SA ́ NCHEZ. I thank the gentleman for yielding. 

Mr. JOHNSON. But basically what this new act did was remove 

the ability of persons like Ms. Burroughs to be able to have the 

court make an adjustment in the terms of the mortgage on her 

principal resident? 

Mr. BARTLETT. Congressman, I don’t believe a bankruptcy court 

under the old law was able to adjust to a secured rate, a secured 

mortgage. I think that bankruptcy, you can adjust the unsecured 

but not the secured. That is what makes it secured versus unsecured. That is the basic difference. In a secured mortgage that is 

why you have the lower rates, is because it’s secured by property, 

unsecured is not. 

Mr. JOHNSON. All right. Thank you, sir. Let me ask Mr. Sommer 

to respond to that also. 

Mr. SOMMER. The 2005 amendments did make chapter 13 more 

difficult in a number of ways. You have the credit counseling, you 

have the credit education, you have to file 4 years worth of tax returns, there are a number of other requirements that were added 

which make it more difficult and more expensive to save a home. 

Mr. JOHNSON. And suppose one does not have the documents 

that are required under the act that are prerequisite. What happens in that case? 

170

Mr. SOMMER. There are many cases that have been dismissed for 

people not having those documents. Sometimes very minor defects. 

People who submitted most of their pay stubs, but not quite all 

within the 60 days, the United States Trustee moves to dismiss 

those cases. And so the dismissal rate is higher. And because the 

cost of bankruptcy is higher more people are trying to file without 

a lawyer and running into trouble. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. 

The gentlewoman from California, Ms. Lofgren.

Ms. LOFGREN. Thank you, Madam Chairwoman, and thank you 

for having this hearing, which I think is very important. As Members know, I thought that our enactment of this so-called reform 

bill was a mistake, and I think what we have learned since then 

has proven those concerns to be correct. 

I would like to just thank Mrs. Burroughs for coming here. I 

know it is hard to talk about your own experience, especially with 

your husband deployed in Iraq for our country. Your patriotism is 

something we want to acknowledge and appreciate. And to tell your 

story really I think explains the problem here. 

You and your husband have worked hard to provide for your 

home with your two children. It’s the American dream. I mean you 

are the American dream, and to have what happened to you occur 

shows what’s wrong here. You have worked hard, you’ve actually 

had a very substantial income because of your hard work. And yet 

with this mortgage payment issue coupled with our Bankruptcy Act 

and your husband’s deployment and your job loss, which believe me 

can happen in any family no matter how hard people work, you’ve 

ended up in this very distressing situation. 

As I think about all the things that we were concerned about in 

the markups, the years of discussion of the Bankruptcy Act, I don’t 

know that the credit counseling provision was a major focus. And 

yet as it’s played out it has had a very pernicious effect and, from 

the GAO report, almost no positive impact because by the time people get to this situation there’s nothing left to manage. I mean they 

have a very serious situation. 

I’m interested, Mr. Sommer, and again thanks to you because of 

your advocacy, I’m from San Jose so I know about the consumer 

bankruptcies and their volunteerism, the interplay between home 

foreclosures and the credit counseling. Can you talk about that? 

People are scrambling to keep their homes and then all of a sudden 

there’s this new requirement they didn’t know about. Can you just 

explain that in more detail? 

Mr. SOMMER. Well, basically first of all, you should understand 

that credit counseling cannot stop a mortgage foreclosure. 

Ms. LOFGREN. We know that. 

Mr. SOMMER. A debt management plan deals typically with credit card debts and not with mortgage debts. What happens very 

often is that people are attempting to negotiate with their mortgage company. And a lot of the mortgage companies say they offer 

these loan modifications, people are negotiating, but at the same 

time the foreclosure is going full speed ahead. And it’s not until the 

brink of the sale that they figure out that this loan modification 

isn’t going to happen, I’m going to have to do something else. They 

come in at the last minute to file a chapter 13 to stop a foreclosure 

171

and then they find out they have to get the credit counseling. And 

sometimes it’s just one more barrier. Usually they can get it, usually it’s not a problem. There are a few courts that have held you 

can’t get it on the same day you file the petition, which I think is 

wrong. But it’s one more obstacle in their way at a time when 

they’re absolutely frantic. And any educational purpose would be 

much better served by the education they would get later in the 

bankruptcy case. 

Ms. LOFGREN. Well, here’s a question I have. I mean, there are 

certainly the individual human tragedies that we care about, and 

Mrs. Burroughs and her family have outlined them. A family that 

earned $97,000 a year in 2005 and yet because of this mortgage 

problem and the interest rates and the compounding—it looks to 

me illegal compounding—they have been put in this situation. But 

then there’s the macro situation. And we are concerned about what 

is happening to the American economy because of the level of foreclosures and what that might do to the entire liquidity of the 

American economy. 

Can you draw a connection between the foreclosure rate, this 

credit counseling provision, and the whole macro American economy that is such a concern to us? 

Mr. SOMMER. What happened to Ms. Burroughs is very typical of 

people who have been subjected to these kinds of loans. She probably would have qualified for a market rate loan based on her income, but she was steered to somebody who gave her a subprime 

loan and then encouraged to refinance a number of times where 

she got nothing from the loans other than a much higher loan balance. 

I think it’s symptomatic of the lack of regulation in that industry 

and probably the tilt policy wise in our banking regulators toward 

the private industry. 

Ms. LOFGREN. If I may, my time has expired. I will just note that 

the foreclosure rate is causing certain parts of the country to panic 

because it’s going to have an impact, not just on those who are suffering, but on the entire real estate market that is then going to 

have an impact on the entire economy of the United States. And 

sometimes when you have the little nail in the horseshoe, you can 

find something as simple as this that helped cause those problems. 

And I yield back. 

Ms. SA ́ NCHEZ. Thank you. The time of the gentlewoman is expired. 

The gentleman from Massachusetts, Mr. Delahunt, is recognized 

for 5 minutes. 

Mr. DELAHUNT. Mr. Bartlett, you in your testimony indicate that 

bankruptcy filings are down? 

Mr. BARTLETT. Consumer bankruptcy filings are down by about 

half of what it had been for every year. 

Mr. DELAHUNT. Has there been a study in terms of causal relationship between the bankruptcy law and the fact that the bankruptcy filings are down? 

Mr. BARTLETT. I don’t know of a specific study on point. I don’t 

know of anyone that believes it’s for any other reason. 

Mr. DELAHUNT. But there hasn’t been any scientific study? 

172

Mr. BARTLETT. I would have to search my mind. I don’t know of 

one. I hadn’t heard the question asked before. I believe most people 

believe it was directly from this law. 

Mr. DELAHUNT. With all due respect, most people believe—you 

know, when I was a kid I believed in Santa Claus. 

Mr. BARTLETT. Most people believe in Santa Claus, too, Mr. 

Delahunt.

Mr. DELAHUNT. And Santa Claus can be good. But to suggest 

that there’s a proximate cause between filings and the passage of 

the bankruptcy law in 2005 and the fact that it’s down, I would respectfully suggest that there are multiple, there are most likely 

multiple reasons other than the bankruptcy law that filings, consumer bankruptcy filings are down by 50 percent. 

Mr. BARTLETT. Congressman, that well could be. I do have some 

statistics as I’m now searching around. 

Mr. DELAHUNT. Okay. Search a little and tell us what the search 

discovers? 

Mr. BARTLETT. We hired a statistician and did some statistical 

tracking of the bankruptcy filings. And what we discovered is that 

the law was enacted, as I recall, in April of 2005, and I’m going 

by memory, with an effective date in October of 2005, as I recall. 

Mr. DELAHUNT. Correct. 

Mr. BARTLETT. And so bankruptcy filings, as I said earlier, had 

been analyzed. 

Mr. DELAHUNT. And there was a real spike going up to October 

2005. 

Mr. BARTLETT. Right. And then it dropped like a rock to where 

bankruptcy filings were almost nonexistent. There are a lot of reasons for that. 

Mr. DELAHUNT. So after October 2005 we entered into the age of 

good times again? 

Mr. BARTLETT. No, sir. The filings were premature. Many of the 

filings were premature. It is clear that that spike in filings was 

caused by the anticipation of the October effective date. And then 

the filings came back up and leveled out beginning around April of 

2006 and have trended up slightly since then, but by and large 

stayed about the same with some slight trend up. 

Mr. DELAHUNT. Thank you for the statistics, but going back to 

my original question, there’s absolutely no evidence to support a 

causal relationship other than surmise between the dramatic decline over the past, well, past year or so in terms of bankruptcy filings. Having said that, I guess today is about how it’s benefited the 

consumer. I remember sitting here—how much of the—what’s the 

average decline in terms of the interest rate charged by credit card 

issuers since the bankruptcy bill has been, since the effective date 

of the bankruptcy bill? 

Mr. BARTLETT. I don’t know because I don’t think it could track 

exactly that precisely. Interest rates are charged for a lot of reasons of which the costs of bankruptcies that shouldn’t have been 

filed is one of them, but most of it is monetary policy set. 

Mr. DELAHUNT. It was represented to us that we would witness 

a decline in the interest rates by credit card issuers because the 

losses that they were experiencing as a result of bankruptcies was 

in the billions of dollars. But I would challenge you to go back to 

173

the Roundtable and come back to us with a statistic that shows 

that there has been any decline whatsoever in terms of credit card 

issuers in terms of a real benefit to the consumer. If you would do 

that for me, I would be—if you would just shake your head, even 

up and down nodding. 

Mr. BARTLETT. Congressman, I don’t believe with your premise 

that you can have that exact a connection. I do believe if there are 

700,000 fewer bankruptcies that had been occurring and are not occurring, those costs then are not absorbed as a dead weight by the 

economy and so therefore those costs are not spread back into the 

economy. 

Mr. DELAHUNT. Are you trying to tell me then that over some 

time we can expect those savings that have been achieved to result 

in lower interest rates to the consumer? 

Mr. BARTLETT. Not in a way in which you can write it down on 

a statement, as you asked the question, but in a way of 700,000 

times the cost of each bankruptcy that is a lesser dead weight cost 

to the economy. 

Mr. DELAHUNT. I’m not talking about the economy in a macro 

level. I’m talking about real people like Mrs. Burroughs. You know, 

all the Mrs. Burroughses and the Congressman Delahunts and the 

Mr. Bartletts, are we going to finally see a reduction in credit card 

interest rates because of this bill? 

Ms. SA ́ NCHEZ. The time of the gentleman has expired, but I will 

allow the witness to answer briefly. 

Mr. BARTLETT. Congressman, I don’t believe we are going to 

agree on the context of your question. I’m trying here, but I believe 

it’s a cost to the economy which is spread out to all consumers. I 

don’t think that——

Mr. DELAHUNT. I think you really have answered my question. 

Thank you. 

Ms. SA ́ NCHEZ. The time of the gentleman has expired. Thank 

you, Mr. Delahunt.

Mr. Watt is recognized for 5 minutes. 

Mr. WATT. Thank you, Madam Chair, and thank you for conducting the hearing. Actually this gives me an opportunity to bring 

together service on two different Committees, the Financial Services Committee and this Subcommittee, in a way that I don’t often 

have an opportunity to do. 

Let me first deal with this counseling thing. Obviously people are 

getting more counseling, credit counseling at some point. And one 

of the things that Ms. Jones said is that it’s likely to be too late 

in the process. I think everybody agrees with that. 

Mr. Bartlett, you’re familiar with the Homeownership Equity 

Protection Act. We’ve been dealing with possible amendments to it 

in Financial Services to deal with predatory lending. And one of 

the things in that act, one of the questions we’ve been trying to resolve, is whether some kind of mandatory credit counseling before 

a borrower could obtain a subprime loan would be appropriate. The 

current HOEPA Law has no provision in it. North Carolina’s 

HOEPA law does have a provision in it that requires mandatory 

loan counseling before one can get a subprime loan. 

What is the Roundtable’s position on whether we should carry 

that North Carolina standard into the Federal HOEPA Law? 

174

Mr. BARTLETT. Congressman, first, let me say we appreciate your 

leadership on the Financial Services Committee in the area of 

subprime. We have a lot of work to do in that area, as you know, 

and we’re all sharing the responsibility to do it. 

On mandatory credit counseling, we have not endorsed that yet. 

We’ve thought about it, we’ve talked about it and we may end up. 

Mr. WATT. Wouldn’t that be one element, one means by which 

you can advance the counseling—I mean it would be a little bit different, obviously, but if the problem, if the real problem is that people are waiting too late to get credit counseling, this would provide 

some means of advancing it to an earlier stage. And one of those 

opportunities would be in a context where people are getting into 

these high risk loans which are not. We’re not indicting subprime 

loans in general but they generally tend to be more risky than 

prime loans. That is why they’re called subprime loans. So that 

would be one opportunity. Do you think that is a good idea personally, not speaking for the Roundtable? 

Mr. BARTLETT. Let me suggest what I think is a good idea which 

comes pretty close to what you’re asking. One is we’ve set up a 

whole series of voluntary counseling services in a project, as you 

know. 

Mr. WATT. But that is not working. I mean it’s working at some 

level. I don’t mean to suggest it’s not working at all, but it’s not 

achieving the uniform result that I think everybody at this table 

indicates. Better education and counseling would help in this area 

in some respects, isn’t that right? 

Mr. BARTLETT. We are for earlier counseling, better counseling 

and——

Mr. WATT. All right. We’ll take that up in another context. 

Let me go to the second question which has been raised by Mr. 

Sommer here, because the current Bankruptcy Code really doesn’t 

allow for any revisions to be made to a mortgage loan as it does 

with consumer loans. What do you say about Mr. Sommer now, I 

know that you’re going to point out the problems that some of them 

are securitized, they are sold to other financing people. But 

wouldn’t that be a good idea to give the bankruptcy court some 

flexibility in the area dealing with at least exploding adjustable 

rate mortgages and subprime loans, extending it to that extent? 

Mr. BARTLETT. Mortgage lenders will refinance, will reservice, 

will modify loan agreements and were very willing to do so, and we 

work it out with the borrower and with the counselor and I suppose 

sometimes with the attorney. But to give a bankruptcy judge the 

right to make an unsecured loan, to make a secured loan as if it 

were unsecured, we think would disrupt mortgage availability for 

everyone. So we think that is the wrong answer. But modifying the 

loan so that people can afford them and work it through we think 

is the right answer, and that is what’s happening now. 

Mr. WATT. You mean you don’t want the assistance of a bankruptcy court in working through this process? You think it’s actually better only if it can be done on a volunteer basis? 

Mr. BARTLETT. We think you ought to be careful what you pray 

for. You may get it. And if you give bankruptcy judges the right 

to turn a secured loan into an unsecured loan after the fact, you 

will drive up the home mortgage market. 

175

Mr. WATT. Can I just hear Mr. Sommer’s response, Madam 

Chair, and I ask unanimous consent for whatever time it takes for 

him to respond? 

Ms. SA ́ NCHEZ. Without objection. 

Mr. Sommer. 

Mr. SOMMER. Well, our proposal is basically to have the bankruptcy court do what the mortgage companies say they are very 

willing to do, but in practice people have found them a lot less willing to do, which is the kind of loan modification that does reset the 

payments, not turn the loan into an unsecured loan, but reduce it 

to the value of the actual property, reduce the interest rate to a 

fixed rate, which can be done with virtually every other kind of secured loan in bankruptcy other than a mortgage on a principal residence. 

So we are really asking for amendments that simply put into 

practice what the mortgage companies say they want to do. And incidentally, a number of bankers have told me that they would like 

this because about half of the securitized trusts prohibit loan modification. So when they want to do the modifications, which is better 

both for them and the borrower, they are prohibited from doing it 

by the securitized trust, and this would solve that problem. 

Mr. WATT. Madam Chair, could I ask for unanimous consent 

from one additional minute? 

Ms. SA ́ NCHEZ. Without objection, the gentleman is recognized for 

1 minute. 

Mr. WATT. Just to ask Mr. Bartlett, wouldn’t the effect of that 

be to make lenders a lot more careful about overextending credit 

in home mortgage situations? I mean basically what he’s proposing 

would allow a court just to bring it down to the value of the actual 

property. It will still be, it would still be a secured loan. What 

would be the problem with that? 

Mr. BARTLETT. Well, the devil is always in the details. But if you 

allow a court to change the terms of the security of a mortgage 

then it’s no longer a mortgage basically. Having said that, we want 

to, we do, we have all kinds of systems as lenders and as an industry to figure out a way to renegotiate the loan or the loan—terms 

of the loan or loan payment, loan modification. And it happens not 

just sometimes, it happens a lot to modify that loan to meet both 

needs. And that is what we do and that is what we set out to do. 

To put it in the hands of a court I think would make mortgage 

credit much more expensive and much less available to lower and 

moderate income people. 

Mr. WATT. I thank the Chair for the time. I did want to note that 

there is a very strong interplay between this and what we’re trying 

to do in the predatory lending area on the other side. So this is 

very helpful in trying to tie the two issues together. And I thank 

the gentlelady for yielding the additional time. 

Ms. SA ́ NCHEZ. We appreciate your work on both Committees. And 

when there’s an issue that crosses over like that we appreciate 

your expertise on this Subcommittee. 

Now I would like to recognize a very patient and very gracious 

Ranking Member for 5 minutes. 

Mr. CANNON. I’m not sure patience has a lot to do with it. I have 

to be here, I think, whereas other Members don’t. 

176

I want to thank the gentleman, Mr. Watt, because we’ve been 

conflating a lot of ideas here, and your questions just cut through 

to the chase. And it really comes down to what happens to the cost 

of mortgages in the end, so I appreciate it. 

Ms. Jones, you haven’t been asked a lot of questions because I 

think your testimony was very clear and we appreciate that and 

it’s very helpful. And Mr. Bartlett, of course you’ve been asked a 

lot of questions and I appreciate your clarity, and especially on this 

last answer, because there’s been a lot of concern here. Ms. Lofgren 

has left, but I want to associate myself with her remarks in relation to you, Ms. Burroughs. This is a very tough thing to come in. 

We’ve got all these things talking about fancy schmancy stuff. 

You’ve got to be on the Financial Services Committee to really get 

it in some ways. So we thank Mr. Watt for being here. But you’re 

the person who got the creepy loan. If I’m reading this right—look, 

and I have some sympathy. I’ve done several mortgages in my life. 

Always the closing costs, with two exceptions, were much higher 

than anybody expected, and so you’re digging deep to try to cover 

the costs. And then who knows what all that detail says. And we’ve 

created so many laws at the Federal level requiring disclosure that 

there are literally, I suspect, the last time I did a mortgage, there 

were probably two dozen pages I had to sign. I guess you could 

have read them. I didn’t have time to read them. And frankly I 

don’t have the expertise to do that. So that leaves us all in a bit 

of a bollix. But as I understand it, your biggest problem in life is 

not so much the bankruptcy process. In fact you seem relieved 

about being able to get through the bankruptcy process. Your problem was the creeps who probably misrepresented the loans that 

you entered into? 

Ms. BURROUGHS. Right. 

Mr. CANNON. The record should reflect that she’s nodding, saying 

yes. 

Ms. BURROUGHS. Yes. 

Mr. CANNON. Thank you. So we have a problem. And many people have talked about the issue of the subprime loans. And our 

question is how we actually deal with that in the long term. 

Now, Mr. Sommer, you talked about a cost of $500 per family 

and spoke in your oral testimony about how that wasn’t being offset by about, I think you said, $100 per payment on average by 

that half percent of the people that end up paying into the system 

that were unexpected. Is that unfair for me to conflate those two 

statements that you made? 

Mr. SOMMER. I’m not sure exactly what you’re saying. But what 

I was saying is there’s a tremendous cost to every bankruptcy debtor from all the additional burdens, and the vast majority of them 

are nowhere near——

Mr. CANNON. We’re talking about there’s an anticipated savings 

per consumer of $500. And you conflated that with the payment 

made by an individual debtor in this very small half of 1 percent 

that is now paying, the group that is additionally paying into the 

system. 

Mr. SOMMER. I was referring to what some of the other Members 

referred to; the promises that were made by the credit industry 

about the savings to the economy of $400 to $500. And the fact is 

177

that there’s a much larger burden, which is probably closer to $500 

or $1,000 on each consumer bankruptcy debtor and added cost. 

Mr. CANNON. You talked in particular about the payment that is 

being made by this one-half of 1 percent that is now being put into 

a chapter 13 payment. That on average I think you said was $100, 

is that correct? 

Mr. SOMMER. Oh, I know. The $100 is the floor on the means test 

formula threshold. In certain circumstances if you’re deemed by the 

means test to be able to pay $100 a month, then you are presumed 

to be abusive and a motion can be filed to dismiss your chapter 7. 

Mr. CANNON. Were you putting those two things together; the $500 proposed savings? It seemed in your testimony you’re not. 

Mr. SOMMER. No, not really. 

Mr. CANNON. Because they’re not really joined? 

Mr. SOMMER. No, they have nothing to do with each other. 

Mr. CANNON. I’m concerned. We have the highest rate of home 

ownership in America today than we have ever had. We have some 

very serious problems now with the marginal lending and the advantage I think that some lenders are taking, and the perhaps 

fraud, in these marginal lendings. But isn’t it true that if you begin 

to fiddle with the system that the cost for people who would otherwise be able to get into a home would rise, Mr. Sommer? 

Mr. SOMMER. I don’t think so. First of all, like Ms. Burroughs, 

a lot of people are sold mortgages that are at a much higher rate 

than they qualify for. 

Mr. CANNON. That is true. But that goes to the fraud of the lender. And also in Ms. Burroughs’ case what she’s saying is that lenders lied to her and she was expected to be a lawyer for herself and 

to go through and figure that out. That is a different issue than 

the financial system that allows her to get a mortgage, which one 

would hope would be a more honest mortgage. 

Mr. SOMMER. I guess I assume by fiddling with the system you 

included passing consumer protection laws that might regulate 

some of those practices. That is fiddling with the system in a sense. 

Mr. CANNON. But we’re talking here about bankruptcy. 

Mr. SOMMER. As far as the bankruptcy system, I think that allowing people to modify their mortgages in this way would, number 

one, get the same benefits that loan modifications get, which the 

mortgage companies want and, second of all, would make lenders 

more careful, and we probably wouldn’t have so many of these 

loans. So I’m not sure there would be a bad effect on the economy. 

I think it would be a good effect. 

Mr. CANNON. Well, if you didn’t have so many loans—if the 

Chairman would indulge me—if you didn’t have so many loans, obviously it would be nice to get rid of fraudulent loans, but I suspect 

that actual credit counseling and education of people who are going 

to get loans might actually help that, and there may be something 

we could do there. 

I appreciate the Chair’s indulgence. Let me just say that this is 

a very, very important issue. This is not a Republican or a Democratic, a conservative or a liberal issue. This is an issue about how 

we set the rules so that we get the best system so that we have 

the fewest kind of sick loans by people who cheat but, on the other 

hand, have a market that allows money to come in and move 

178

around adequately and be protected so that the people who want 

a mortgage can get it. 

Thank you, Madam Chair. I yield back. 

Ms. SA ́ NCHEZ. Thank you. I would like to thank all of the witnesses for their testimony today. Without objection, Members will 

have 5 legislative days to submit any additional written questions 

which we’ll forward to the witnesses and ask that you answer as 

promptly as you can, and those answers and questions will be 

made part of the record. Without objection, the record will remain 

open for 5 legislative days for the submission of any additional materials. 

Again, I thank everyone for their time and their patience. This 

hearing of the Subcommittee on Commercial and Administrative 

Law is adjourned. 

[Whereupon, at 12 p.m., the Subcommittee was adjourned.] 

(179)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

180

REPORT ON PERSONAL BANKRUPTCY STATISTICAL STUDY BY SMR RESEARCH CORP., 

SUBMITTED BY THE FINANCIAL SERVICES ROUNDTABLE, TO THE HONORABLE HOWARD BERMAN, CHAIRMAN, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY


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RESPONSE TO POST-HEARING QUESTIONS FROM STEVE BARTLETT, PRESIDENT AND

CEO, FINANCIAL SERVICES ROUNDTABLE, WASHINGTON, DC


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RESPONSE TO POST-HEARING QUESTIONS FROM HENRY J. SOMMER, PRESIDENT, 

NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS, PHILADELPHIA, PA


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RESPONSE TO POST-HEARING QUESTIONS FROM YVONNE D. JONES, DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY

OFFICE, WASHINGTON, DC


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DOCUMENTS OF PERSONAL BANKRUPTCY FILING OF SHIRLEY JONES BURROUGHS, 

GASTONIA, NC


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PREPARED STATEMENT OF DAVID C. JONES, PRESIDENT, ASSOCIATION OF

INDEPENDENT CONSUMER CREDIT COUNSELING AGENCIES


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Æ


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