U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

22–627 PDF 2005

IMPLEMENTATION OF THE BANKRUPTCY ABUSE

PREVENTION AND CONSUMER PROTECTION

ACT OF 2005

HEARING

BEFORE THE

SUBCOMMITTEE ON 

COMMERCIAL AND ADMINISTRATIVE LAW

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JULY 26, 2005

Serial No. 109–55

Printed for the use of the Committee on the Judiciary

(

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

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JOHN CONYERS, JR., Michigan 

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 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

CHRIS VAN HOLLEN, Maryland 

DEBBIE WASSERMAN SCHULTZ, Florida

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

CHRIS CANNON, Utah Chairman

HOWARD COBLE, North Carolina 

TRENT FRANKS, Arizona 

STEVE CHABOT, Ohio 

MARK GREEN, Wisconsin 

RANDY J. FORBES, Virginia 

LOUIE GOHMERT, Texas 

MELVIN L. WATT, North Carolina 

WILLIAM D. DELAHUNT, Massachusetts 

CHRIS VAN HOLLEN, Maryland 

JERROLD NADLER, New York 

DEBBIE WASSERMAN SCHULTZ, Florida

RAYMOND V. SMIETANKA, Chief Counsel 

SUSAN A. JENSEN, Counsel 

JAMES DALEY, Full Committee Counsel 

BRENDA HANKINS, Counsel 

STEPHANIE MOORE, Minority Counsel 

(III)

C O N T E N T S 

JULY 26, 2005

OPENING STATEMENT 

Page 

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

of Utah, and Chairman, Subcommittee on Commercial and Administrative 

Law ........................................................................................................................ 1

WITNESSES 

Mr. Clifford J. White, III, Acting Director, Executive Office for United States 

Trustees, Washington, D.C. 

Oral Testimony ..................................................................................................... 6

Prepared Statement ............................................................................................. 9

The Honorable A. Thomas Small, United States Bankruptcy Judge for the 

Eastern District of North Carolina, on behalf of the Judicial Conference 

of the United States, Washington, D.C. 

Oral Testimony ..................................................................................................... 19

Prepared Statement ............................................................................................. 20

Mr. Travis B. Plunkett, Legislative Director, Consumer Federation of America 

Oral Testimony ..................................................................................................... 24

Prepared Statement ............................................................................................. 27

George Wallace, Esq., Coalition for the Implementation of Bankruptcy Reform, Washington, D.C. 

Oral Testimony ..................................................................................................... 38

Prepared Statement ............................................................................................. 41

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Chris Cannon, a Representative in 

Congress from the State of Utah, and Chairman, Subcommittee on Commercial and Administrative Law ........................................................................ 3

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

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

of Governors, International Insolvency Institute .............................................. 64

Prepared Statement of the International Insolvency Institute ............................ 67

Prepared Statement of Samuel K. Crocker, on behalf of the National Association of Bankruptcy Trustees, submitted by the Honorable Mark Green, 

a Representative in Congress, from the State of Utah ..................................... 84

(1)

IMPLEMENTATION OF THE BANKRUPTCY 

ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

TUESDAY, JULY 26, 2005

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COMMERCIAL

AND ADMINISTRATIVE LAW, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC.

The Subcommittee met, pursuant to notice, at 2:12 p.m., in Room 

2141, Rayburn House Office Building, the Honorable Chris Cannon 

(Chairman of the Subcommittee) presiding. 

Mr. CANNON. I think we’ll go ahead and begin. Thank you all for 

coming out. Quite a group. I’m a little surprised by the attendance 

here today. 

The Bankruptcy Abuse Prevention and Consumer Protection Act 

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

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

with respect to its consumer bankruptcy reforms. These consumer 

bankruptcy reforms include, for example, the establishment of a 

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

debts and the requirement that consumer debtors receive counseling prior to filing for bankruptcy relief. 

As we know, most of the act’s provisions do not become effective 

until approximately 3 months from now on October 17, 2005. As we 

also know, the act directs the Executive Office for United States 

Trustees and the Judicial Conference to perform various tasks to 

facilitate the act’s implementation. These responsibilities include 

the formulation and issuance of various rules, forms, guidelines, 

and procedures. 

The purpose of today’s hearing is to provide an opportunity for 

our Subcommittee to see how the Executive Office and the Conference are progressing toward fulfilling these critical responsibilities. For example, we are particularly interested in hearing how 

the Executive Office will ensure that only qualified credit counseling agencies and financial management course providers are approved. Unfortunately, some players in this industry have engaged 

in abusive practices and other wrongful behavior. 

With respect to the act’s means test reforms, which establish an 

income/expense screening mechanism for the purpose of determining a consumer debtor’s ability to repay debts, the act requires 

the Executive Office to proactively identify abusive bankruptcy 

2

cases and to conduct random audits of cases, as directed by the act. 

We would like to know how the United States Trustee Program 

will implement these responsibilities. 

With respect to small business debtors, the act requires the 

United States trustee to conduct an initial debtor interview before 

the creditors for the purpose of investigating the debtor’s viability 

and its business plan, among other matters. In addition, the act 

authorizes the United States trustee to inspect the debtor’s business premises for the purpose of reviewing the debtor’s books and 

records and verifying that the debtor has filed his tax returns. The 

methods by which the initial debtor interviews and inspections are 

of interest to us. 

Like the Executive Office, the Judicial Conference is tasked by 

the act to play a critical role in its implementation. Much of the 

bankruptcy practice is guided by official rules and forms that are 

prescribed by the United States Supreme Court, subject to congressional disapproval or amendment. 

The Supreme Court, in this endeavor, is largely guided by the 

Judicial Conference, which typically engages in a very prudential 

and public process from which draft rules and forms are proposed 

and finalized. Specifically, with respect to the development of bankruptcy rules and forms, the Conference receives guidance from the 

Advisory Committee on Bankruptcy Rules. 

An integral part of the act’s means test provisions is the requirement that a Chapter 7 debtor to file a statement setting forth his 

or her current monthly income and the calculations that determine 

whether a presumption of abuse based on the debtor’s ability to 

repay arises. To implement this requirement, section 1232 of the 

act requires the Supreme Court to prescribe an official form for the 

income/expense disclosure statement and to promulgate general 

rules on the content of such statement. These rules and forms must 

be finalized and made available to the public by the act’s effective 

date, namely, October 17, 2005. 

Accordingly, we’re very interested to learn about the process by 

which these rules and forms will be promulgated, whether the process will be completed in time to meet this deadline, and whether 

the public will have an opportunity to participate in this process. 

In addition, we would like to know the extent, if any, to which the 

court system will make the Internal Revenue expense standards 

and Census Bureau income statistics readily available to the public. 

Another area of interest to us is the act’s provision authorizing 

a court to waive the Chapter 7 filing fee for an individual and certain other fees under certain circumstances. In light of the fact that 

$45 of the Chapter 7 trustee’s fee is paid out of this filing fee, we 

would like to know how Conference will treat the payment of trustee compensation in cases where the payment of the filing fee is 

waived. 

Finally, the act requires certain personal information, such as 

the names of a debtor’s minor children, and tax returns filed with 

the court to be safeguarded from public disclosure. We would like 

to know how the court system will ensure that this information 

does not fall into the wrong hands. 

3

I now turn to my colleague Mr. Watt, who I suspect will have a 

statement for the record. We may recognize him later, when he arrives. 

Without objection, any statement by him or other Members of the 

Committee will be placed in the record. Hearing no objection, so ordered. 

[The prepared statement of Mr. Cannon follows:]

PREPARED STATEMENT OF THE HONORABLE CHRIS CANNON, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF UTAH, AND CHAIRMAN, SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was 

signed into law by President George W. Bush on April 20, 2005. The Act represents 

one of the most comprehensive overhauls of the Bankruptcy Code in more than 25 

years, particularly with respect to its consumer bankruptcy reforms. These consumer bankruptcy reforms include, for example, the establishment of a means test 

mechanism to determine a debtor’s ability to repay debts and the requirement that 

consumer debtors receive credit counseling prior to filing for bankruptcy relief. 

As we know, most of the Act’s provisions do not become effective until approximately three months from now on October 17, 2005. As we also know, the Act directs the Executive Office for United States Trustees and the Judicial Conference 

to perform various tasks to facilitate the Act’s implementation. These responsibilities include the formulation and issuance of various rules, forms, guidelines, and 

procedures. 

The purpose of today’s hearing is to provide an opportunity for our Subcommittee 

to see how the Executive Office and the Conference are progressing toward fulfilling 

these critical responsibilities. For example, we are particularly interested in hearing 

how the Executive Office will ensure that only qualified credit counseling agencies 

and financial management course providers are approved. Unfortunately, some players in this industry have engaged in abusive practices and other wrongful behavior. 

With respect to the Act’s means test reforms, which establish a income/expense 

screening mechanism for the purpose of determining a consumer debtor’s ability to 

repay debts, the Act requires the Executive Office to proactively identify abusive 

bankruptcy cases and to conduct random audits of cases, as directed by the Act. We 

would like to know how the United States Trustee Program will implemented these 

responsibilities. 

With respect to small business debtors, the Act requires the United States Trustee to conduct an initial debtor interview before the meeting of creditors for the purpose of investigating the debtor’s viability and its business plan, among other matters. In addition, the Act authorizes the United States Trustee to inspect the debtor’s business premises for the purpose of reviewing the debtor’s books and records 

and verifying that the debtor has filed its tax returns. The methods by which the 

initial debtor interviews and inspections are of interest to us. 

Like the Executive Office, the Judicial Conference is tasked by the Act to play 

a critical role in its implementation. Much of bankruptcy practice is guided by official rules and forms that are prescribed by the United States Supreme Court, subject to Congressional disapproval or amendment. The Supreme Court, in this endeavor, is largely guided by the Judicial Conference which typically engages in a 

very prudential and public process from which draft rules and forms are proposed 

and finalized. Specifically, with respect to the development of bankruptcy rules and 

forms, the Conference receives guidance from the Advisory Committee on Bankruptcy Rules. 

An integral part of the Act’s means test provisions is the requirement that a 

Chapter 7 debtor to file a statement setting forth his or her current monthly income 

and the calculations that determine whether a presumption of abuse based on the 

debtor’s ability to repay arises. To implement this requirement, section 1232 of the 

Act requires the Supreme Court to prescribe an official form for the income/expense 

disclosure statement and to promulgate general rules on the content of such statement. These rules and forms must be finalized and made available to the public by 

the Act’s effective date, namely, October 17, 2005. Accordingly, we are very interested to learn about the process by which these rules and forms will be promulgated, whether the process will be completed in time to meet this deadline, and 

whether the public will have an opportunity to participate in this process. In addition, we would like to know the extent—if any—to which the court system will make 

4

the Internal Revenue expense standards and Census Bureau income statistics readily available to the public. 

Another area of interest to us is the Act’s provision authorizing a court to waive 

the chapter 7 filing fee for an individual and certain other fees, under certain circumstances. In light of the fact that $45 of the Chapter 7 trustee’s fee is paid out 

of this filing fee, we would like to know how Conference will treat the payment of 

trustee compensation in cases where the payment of the filing fee is waived. 

Finally, the Act requires certain personal information, such as the names of a 

debtor’s minor children, and tax returns filed with the court to be safeguarded from 

public disclosure. We would like to know how the court system will ensure that this 

information does not fall into the wrong hands.

Mr. CANNON. Without objection, the Chair will be authorized to 

declare recesses of the hearing at any point. Hearing none, so ordered. 

I ask unanimous consent that Members have 5 legislative days 

to submit written statements for inclusion in today’s hearing 

record. 

At this time, I would like to offer into the record, on unanimous 

consent, a statement from the International Insolvency Institute 

concerning the transitional insolvency provisions to be codified in 

new Chapter 15 of the Bankruptcy Code. I believe a copy of this 

statement is included in the Members’ packets. 

[The material referred to is located in the Appendix.] 

Mr. CANNON. In addition, on behalf of my colleague, Mr. Green, 

I would like to offer for submission into the record, a statement on 

behalf of the National Association of Bankruptcy Trustees. 

As you all know, Mr. Green has been a staunch advocate for the 

bankruptcy trustees over the years. Although he personally wanted 

to be here to make this offer, his scheduling did not permit him to 

attend this afternoon’s hearing. 

A copy of this statement was distributed earlier today. It is also 

included in the Members’ packets. Accordingly, I seek on Mr. 

Green’s behalf unanimous consent that the statement be included 

in the record. Without objection, so ordered. 

[The material referred to is located in the Appendix.] 

Mr. CANNON. I am now pleased and honored to introduce the witnesses for today’s hearing. Our first witness is Clifford White, who 

is the acting director of the Executive Office for United States 

Trustees. Over the course of his 25 years of public service in the 

Federal Government, Mr. White served as an assistant United 

States trustee and a deputy assistant attorney general within the 

Department of Justice. In addition, he was an assistant general 

counsel at the U.S. Office of Personnel Management. He is an honors graduate of George Washington University and the George 

Washington University Law School. 

Our next witness is Judge Thomas Small, who appears on behalf 

of the Judicial Conference of the United States. Since 1982, Judge 

Small has served as a bankruptcy judge for the Eastern District of 

North Carolina. He received his undergraduate degree from Duke 

University and his law degree from Wake Forest University School 

of Law. 

From 2000 until last year, Judge Small chaired the Judicial Conference’s Advisory Committee on Bankruptcy Rules. He currently 

serves as the bankruptcy judge representative to the Conference. 

Judge Small was the president of the National Conference of Bankruptcy Judges from 2000 to 2001. 

5

Our third witness is Travis Plunkett, who is the legislative director of the Consumer Federation of America. He appears today on 

behalf of the Consumer Federation of America, the National Consumer Law Center, and the U.S. Public Interest Research Group. 

The Consumer Federation is a nonprofit association of 300 organizations that promotes consumer interests through advocacy and 

education. It has a defined membership of 50 million Americans. 

The National Consumer Law Center, is a nonprofit organization 

that specializes in consumer issues on behalf of low-income people. 

The U.S. Public Interest Research Group serves as a national lobbying office for State public interest research groups. 

As the Federation’s legislative director, Mr. Plunkett focuses primarily on financial issues, including credit reporting, bankruptcy, 

credit counseling, consumer privacy, and insurance. Mr. Plunkett 

previously served as the New York State legislative representative 

of the American Association of Retired Persons and the association 

legislative director of the New York Public Interest Research 

Group. He is a graduate of the University of Denver and served in 

U.S. Army Intelligence and Security Command. 

Our final witness is George Wallace, who appears today on behalf of the Coalition for the Implementation of Bankruptcy Reform. 

Mr. Wallace has testified about the act’s legislative predecessors on 

several occasions. 

Welcome back. We also understand that you interrupted your vacation so that you could join us today, and we are most appreciative of your efforts to accommodate us on your schedule. 

Mr. Wallace began his career as a law professor, teaching and 

writing about bankruptcy and consumer issues for 15 years at 

Tulane, Iowa, Virginia, Stanford, and Rutgers Universities. During 

this time, he started a legal aid clinic in Davenport, Iowa; testified 

in favor of the FTC’s credit practices rule; was the principal draftsman of the Iowa consumer credit code; and handled various bankruptcy matters. 

In 1982, he entered the full-time practice of law, where he represented lenders and debtors in commercial and consumer bankruptcy cases. From 1997 onward, his practice included representation of the Coalition for Consumer Bankruptcy Reform and its successors during the development and legislative refinement of the 

act. Currently, Mr. Wallace is the executive director of the Center 

for Statistical Research in Alexandria, Virginia. The center specializes in analyzing issues involving consumer credit, housing, and 

wealth distribution. 

Mr. Wallace received his law degree from the University of Virginia Law School, where he was a member of the Order of the Coif 

and the Law Review. He received his undergraduate degree from 

Yale University, cum laude. 

I extend each of you my warm regards and appreciation for your 

willingness to participate in today’s hearing. In light of the fact 

that your written statements will be included in the hearing 

record, I request that you limit your oral remarks to 5 minutes. So 

feel free to summarize them. 

And I may tap a pencil or something inconspicuous because we 

don’t want you to just cut off, but to be aware of the time. I think 

we’ll have several Members of the Committee here today, and they 

6

will all want the opportunity to ask questions. And so, you’ll have 

an opportunity to expand. 

You have before you a lighting system that starts with a green 

light. After 4 minutes, it turns to yellow and then turns to red. And 

that will work for your 5 minutes as well as other Members. I 

would be a little more strict with Members’ timing on their questions so that all Members will have an opportunity to ask questions 

if they wish. 

After you have presented your remarks, the Subcommittee Members in the order they arrive will be permitted to ask questions of 

the witnesses. And pursuant to the directive of the Chairman of 

the Judiciary Committee, I ask the witnesses to please stand and 

raise your right hand to take the oath. 

[Witnesses sworn.] 

Mr. CANNON. The record will reflect that all of the witnesses answered in the affirmative. You may be seated. 

And Mr. White, we’d be pleased if you would proceed with your 

testimony. 

TESTIMONY OF CLIFFORD J. WHITE, III, ACTING DIRECTOR, 

EXECUTIVE OFFICE FOR UNITED STATES TRUSTEES, WASHINGTON, D.C. 

Mr. WHITE. Good afternoon, Mr. Chairman and Members of the 

Subcommittee. I appreciate the opportunity to appear before you to 

discuss the work of the U.S. Trustee Program, our plans for implementing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and the fiscal year 2006 budget request that will 

provide the necessary resources for us to accomplish our goals. 

During the past year, the U.S. Trustee Program has made substantial progress in achieving its mission to promote the integrity 

and the efficiency of the bankruptcy system. Beginning in April, 

our focus necessarily turned to implementing the new bankruptcy 

reform statute. Most provisions of the law become effective on October 17, and many of its key features will be enforced by the U.S. 

Trustee Program. We are currently engaged in a major effort to develop and to communicate the necessary policies and systems to effectively carry out our new duties. 

Turning first to our major activities and achievements over the 

past year, I can report that combating fraud and abuse in the 

bankruptcy system has remained a key priority. The cornerstone of 

this effort has been our National Civil Enforcement Initiative, 

which addresses fraud and abuse and enhances protections for consumer debtors. 

Although the ultimate goal of enhancing the integrity of the 

bankruptcy system does not lend itself easily to a quantitative 

measure, some numbers do help describe the magnitude of our success. In fiscal year 2004, the program took more than 52,000 civil 

enforcement and other actions that yielded more than $520 million 

in debts not discharged, penalties, and other monetary remedies. 

Criminal enforcement is another key component of our strategy 

to combat fraud and abuse. Our 2-year-old Criminal Enforcement 

Unit, which is largely staffed by veteran career Federal prosecutors, has directly assisted United States attorneys in numerous 

prosecutions. Importantly, the unit has provided extensive training 

7

to program staff, private trustees, and Federal law enforcement 

personnel. 

In my written statement, I also describe many other major activities of the program. 

These efforts provide a helpful springboard as we launch new initiatives to implement and enforce bankruptcy reform. Currently, 

our foremost responsibility is to implement the new statute. We’ve 

met with staff and trained staff at different levels in the organization and can report a very high level throughout the organization 

in energy, professionalism, and commitment to getting the job 

done. 

Let me briefly highlight just two major areas of interest. First, 

in means testing. Congress prescribed new objective criteria for determining an individual debtor’s eligibility for bankruptcy relief. 

The U.S. Trustee Program will be the primary enforcer to help ensure that debtors seeking Chapter 7 relief are not abusing the system. 

It’s critical that debtors file with the court new forms containing 

the information necessary to evaluate their eligibility. The U.S. 

Trustee Program is working closely with the courts to develop dataenabled, ‘‘smart’’ forms, which may be issued by the courts. Standardized, automated forms will enhance accuracy, timeliness, and 

cost efficiency for the benefit of debtors, creditors, the courts, and 

the U.S. Trustee. 

Second, I’d like to highlight credit counseling and debtor education. The new law seeks to ensure that debtors are made aware 

of their options prior to filing bankruptcy and are equipped with 

more knowledge to avoid future financial difficulties before they 

exit bankruptcy. Under the law, the U.S. Trustee must approve eligible credit counseling agencies and debtor education courses. 

As recently reported by a congressional Committee and elsewhere, some agencies within the credit counseling industry have 

engaged in abusive practices. To the maximum extent possible, we 

must screen out unscrupulous counselors without erecting unnecessary barriers that would limit the number of qualified providers 

who can assist debtors. 

In June, we issued application forms for providers that we believe strike the appropriate balance. We may modify application requirements in the future as we learn from experience. 

The new law also imposes many other duties on the U.S. Trustee 

Program. And, as the Chairman stated in his opening remarks, we 

will be taking on new responsibilities in areas such as small business Chapter 11 cases, debtor audits, and conducting numerous 

studies. We’re moving forward with alacrity to carry out each of 

these mandates. 

To continue our work and to implement bankruptcy reform in fiscal year 2006, the President’s amended budget contains a request 

to fund the U.S. Trustee Program in the amount of $222.6 million. 

This proposal includes an increase of $37.2 million to fund our new 

bankruptcy reform responsibilities. The additional requested appropriations are within the revenue amounts that were provided under 

the recently enacted supplemental appropriations bill, which will 

add $241 million to the U.S. Trustee System Fund over the next 

5 years. 

8

Again, I thank the Subcommittee for the opportunity to testify. 

With adequate resources as contemplated by the new bankruptcy 

reform statute, the program looks forward to achieving its mission 

and successfully carrying out bankruptcy reform. I would be 

pleased to answer any questions from the Subcommittee. 

[The prepared statement of Mr. White follows:]

9

PREPARED STATEMENT OF CLIFFORD J. WHITE, III


CJW0001.eps
10


CJW0002.eps
11


CJW0003.eps
12


CJW0004.eps
13


CJW0005.eps
14


CJW0006.eps
15


CJW0007.eps
16


CJW0008.eps
17


CJW0009.eps
18


CJW0010.eps
19

Mr. CANNON. Thank you, Mr. White. 

Judge Small? 

TESTIMONY OF THE HONORABLE A. THOMAS SMALL, UNITED 

STATES BANKRUPTCY JUDGE FOR THE EASTERN DISTRICT 

OF NORTH CAROLINA, ON BEHALF OF THE JUDICIAL CONFERENCE OF THE UNITED STATES, WASHINGTON, D.C. 

Judge SMALL. Thank you, Mr. Chairman and Members of the 

Subcommittee. I’m pleased to have this opportunity this afternoon 

to advise you of the extraordinary efforts the judiciary has made 

to implement the Bankruptcy Abuse Prevention and Consumer 

Protection Act of 2005. 

I’m happy to report that those efforts are on schedule, and I anticipate that the bankruptcy system will be ready on October 17, 

when the act’s major provisions become effective. 

As you know, the rule-making process under the Rules Enabling 

Act is a deliberative one, with a long period provided for public 

comment and public hearings. Bankruptcy rules must be approved 

by the Advisory Committee on Bankruptcy Rules and by the Standing Committee, then by the Judicial Conference of the United 

States, and finally by the United States Supreme Court. And after 

that, there is a 7-month review period by Congress. 

Typically, the process takes at least 3 years, and if everything 

goes according to plan, permanent rules and forms needed to implement the reform legislation will be in place on December 1, 2008. 

Until that date, interim rules and forms are needed. The judiciary 

has utilized interim rules in similar circumstances in the past, notably in connection with the Bankruptcy Reform Act of 1978 that 

became effective on October 1, 1979. 

In mid August of ’79, the Bankruptcy Rules Committee proposed 

suggested interim rules to implement the 1978 act, and they requested that those interim rules be adopted by each court as local 

rules. A similar approach will be followed this time with respect to 

the Reform Act of 2005. The only difference being that, in addition 

to having the approval of the Bankruptcy Rules Committee, the 

suggested interim rules and forms will be approved by the Standing Committee and the Judicial Conference as well. 

On April 21, the day after President Bush signed the reform act, 

the Chair and several members of the Bankruptcy Rules Committee met in Washington to devise a plan for developing interim 

rules and forms. Their goal was to have the interim rules approved 

by the Bankruptcy Rules Committee at a special meeting during 

the first week in August. 

Herculean efforts toward that goal have made—were made by 

the committee’s chair, several subcommittees, the committee’s reporter, two consultants, the administrative office staff, the Federal 

Judicial Center staff, and the Executive Office of the United States 

Trustee. And as a result, drafts of 40 to 50 interim rules and forms 

are almost ready. And as soon as those drafts are finalized, sometime this week, they will be submitted to all Members of the Bankruptcy Rules Committee, and they will also be posted on the Web 

site of the United States courts. 

The full Committee will vote on those interim rules at its 2-day 

public meeting next week in Washington on August 3 and 4. When 

20

the suggested interim rules and forms have been approved by the 

Bankruptcy Rules Committee, they will be sent first to the Standing Committee and then to the Judicial Conference for expedited 

consideration. 

After the Judicial Conference approves the interim rules, probably in mid August, each local court will be asked to adopt them. 

The interim forms will be temporary forms, but pursuant to Bankruptcy Rule 9009, they will be official forms required for use by all 

courts until they are replaced by permanent official forms, which 

will have been adopted after the extensive public comment and 

public hearing process. 

As I said before, the task force—the task before the Bankruptcy 

Rules Committee over the past 100 days has been formidable. And 

I can hardly overstate how much arduous work the committee has 

devoted to developing proposed interim rules and forms. But implementing the new law has involved much more than just rules and 

forms. Countless working groups of judges, clerks, deputy clerks, 

the staff of the administrative office, and the Federal Judicial Center have diligently been preparing for the coming changes on October 17. 

Compliance with the new law requires extensive modification of 

the court’s operating procedures, also demands complete reprogramming of the court’s case management electronic case filing 

system. A particular challenge has been devising a reliable method 

for complying with the notice requirements of new Bankruptcy 

Code Section 342. And another necessity, and obviously a high priority, is the training of everyone involved in carrying out the provisions of the new act, especially judges, clerks, deputy clerks, case 

administrators. 

Furthermore, bankruptcy administrators in the District of Alabama and North Carolina are preparing to assume their new responsibilities under the act, and the administrative office is working hard to find the space and facilities for the new and urgently 

needed bankruptcy judges. Getting ready hasn’t been easy, but 

with an impressive ongoing effort, the judiciary will be ready on 

October 17, when the new law goes into effect. 

[The prepared statement of Judge Small follows:]

PREPARED STATEMENT OF JUDGE A. THOMAS SMALL

Mr. Chairman and members of the subcommittee, I am A. Thomas Small, judge 

of the United States Bankruptcy Court for the Eastern District of North Carolina. 

I appear today on behalf of the Judicial Conference of the United States, the policymaking arm of the federal courts, to report on the actions taken by the federal judiciary to implement the Bankruptcy Abuse Prevention and Consumer Protection Act 

of 2005 [the ‘‘Act’’], particularly the development of necessary new rules and forms. 

I serve as the bankruptcy judge representative to the Judicial Conference and am 

the immediate-past chair of the Advisory Committee on Bankruptcy Rules, having 

served in that capacity from 2000 to 2004. The present committee chair, Judge 

Thomas S. Zilly, is unable to attend because of pressing court business. 

I appreciate this opportunity to share with you details of the hard work that the 

Judicial Conference and its committees have done so far in reviewing, understanding, and implementing this massive and complicated legislation within such a 

brief period of time. The Act exceeds 500 pages in length and affects virtually every 

aspect of bankruptcy cases. Among other things, it introduces the concept of a 

means test as a requirement of eligibility for chapter 7 relief, adds an entirely new 

chapter to the Code (chapter 15 governing cross border insolvencies), and creates 

new categories of debtors and cases (small business cases and health care businesses). The provisions of the Act generally take effect on October 17, 2005. ImpleVerDate 0ct 09 2002 16:45 Nov 17, 2005 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 G:\WORK\COMM\072605\22627.000 HJUD1 PsN: 22627
21

menting the legislation on a timely basis presents a tremendous challenge for the 

judiciary. 

I will address the actions taken by the Advisory Committee on Bankruptcy Rules 

[the ‘‘Advisory Committee’’ or ‘‘committee’’] to develop rules and forms implementing 

the Act, which I understand is one of the subcommittee’s principal concerns. Later, 

I will briefly discuss the measures taken by other Judicial Conference committees 

and the Administrative Office of the United States Courts to implement the Act generally. 

On April 21, 2005, (one day after the Act’s enactment) the Advisory Committee 

held an organizational meeting here in Washington to devise a plan to carry out 

the Act’s rules-related provisions. The Advisory Committee represents a wide spectrum of views and consists of 16 members appointed by the Chief Justice, who are 

well experienced and expert in bankruptcy law. The committee includes six article 

III judges, four bankruptcy judges, three private-sector attorneys, two law professors, and an official from the Department of Justice. In addition, the Director of the 

Executive Office for the United States Trustees and a bankruptcy clerk of court regularly attend and participate in the committee’s meetings. The committee has been 

working closely and very productively with the Executive Office for the United 

States Trustees to develop the means testing form, a primary component of the Act. 

At the organizational meeting, the committee’s chair tasked three subcommittees to 

address the business, consumer, and forms issues arising from the Act. Later, the 

chair tasked three additional subcommittees to address the Act’s provisions on 

cross-border insolvencies, health care, and direct appeal provisions. 

The Consumer Subcommittee met separately on May 6 and June 14; the Business 

Subcommittee met on May 5 and June 13; and the Forms Subcommittee met on 

May 6 and June 15. All the subcommittees have also conducted lengthy conference 

calls, usually lasting more than three hours. Their work product has been reviewed 

by a style subcommittee for clarity and consistency. The full Advisory Committee 

is holding a public meeting in Washington on August 3–4, 2005. At the meeting, 

the committee will consider approximately forty new or amended rules and changes 

to virtually all the Official Forms. 

The groundwork for much of the Advisory Committee’s work had been prepared 

and considered by the committee at its meetings in 2001 and 2002, when earlier 

versions of the Act appeared to be nearing passage in Congress. The committee 

worked on amendments to about thirty rules and changes to about twenty forms. 

Many of these earlier proposals remain largely unchanged or slightly refined and 

are part of the package now under consideration. Along with the committee’s more recent consideration of the rules and forms, these records provide a rich source of 

information for anyone interested in the development of the rules and forms. 

In accordance with established Judicial Conference procedures, all rules-related 

records are available to the public on request. Consistent with these procedures, the 

drafts of rules and forms considered by the committee at its earlier meetings, as 

well as all current draft rules and forms, have been and continue to be available 

to the public on request. The public may obtain a copy of any draft rule or form 

simply by contacting the Administrative Office. Likewise, all meetings of the full 

Advisory Committee are open to the public. Minutes of each meeting of the full Advisory Committee are posted on the judiciary’s internet web site. 

At the Advisory Committee’s April organizational meeting, it was decided that a 

two-track process would be necessary to implement the Act because its impending 

effective date did not provide sufficient time to proceed under the regular rulemaking process, which ordinarily takes three years. The first track was to: (1) identify which rules-related provisions in the Act require an immediate response; and 

(2) develop interim rules and forms addressing these time-sensitive provisions well 

before the October 17 deadline so that the courts have adequate time to implement 

them. The second track will be to monitor the courts’ experiences with the interim 

rules and forms, simultaneously proceeding with the regular rulemaking process 

and inviting public comment beginning in August 2006 on converting the interim 

rules to permanent federal rules. At the same time, the committee would also publish for comment additional proposed rule amendments not included as part of the 

time-sensitive interim rules package. 

Under the first track, interim rules will be circulated in mid-August 2005 to the 

courts with a recommendation that they be adopted without change as part of a 

standing or general order. The Advisory Committee considered, but rejected, recommending model local rules implementing the Act because many of the model local 

rules would necessarily conflict with existing federal Bankruptcy Rules, which are 

based on pre-Act law. Local rules cannot be inconsistent with the federal rules. Any 

amendment of local rules will have to await amendment of the federal rules through 

the regular rulemaking process, which cannot be accomplished in time to meet the 

22

Act’s effective date. The committee concluded that the best vehicle to accomplish the 

Act’s objectives was to develop interim rules and urge the courts to adopt them, 

while simultaneously monitoring the courts’ experiences and working on permanent 

changes to the federal rules. The same process was followed on three separate occasions in the past when the Bankruptcy Code was amended in 1978, 1986, and 1994, 

and interim rules contemporaneous with the Act’s effective date were issued. On 

each occasion, the courts uniformly adopted the committee’s interim rules recommendations. I am confident that the courts will continue this tradition and adopt 

the interim rules now under consideration. 

As a practical matter, the courts’ discretion in adopting the amended and new 

rules is limited, because many of the Act’s rules-related provisions will be implemented by amended or new Official Forms, which work in tandem with the interim 

rules and often are based on them. Unlike the recommended interim rules, however, 

the Judicial Conference itself authorizes the Official Forms, which courts must ‘‘ob- serve’’ under Bankruptcy Rule 9009. Thus, courts will have a real incentive to adopt 

the recommended interim rules in order to facilitate compliance with the mandatory 

Official Forms. 

Courts will require several weeks to train staff and make appropriate arrangements to implement the interim rules and forms. Major modifications must be made 

to the Case Management/Electronic Case Filing software, which has now been deployed in virtually all the bankruptcy courts. The judiciary must quickly accomplish 

many other time-consuming and burdensome tasks, which I later describe, all of 

which require significant lead time. In addition, legal publishing firms require at 

least 60 days to make appropriate software changes and arrangements to massproduce amended or new Official Forms. To meet these demands, the Advisory Committee has been working on an expedited timetable that expects the interim rules 

and forms to be completed and circulated to the courts by mid-August 2005. Achieving this ambitious goal has imposed enormous burdens not only on the Advisory 

Committee, but on the Committee on Rules of Practice and Procedure [the ‘‘Standing Committee’’] and the Judicial Conference, all of which must review and approve 

these actions. Then the ninety bankruptcy courts and their administrative staff will 

have to adopt all the changes in their local systems. Carrying out this legislation 

has severely strained the judiciary, which is already under enormous pressure to 

cope with its day-to-day responsibilities in the administration of justice. Nevertheless, the judiciary is committed to fully and faithfully execute the Act’s provisions. 

Recommending interim rules and authorizing Official Forms without going 

through the regular Rules Enabling Act rulemaking process is an unavoidable expedient compelled by the Act’s fast-approaching effective date. To meet the Act’s deadline, the Advisory Committee has devoted substantial time and effort in developing 

interim rules and forms that faithfully implement the Act. It has worked closely 

with the Executive Office for the United States Trustees. It has consulted with experts who participated in the legislation, who at times disagreed among themselves 

over the meaning of particular provisions in the Act, making the committee’s job all 

the more difficult. It has reached out to many corners of the bar for assistance. It 

has relied on its members’ varied experiences, including members who represent 

creditors and others who represent debtors in their private practice. All these efforts 

have been undertaken in an open fashion to ensure that the process remains transparent, a hallmark of the rulemaking process. 

The Advisory Committee’s work product is outstanding. But the committee recognizes the inherent limitations of its abbreviated review process. Any shortfalls in 

the committee’s work will be identified and corrected beginning in August 2006, 

when the interim rules and the amended and new Official Forms will undergo the 

exacting scrutiny of the regular rulemaking process. The Rules Enabling Act rulemaking process is a painstaking and time-consuming process that ensures that the 

best possible rules are promulgated. Permanent changes to the Federal Rules of 

Bankruptcy Procedure and forms to implement the Act will take place during the 

second track in accordance with the rulemaking process as described below. 

The Rules Enabling Act rulemaking process is set out in 28 U.S.C. §§ 2071–2077. 

In accordance with the regular process, the Advisory Committee will review the experiences of the bench and bar with the interim rules and forms with a view toward 

proposing permanent amendments to the Federal Rules of Bankruptcy Procedure 

and recommending any additional appropriate revisions to the Official Forms. At its 

spring 2006 meeting, the committee is expected to approve and transmit the interim 

rules as proposed amendments to the federal rules, with or without appropriate revisions, to the Standing Committee at its June 2006 meeting with a recommendation that it approve publishing them for public comment. In addition, the committee 

will request that the package include an opportunity for the public to comment on 

the forms authorized in 2005. If approved, the interim rules and forms will then be 

23

published in August 2006 for a six-month period. Hearings will be scheduled at 

which the public can testify on timely request. 

The Advisory Committee’s reporter will summarize all comments and statements 

submitted on the proposed rules and forms. The committee will meet in spring 2007 

and consider any changes to the proposed rules and forms in light of the public comment. If approved, the committee will transmit the proposed rules and forms to the 

Standing Committee in June 2007 with a recommendation that they be approved 

and submitted to the Judicial Conference at its September 2007 session. If approved 

by the Standing Committee and the Conference, the proposed rules will then be submitted to the Supreme Court for its consideration. Changes to the Official Forms, 

however, do not have to be approved by the Court and will take effect on a date 

designated by the Conference. The Court has until May 1, 2008, to prescribe the 

rules and transmit them to Congress. The rules then would take effect on December 

1, 2008, unless Congress acts otherwise. 

At each stage of the rulemaking process, the proposed rule amendments and 

forms will be subjected to exacting scrutiny. Participation of the bench, bar, and 

public in the rules process ensures that the procedural rules implementing the Act 

will be the best that we can conceive. The rules committees have completed a remarkable amount of first-rate work, yet much remains to be done. These accomplishments are all the more impressive because they represent the work of volunteers, many of whom incur substantial monetary sacrifices in terms of lost income 

and all of whom sacrifice enormous amounts of time for the public good. 

I have alluded in earlier parts of my statement to many other projects that the 

judiciary has undertaken to implement the Act. I now turn to address some of these 

important matters. 

Members of the judiciary, including members of several Judicial Conference committees, judges, clerks, and staff at the Administrative Office of United States 

Courts [the ‘‘AO’’] and the Federal Judicial Center [the ‘‘FJC’’], have worked tirelessly to implement the Act by its general effective date. This work involves a crosssection of disciplines within the judiciary that require expertise in such areas as 

rules and forms, clerk’s office procedures, bankruptcy administration, budget and 

accounting, information technology, statistics, training, human resources, and judicial education. 

Information on the Act was quickly transmitted to the courts and clerks as soon 

as the law was enacted. Thereafter, judges, clerks, and other members of the judiciary were kept informed of issues that arise from the changes to the Bankruptcy 

Code, and given reports of progress on the judiciary’s implementation of the Act. In 

addition to memoranda to the courts, the AO and the FJC have established web 

sites where information and analyses of the Act are posted for review and study by 

members of the judiciary. In order to implement the Act in an orderly, methodical, 

and coordinated fashion, Director Mecham determined that the AO’s Office of 

Judges Programs would coordinate the multi-faceted implementation work. 

Implementing the new law has required substantial on-going coordination with 

the Executive Office for the United States Trustees and meetings or exchanges with 

other such agencies as the Internal Revenue Service, the Department of Health and 

Human Services, and the Census Bureau. Additionally, the AO has called upon 

many individuals and groups for assistance, including members of the Judicial Conference, article III and bankruptcy judges, clerks of court, and deputy clerks. Ad hoc 

working groups were created, new Judicial Conference subcommittees were formed, 

and a special advisory group of judges and clerks was called upon to help develop 

new policies and procedures for bankruptcy clerks’ offices. 

The implementation process is progressing according to projected time tables. At 

this point, we expect to meet all deadlines, although it will be a struggle to do so. 

It is not possible to provide a detailed recitation of all of the work in progress in 

this short testimony, but I can provide you an overview of some of the other major 

initiatives beyond the rules process. 

CHANGES IN OPERATING PROCEDURES

Significant changes to the courts’ operating procedures are underway. First, careful analyses of the Act to determine all the changes required in the courts’ operating 

procedures were conducted. Thereafter, revised practices and procedures were developed to meet the requirements of the Act. Once a broad outline of the requirements 

and revised procedures were in place, significant changes were initiated to reprogram the judiciary’s Case Management/Electronic Case Filing system. Additionally, 

the judiciary is developing guidelines and procedures to address various new procedures added by the Act, such as allowing in forma pauperis chapter 7 filings, hanVerDate 0ct 09 2002 16:45 Nov 17, 2005 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 G:\WORK\COMM\072605\22627.000 HJUD1 PsN: 22627
24

dling copies of debtor-tax returns filed with the court, and instituting procedures for 

nationwide noticing for creditors. 

TRAINING

The FJC and the AO have planned and begun training for bankruptcy judges, 

bankruptcy clerks and bankruptcy administrators, and court staff, including case 

administrators in the clerks’ offices who will use the revised CM/ECF system. Training occurs nationally at specifically designated seminars, at conferences, and via the 

‘‘FJTN,’’ the FJC’s closed-circuit television broadcast channel. Many other groups 

have reached out to the AO for assistance or participation in their training plans. 

BANKRUPTCY ADMINISTRATOR PROGRAM

The AO is working directly with the six bankruptcy administrator offices in the 

states of Alabama and North Carolina to prepare them to assume all the new duties 

and responsibilities required of them under the Act. First, careful analysis of the 

Act was conducted to pinpoint all the new duties, whether they are explicitly imposed on bankruptcy administrators by the Act or are needed to maintain parallel 

treatment with new duties imposed on United States trustees. The bankruptcy administrator offices must be educated as to the changes in the law, changes in the 

courts’ operating procedures, and changes to the bankruptcy administrators’ own 

duties and responsibilities, such as overseeing means testing and small business 

chapter 11 cases certifying consumer credit counseling and financial management 

courses, and taking on new audit and reporting responsibilities. The AO is in contact with each bankruptcy administrator office, and an inclusive seminar is planned 

for them well before the effective date of the Act. In addition, current bankruptcy 

administrator procedures and manuals will have to be revised substantially, and 

changes will have to be made to their automated case management systems. 

STATISTICS

Major changes will be needed in the judiciary’s statistical systems, both to adjust 

to the many changes in the bankruptcy system required in the Act generally and 

to comply with section 601 of the Act, which requires the AO to gather information 

and produce a whole new set of reports on consumer debtor cases. The AO has 

worked hand in hand with the Executive Office for the United States Trustees and 

with bankruptcy clerks to redesign the data input forms, reprogram the case management systems, design extraction programs, and build a whole new enterprise 

data system capable of receiving and processing the data. 

ADDITIONAL JUDGESHIPS

Authorization of additional bankruptcy judgeships by the Act was effective upon 

enactment. The Judicial Conference has notified all affected circuits, including those 

that did not receive the bankruptcy judgeships recommended by the Conference to 

Congress in early 2005. Some circuits have begun the appointment process, advertising their new vacancies and receiving applications for the positions. The AO is 

working to identify adequate space and facilities for these new judges and chambers 

staff. 

We share a common interest in ensuring that the bankruptcy system as a whole 

is prepared on October 17, 2005, when most of the provisions of the Act are effective. The amount of work required of the judiciary to implement the Act is immense 

and costly, especially considering the short time frame available to accomplish the 

extensive revisions required of the existing systems. The work to date has been impressive and remarkable, and we are confident that the deadlines will be met. 

Thank you.

Mr. CANNON. Thank you, Judge Small. 

Mr. Plunkett, you are now recognized for 5 minutes. 

TESTIMONY OF TRAVIS B. PLUNKETT, LEGISLATIVE 

DIRECTOR, CONSUMER FEDERATION OF AMERICA 

Mr. PLUNKETT. Good afternoon, Mr. Chairman, Ranking Member 

Watt, and Members of the Committee. 

I’m Travis Plunkett. I’m the legislative director of the Consumer 

Federation of America, and I appreciate the opportunity to offer 

25

our comments and those of the National Consumer Law Center and 

the U.S. Public Interest Research Group today. 

As you may know, our organizations opposed the Bankruptcy 

Abuse Prevention and Consumer Protection Act because we viewed 

it as an unbalanced law that erects dozens of new barriers that will 

likely keep many Americans who need a fresh start in bankruptcy 

from receiving it. However, since the law has yet to take effect, I 

would like to focus my comments on two new provisions in the law 

on which important implementation decisions are being made as 

we speak. 

One has already been talked about. It requires consumers to receive credit counseling before filing for bankruptcy and then again 

before being discharged. The second requires broad disclosure of 

tax returns by debtors, which raises significant privacy concerns. 

First, on credit counseling. Our organizations support credit 

counseling if it’s properly administered, but this is a very dangerous time to be requiring over a million new consumers to see 

credit counselors. As you’ve heard, there have been serious problems in the industry affecting a number of agencies involving deceptive acts and practices, excessive cost, and abuse by these agencies of their nonprofit status. And a host of Federal and State agencies and regulators are investigating this industry. 

Unless the shady operators and substandard agencies in the industry are completely shut out of offering credit counseling under 

this law, Congress could be creating a situation in which it has 

forced consumers into the hands of unscrupulous agencies. So I 

would strongly urge this Subcommittee to exercise vigorous oversight of the implementation of this requirement in the next year. 

I would say that the Executive Office of the U.S. Trustees is 

working very hard, from what we could tell, to keep bad agencies 

from being approved. But they’ve got a monumental task before 

them. Let me point to four specific issues. 

First, it’s not at all clear that there is adequate capacity of quality credit counseling to meet the requirements of the law. So we’re 

in a bind because, as you’ve heard, the Executive Office of the U.S. 

Trustees is working hard to ensure that there is adequate capacity. 

We would hate to see a situation where, because of the demands 

of the law, inferior or unscrupulous agencies are approved. Conversely, we want to make sure, obviously, that adequate capacity 

exists not just for in-person counseling, which is allowed under the 

law; not just for telephone counseling, which is allowed under the 

law; or Internet counseling as well, but for all three throughout the 

country. That is a difficult task. 

So we urge this Committee and the Executive Office of the U.S. 

Trustees to work hard to assure that, first, standards are applied 

to ensure that no substandard agencies or agencies that might 

cause harm are approved. And second, that adequate capacity for 

all three delivery channels—consumers need a choice here—is provided. 

Second issue, affordability. Obviously, folks on the brink of bankruptcy are not in good financial shape. We know from much research that average incomes for Chapter 7 filers are in the low 

20’s. For Chapter 13 filers, in the high 20’s. 

26

It would be a mistake to assume that the ability to pay much, 

if anything, for credit counseling is significant here. So it’s going 

to be up to the Executive Office of the U.S. Trustees to take affirmative steps to ensure that the law’s requirements that the fees be 

reasonable are met and that appropriate fee waivers are provided 

for low-income consumers so that they don’t have to pay anything 

for this service. 

The executive office has not done that yet, and it’s important 

that they lay out requirements for those fees, cap them, and ensure 

that a sliding scale is available based on ability to pay. 

Third big issue, credit counselors and creditors need to do more 

to ensure that credit counseling actually works, that it’s actually a 

viable alternative to bankruptcy. The key here is that they need to 

provide a significant break for consumers who enter credit counseling debt management plans on what they owe. Right now, creditors don’t provide a break at all in the principal that is owed. 

The law actually has a provision that we urge the Executive Office of the U.S. Trustees to enforce that requires the creditors 

offer—that provides an incentive, I should say, for creditors to offer 

a real break on what is owed on principal. And we urge the Executive Office of the U.S. Trustees to look hard at that provision and 

to ensure that creditors and credit counseling agencies are doing 

that. 

Finally, let me say that privacy is going to be a major issue regarding the new law’s requirements that tax forms be disclosed as 

part of the bankruptcy process by those filing. This is a huge potential privacy issue. The law clearly vests with the Administrative 

Office of the U.S. Courts the ability to restrict access to creditors 

who are allowed access upon request. 

And the important—the most important thing here is that creditors should not be allowed carte blanche access for any reason that 

they choose based on filing of one form with the court to this tax 

information. They should be required by the courts to show cause. 

Otherwise, we could have very significant potential security 

breaches or the inappropriate uses of the extremely sensitive information on these tax forms. 

I have a lot of detail on the specific steps we urge the Administrative Office to take to protect the privacy of tax forms, especially 

regarding creditors in my testimony, and I’ll leave it at that. 

Thank you. 

[The prepared statement of Mr. Plunkett follows:]

27

PREPARED STATEMENT OF TRAVIS B. PLUNKETT


TBP0002.eps
28


TBP0003.eps
29


TBP0004.eps
30


TBP0005.eps
31


TBP0006.eps
32


TBP0007.eps
33


TBP0008.eps
34


TBP0009.eps
35


TBP0010.eps
36


TBP0011.eps
37


TBP0012.eps
38

Mr. CANNON. Thank you, Mr. Plunkett. 

Mr. Wallace? 

TESTIMONY OF GEORGE WALLACE, ESQ., COALITION FOR THE 

IMPLEMENTATION OF BANKRUPTCY REFORM, WASHINGTON, D.C. 

Mr. WALLACE. Good afternoon, Chairman Cannon, Ranking 

Member Watt, and Members of the Subcommittee. 

My name is George Wallace. It’s my pleasure to appear before 

you today to discuss the important topic of implementing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. 

I am testifying on behalf of the Coalition for the Implementation 

of Bankruptcy Reform, which is comprised of major trade associations and companies that represent the full range of consumer 

credit businesses interested in bankruptcy reform. 

The coalition is fully committed to working with all interested 

parties to ensure that the act is implemented as Congress intended. Our most important objective is to ensure that an improved 

bankruptcy process enables consumers to fully and efficiently obtain bankruptcy relief. At the same time, this improved process 

should afford a meaningful opportunity for consumers who can resolve their financial difficulties through counseling or other means 

to do so. 

My remarks today are focused upon implementation of the consumer bankruptcy provisions of the act. Although the act brings 

much needed fundamental change to this area, it must be appropriately and efficiently implemented to fully accomplish its goals. 

Let me now discuss some of the most significant elements of the 

consumer bankruptcy implementation process. I have approximately six points to make. 

The act, with regard to credit counseling, which has been discussed before, the act requires consumers to obtain credit counseling, of course, before they file bankruptcy from a nonprofit budget and credit counseling agency approved by the United States 

trustee. This is one of the most important consumer benefits included in the act. For this provision to be effective, only counseling 

agencies of the highest quality can be approved by the United 

States trustee. 

In our view, the United States Trustee Program has taken important steps to achieve this goal. We urge, however, consideration 

of two modifications to its current draft requirements. First, the 

proposed bonding requirements may be given excessive—may be 

excessive, given the limited resources of many of the nonprofit 

counseling agencies. One possible solution would be to cap bonding 

requirements based on a variety of factors, including the resources 

of the counselor and other bonds and fidelity insurance it already 

has in place—for example, under State law requirements. We 

under the U.S. Trustee Program is already reviewing its requirements in this regard. 

Second, counselors are appropriately required to properly identify 

consumers when they seek counseling. But how is that done when 

the counseling is conducted remotely, such as by Internet or phone? 

One solution would be to require that when the consumers seek 

counseling remotely, the consumers need to be verified by comVerDate 0ct 09 2002 16:45 Nov 17, 2005 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6601 G:\WORK\COMM\072605\22627.000 HJUD1 PsN: 22627
39

paring information the consumer provides to information in a consumer report or similar document. 

The second issues is needs-based bankruptcy. An essential component of the reforms that are needs-based is the form system. 

Congress designed the needs-based process so that it could be implemented efficiently without imposing undue burdens on those 

who administer the bankruptcy process. In order for the clerks, 

United States trustees, and bankruptcy administrators, the Chapter 7 trustees to perform their required functions efficiently, the 

needs-based bankruptcy forms must be properly crafted. 

The forms should be simple and easy for consumers to understand, court officials to use, and creditors to review, and should 

provide a clear indication whether the presumption of repayment 

capacity is triggered. Section 1232 of the act requires no less. Development of this and other forms to implement the act is delegated in the first instance of the Judicial Conference. The first Advisory Committee on Bankruptcy Rules meeting will be held August 3 of this year, and the steps then proposed will permit us to 

evaluate how well this important task is being performed. 

In addition, whenever a trustee determines that the presumption 

is triggered, a motion to dismiss the case should be filed unless 

special circumstances required by the act are clearly demonstrated. 

It is important to note that any deviations from the means test enacted by Congress are unnecessary because Congress already built 

into the needs-based test sufficient flexibility in the repayment 

thresholds and through the special circumstances provisions. 

Thirdly, with regard to audits, the act requires the attorney general and Judicial Conference to establish an audit program to determine the accuracy, veracity, and completeness of petitions, 

schedules, and other information that the debtor required—is required to provide in individual bankruptcy cases. These audit functions are an extremely important part of the proper implementation of the act because the information filed by individuals in a 

bankruptcy case is essential for the proper working of the new 

bankruptcy process. Without appropriate audits, the lack of reliability Congress found to exist during the enactment process will 

continue unabated. 

Fourthly, information filed with the bankruptcy case. As part of 

the efforts to address the unreliability of information filed in bankruptcy cases, the act requires that individual debtors must file tax 

returns and pay stubs in Chapter 7 and Chapter 13 cases. In order 

to ensure that congressional intent is implemented, the trustees 

must make sure that procedures are in place to ensure that creditors in the case are able to access the tax return and other information efficiently. 

Fifthly, reaffirmation agreements. The act includes new provisions clearly defining and standardizing process for reaffirming a 

debt. While the act sets out verbatim the specific disclosures that 

must be made in connection with the reaffirmation agreement, it 

would be very helpful in ensuring uniform nationwide implementation if the Administrative Office of the United States Courts, which 

now provides a nonmandatory form for reaffirmations, would 

promptly revise and publish a new form, faithfully following the 

new statutory requirements. 

40

And last, improving bankruptcy statistics. Section 601 of the act 

requires the clerk of the court to collect statistics regarding debtors 

or individuals with consumer debts seeking relief under Chapters 

7, 11, and 13. In addition, the attorney general must issue rules 

requiring uniform forms for final reports by trustees in cases under 

Chapters 7, 12, and 13. And then there is a provision for the collection of this information and reporting it. 

It is critical that these data collection tasks be fully implemented. In future years, the resulting data will provide a solid information basis on which to build constructive bankruptcy policy. 

Conclusion. I have highlighted some of the most important implementation tasks, but I have hardly been exhaustive. The act’s reforms require cooperation by several separate governmental and 

quasi-governmental agencies if the legislation’s goals are to be 

promptly realized. 

The Bankruptcy Rules must be revised in several respects, and 

since the formal process to do so takes some time, uniform interim 

rules that can be adopted by each local bankruptcy court should be 

proposed. Forms and procedures must be developed. Issues, as they 

arise, must be resolved. Many entities have important functions to 

perform, either in cheerfully making the new system work or examining how well it does work. 

We appreciate the interest the Subcommittee has shown in overseeing the process and encouraging the involved parties to work together in good faith to implement the legislation. I would like to 

thank the Subcommittee for the opportunity to appear before you 

today to discuss this important topic. I would be happy to answer 

any questions you may have. 

[The prepared statement of Mr. Wallace follows:]

41

PREPARED STATEMENT OF GEORGE WALLACE


GW0001.eps
42


GW0002.eps
43


GW0003.eps
44


GW0004.eps
45


GW0005.eps
46


GW0006.eps
47

Mr. CANNON. Thank you, Mr. Wallace. 

As Chair, let me suggest the following order for questions. If 

someone has a commitment and would like to be recognized out of 

this order, we’d appreciate hearing about it now. But first of all, 

Mr. Gohmert, then Mr. Watt, then Mr. Franks, Mr. Delahunt, Mr. 

Chabot, and then Mr. Nadler. And if there is anything left to ask, 

I will follow up with questions. 

Mr. Gohmert? You are recognized for 5 minutes. 

Mr. GOHMERT. Thank you, Mr. Chairman. 

Mr. Plunkett, let me ask you a question. You had indicated that 

we should be involved in significant oversight to help—these 

weren’t your words—but basically to keep the charlatans out of the 

consumer counseling business. What amendments, if any, do you 

think would help make that possible? 

Mr. PLUNKETT. Well, at this point, it appears to be a question of 

implementation. The standards laid out in the law for quality, although quite general, are fairly good. For example, it——

Mr. GOHMERT. Well, but I’m just asking—my question is, do you 

see any amendments that would help keep charlatans out of the 

consumer counseling business? 

Mr. PLUNKETT. At this point, I would suggest that what’s needed 

is really tough oversight. 

Mr. GOHMERT. Okay. You’ll go back to my original question. 

Mr. PLUNKETT. Yes. 

Mr. GOHMERT. Besides oversight. So listen to me. Besides oversight, what amendments, if any, do you think would help keep 

charlatans out of consumer counseling? 

Mr. PLUNKETT. I wouldn’t recommend anything at this point. As 

I mentioned, the standards are fairly good. However, if it’s not 

properly implemented, we’re still going to have the charlatans offering credit counseling. 

Mr. GOHMERT. Okay. Thank you. And you also mentioned that 

you want to protect basically tax information from creditors unless 

they were to show cause before they got it. And it’s been years, before I ever went on the bench as a judge that I’d been in bankruptcy court with clients, but—and that was usually from an FDIC 

standpoint. 

Is it currently required that debtors file any tax information? 

Mr. PLUNKETT. It will be under this act. 

Mr. GOHMERT. No, but I mean right now. There is no requirement like that. Is that correct? 

Mr. PLUNKETT. Not that I know of. 

Mr. GOHMERT. All right. What, in your opinion, would be good 

cause to require the furnishing of the tax information? 

Mr. PLUNKETT. There needs to be either a cause showing that 

the trustee, which is allowed access to the tax information, can’t 

adequately verify the income and expense information required by 

the law. General verification of accuracy is the issue, and it needs 

to be a creditor, for instance, that is requesting this tax information needs to show that the trustee can’t do that verification, first 

and foremost. 

Second, the creditor needs to show a particular need based on 

the specifics of the individual’s, that is the debtor’s, problem. This 

should not be a form request for all cases that the creditor is a 

48

party and interest to. That is, it needs to be an individualized decision. We have no problem, of course, because the law requires it, 

with the requirement that where there is cause that creditors have 

access to this information. 

But that is going to—the issue is——

Mr. GOHMERT. Well, the question was, though, what cause? 

Thank you. 

Mr. White—and I’m sorry to be sharp in cutting off when it is 

not germane to the question, but our time is so limited. Mr. White, 

you know, you’ve—well, Mr. Plunkett in his written testimony had 

indicated that given the ongoing problems in the credit counseling 

industry, and I think most of us would acknowledge there have 

been some, this is a very dangerous time to be requiring over a million new consumers to see credit counselors. What would be your 

response to that? 

Mr. WHITE. I’d look at it in two ways, Congressman. First, in 

terms of the possibilities for salutary effect, it’s quite significant because what’s being done here, in many respects, is a consumer protection provision that will ensure that debtors will come into the 

system after first receiving counseling services so they know what 

their options are to go into bankruptcy or to develop other budget 

or alternative repayment methods. That can be very salutary. 

But, as all of us know, there have been significant problems in 

the industry. We, at the end of June, just a few weeks ago, issued 

for the first time the application materials under the standards set 

forth in the statute. What we tried to do was to strike the appropriate balance, and we’ll be learning. We’ve learned a lot since 

April. We’ll learn a lot as we go along and adjust standards as necessary. But what we have done is we’ve put forth applications for 

providers to come to us to show that they are qualified and in such 

areas as, for example, qualifications. Are the counselors certified? 

Bonding requirements, which some have suggested and Mr. Wallace did in his statement. Perhaps he believes they are a bit too 

stringent. There are certain background check requirements for 

those who are handling money or giving advice to debtors on what 

to do with their money. We also are requiring——

Mr. GOHMERT. But as far as the background check, who does 

that? 

Mr. WHITE. That would have to be performed by the provider. So 

when they hire employees, certain employees whom we define 

would have to have a background check. If it is a debt management 

plan provider——

Mr. GOHMERT. So, in other words, you’d be looking only to the 

four corners of what they provide, what information they provide 

to determine whether or not they are legitimate, should be doing 

consumer counseling. Is that fair? 

Mr. WHITE. We’ve set out certain requirements, and they would 

file certifications with this instant backup documentation. Yes, sir. 

Mr. GOHMERT. But you’re still looking only to what they provide. 

You do no background investigation yourself? 

Mr. WHITE. We do not do the background checks. No, sir. 

Mr. GOHMERT. So if they can fill out a form and do it in such 

a way that they sound good on paper, then they’re in? 

49

Mr. WHITE. Well, the applications will be signed under penalty 

of perjury, yes. 

Mr. GOHMERT. And we all know that keeps everybody from perjuring themselves. 

Mr. WHITE. Right. The point——

Mr. CANNON. The gentleman’s time has expired. Does the gentleman——

Mr. GOHMERT. Thank you. Thank you, Mr. Chairman. 

Mr. CANNON. Thank you. The Chair recognizes the gentleman 

from Massachusetts for 5 minutes. 

Mr. DELAHUNT. Yes, I really enjoyed the line of questioning by 

my friend from Texas. Speaking about signing under the pains and 

penalties of perjury, just for my information, how many cases have 

been referred for criminal prosecution in the course of the past 

year, 2 years, 5 years? 

Mr. WHITE. I believe in fiscal year 2004, it may have been in the 

neighborhood of 700 cases. I can provide for the record——

Mr. DELAHUNT. Out of how many, approximately? 

Mr. WHITE. Out of how many cases being filed nationally? About 

1.5 million or more cases were filed nationally. 

Mr. DELAHUNT. So that’s a very small percent. I bet—I bet that 

former judge down there in Texas that he could have found—you 

let him loose, he could have done a lot more than 700. I dare say 

that it’s not very reassuring to me that the only protection in terms 

of quality control is, you know, within the four corners of an application form. 

Mr. WHITE. Well, if I may say, Mr. Delahunt, if I said that is all 

we are doing or will do, then I’ve misspoken. What I’m saying is 

that we have an application; we do not perform background checks. 

The application says that the provider will perform and certify. It 

performs background checks, and we set out requirements. 

We can get continuing information on an annual basis and, in 

addition, as to monitoring that is done between. The approval period is for 1 year. We have not determined what monitoring can 

feasibly be done during the 1-year period. We are still putting together all of our implementation plans. 

But what we did issue in a very short period of time were application materials that set forth the standards consistent with what 

is in the statute and requiring documentation that would allow us 

to make a reasoned decision to see whether there is documentation 

to support the certifications that the standards set forth in statute 

have been met, that the provider is qualified and should be approved and, therefore, be able to provide the services and issue the 

certificates to debtors. 

Mr. DELAHUNT. Mr. White, what’s the price tag for this legislation? 

Mr. WHITE. Well, for the U.S. Trustees——

Mr. DELAHUNT. No. The whole enchilada? 

Mr. WHITE. I don’t have a number. 

Mr. DELAHUNT. You don’t have a number? 

Mr. WHITE. I don’t. 

Mr. DELAHUNT. Has CBO scored it different ways? Judge Small? 

Judge SMALL. I don’t know. I don’t have a number. 

50

Mr. DELAHUNT. Mr. Wallace, it’s good seeing you back here 

again. 

Mr. WALLACE. Nice to see you, sir. 

Mr. DELAHUNT. Good to see you. Mr. Plunkett? 

Mr. PLUNKETT. Don’t know. 

Mr. DELAHUNT. You know, there was considerable testimony—I 

remember, Mr. Chairman—about $500 million, possibly $1 billion. 

But none of you panelists have a figure. Mr. White? 

Mr. WHITE. Mr. Delahunt, with regard to what the costs are to—

direct costs to Government agencies and any loss to the Treasury 

through the——

Mr. DELAHUNT. Yes, give me that. 

Mr. WHITE.—filing fees we’ll provide for the record. In the supplemental appropriation recently enacted, there were filing fee increases that were designed to address the funding needs of the U.S. 

Trustee Program, the court system, and any other loss from the 

Treasury. 

Mr. DELAHUNT. What was the percentage of increase in the——

Mr. WHITE. It was a significant percentage. Maybe, in the filing 

fee for Chapter 7, maybe in the nature of 25 or 30 percent. The 

U.S. Trustee cost over 5 years, at least as reflected in our budget 

request, is for an additional $37 million for fiscal year 2006. That’s 

what our budget request is. 

The filing fees enacted by Congress, the increase, the allocation 

to the U.S. Trustee Program is, over a 5-year period, $241 million. 

Mr. DELAHUNT. $241 million. To get to the issue of creditor access to tax returns, the proposal put forth by Mr. Plunkett, what’s 

your—what’s your opinion of his suggestion? 

Mr. WHITE. I don’t have any instant reaction. We’re talking with 

our trustees with regard to new responsibilities they’ll have under 

the Code. So, for example, with regard to the tax returns, I think 

there is an assumption in Mr. Plunkett’s testimony, perhaps, that 

the trustees will retain tax returns in all cases. I don’t know that 

that’s the case at all. 

The trustees who we oversee—we appoint and oversee—will receive tax returns for purposes of verifying information. But certainly, any privacy concerns with regard——

Mr. DELAHUNT. But you wouldn’t——

Mr. WHITE. I am not endorsing——

Mr. DELAHUNT. Do you share his concern about creditors receiving that information? 

Mr. WHITE. The bankruptcy bill contains on balance, including in 

those provisions, many consumer protections and other salutary 

provisions. I’m not suggesting any changes at this time. 

Mr. DELAHUNT. I’m not asking you that. I’m asking you whether 

you share——

Mr. CANNON. Would the gentleman like to ask an additional—

unanimous consent for an additional 2 minutes? 

Mr. DELAHUNT. Yes, I would, Mr. Chairman. 

Mr. CANNON. Without objection. 

Mr. DELAHUNT. Mr. White, I am asking you a concern about the 

privacy implications as it relates to tax returns. Do you share his 

concern? 

51

Mr. WHITE. I think I would share a concern that private information that is provided on debtors ought to be addressed in the U.S. 

Trustee’s implementation, and our oversight of the trustees ought 

to be foremost in our minds. And that is why, for example, in the 

bankruptcy bill there are numerous other privacy provisions: to ensure that private information is not put out into the public domain. 

Section 107 of the Bankruptcy Code was changed, and there were 

other provisions. So, there are very important policy considerations. 

I don’t——

Mr. DELAHUNT. But——

Mr. WHITE. Go ahead. 

Mr. DELAHUNT. But there is no—as I understand it, it’s my understanding that there’s no provision in terms of the release of tax 

returns to creditors. There is no privacy protection incorporated 

into the act as passed. Is that—is that a fair statement? 

Mr. WHITE. I would want to go back before I gave you a firm answer, but I am not offhand aware of what the restrictions are that 

a creditor would have. 

Mr. DELAHUNT. Judge Small? 

Judge SMALL. Well, I think you’re right. It is a huge and important concern, and the director of the Administrative Office is coming up with guidelines. It is a huge and important consideration, 

and the director of the Administrative Office is coming up with 

guidelines to help protect the privacy. 

There are privacy provisions. There’s a privacy policy that personal information should be redacted from documents that are filed 

with the court, and also the court system is trying to devise a system where if a document is filed, it’s not available to anybody. 

Mr. DELAHUNT. Would you agree with Mr. Wallace that the creditor should have access to the IRS return? 

Judge SMALL. I think the law requires that. 

Mr. DELAHUNT. And is it your opinion, Mr. Plunkett, that the 

law requires that? 

Mr. PLUNKETT. It’s my opinion that the law requires it. The law 

also says specifically that the Administrative Office of the U.S. 

Courts, and I am quoting here, ‘‘Shall establish procedures for safeguarding the confidentiality of any tax information provided’’ and—

quote—‘‘shall include restrictions on creditor access.’’

So what I’m commenting on are the kinds of restrictions that I 

think the Administrative Office should be placing on creditor access. 

Mr. DELAHUNT. Okay. Mr. Wallace, I’d feel remiss if I didn’t ask 

you a question. 

Mr. WALLACE. I was waiting for you, sir. If I could comment on 

this last one, I’d appreciate it. 

Mr. DELAHUNT. No, because I think I know your answer there. 

Mr. CANNON. Without objection, the gentleman is recognized for 

an additional 1 minute. 

Mr. DELAHUNT. Just one final question. Thank you. What can we 

expect in terms of interest rate reduction from the major credit 

card companies as a result of the passage of this act? 

Mr. WALLACE. I’m not——

Mr. DELAHUNT. Or the correct implementation of it? 

52

Mr. WALLACE. That will be handled by the market, sir. And the 

marketplace presumably will take into account the savings that occurs, and competition will lower prices as appropriate if, in fact, 

lower prices are justified. 

Mr. DELAHUNT. Right. I don’t think I’m too hopeful. But thank 

you. I expected that answer, Mr. Wallace. 

I yield back. 

Mr. CANNON. Thank you. 

Mr. Franks? The gentleman is recognized for 5 minutes. 

Mr. FRANKS. Thank you, Mr. Chairman. 

Mr. White, I know that there are sometimes people who are 

called on in this world to be implementers. And you have a great 

challenge in front of you, and I’m sure that, at this point, you have 

done more than a cursory analysis of the legislation that you have 

to implement. And again, I don’t envy your job because, you know, 

people who make legislation in theory, and then you have to turn 

around and try to turn it into reality. 

Having said that, did we goof anywhere? Are there any areas 

that you feel like are going to especially be challenging in the 

logistical implementation? 

Mr. WHITE. We have no specific—excuse me. We have no specific 

suggestions to make to Congress at this time. If, as we go forward 

in the implementation we find there are, we certainly would discuss that with the Department and provide them to Congress. 

But you’re absolutely right, and I appreciate the sentiment. 

There is a great deal of work for the U.S. Trustee Program, and 

if I just may say that there has been a great deal of professionalism and enthusiasm on the part of the staff, the 1,100 people 

of the U.S. Trustee Program, to move forward with our implementation plans. 

We’ve just finished a round of three regional training sessions, 

2-day programs, with our senior managers going over the major 

provisions of the statute and the outlines of our implementation. 

And, in a few weeks, we’ll embark upon 10 sessions, reaching almost all members of the U.S. Trustee Program to ensure that they 

are thoroughly familiar with the provisions of the law and those responsibilities Congress has given to us to implement and enforce 

the law. 

Mr. FRANKS. Let me just, if you had to point to any one aspect 

of the legislation as the biggest challenge you had, no matter what 

your opinion of it is, what do you think is the biggest logistical 

challenge that you have? 

Mr. WHITE. Well, there are two major challenges, and they have 

been pointed out by the Members and in the statements we’ve 

heard. Cornerstone issues for us, among others, are means testing, 

because there is a significant volume of work, and credit counseling. I do not wish to minimize for one moment the importance 

of us eventually being able to strike that right balance in ensuring 

that we are protecting debtors from scam operations or abusive operations, but setting rules that do not unnecessarily create barriers 

because we do want the capacity in the system to serve the debtors. 

We’ve taken our initial effort. We’ve issued those applications in 

June, and we are going to be watching that very carefully. But we 

53

are new to this area, and it is a major challenge, and we’ll keep 

it at the top of our attention. 

Mr. FRANKS. Well, thank you, sir. 

And to that point, Mr. Plunkett, you gave us a couple of statistics 

related to I think the majority of the Chapter 7 bankruptcies being 

for those with a median income of—or an income of under $20,000. 

Mr. PLUNKETT. Just around. 

Mr. FRANKS. And then the rest of them for Chapter 13, under 

$30,000. Is that correct? 

Mr. PLUNKETT. Yes. 

Mr. FRANKS. You mentioned that part of the protocol is that the 

creditors, under some type of consumer credit counseling process, 

would hopefully offer incentives to the debtor. It doesn’t sound like 

any incentives are actually required. If not required, what incentive would be the one that you would call for if you were writing 

the regulation that might follow the legislation? 

Mr. PLUNKETT. New Section 502(k) of the Code provides an incentive for creditors to actually reduce the principal that is owed 

for people who enter credit counseling debt management plans. I’m 

going to summarize here, but it essentially says that a 60 percent—or a 40 percent reduction, 60 percent of what you owe, would 

be deemed a reasonable repayment plan. And the incentive is that 

if the creditor doesn’t offer such a repayment plan and the consumer ends up in bankruptcy, they can seek a 20 percent reduction 

in what is owed. 

So it’s an attempt to incent creditors to offer more in the way of 

reductions in credit counseling. Right now all they offer, and it’s 

fairly minimal for many creditors, is a break in interest, not in 

principal. 

The reason more people don’t use credit counseling is because 

creditors typically have been fairly stingy in offering these breaks. 

So if they do better, then more people will choose credit counseling 

as an alternative. If it’s not financially viable for them to do so, 

they’ll end up in bankruptcy. 

Mr. FRANKS. So if I understand, those creditors that did not offer 

an incentive to the debtor would be diminished in their position in 

an actual bankruptcy? 

Mr. PLUNKETT. That’s the idea behind the provision. 

Mr. FRANKS. Thank you, Mr. Chairman. 

Mr. CANNON. I thank the gentleman. 

Mr. Nadler, would you seek recognition? 

Mr. NADLER. Yes, I do. 

Mr. CANNON. The gentleman is recognized for 5 minutes. 

Mr. NADLER. Thank you, Mr. Chairman. 

Mr. Wallace, I want to follow up on Mr. Delahunt’s question. We 

heard for any number of years prior to the passage of this bill that 

every adult or maybe it was every family, I forget which, in the 

United States paid a $400 premium in higher interest costs because of the cheating that was going on, which this bill would 

eliminate. And we heard that from you, among others, I think. 

So would you agree that we ought to see now a $400 reduction 

in interest costs per family or per individual if this bill is properly 

implemented? 

54

Mr. WALLACE. In the event that—although those statistics were 

developed back in the early period of the act, yes, I would assume 

that on the whole, there would be that kind of savings develop—— Mr. NADLER. And if we don’t see it—and if we don’t see it, then 

we would assume either that the bill is not being properly implemented or that the bill was fallacious? 

Mr. WALLACE. I think implementation is going to be a real challenge, but I think it can be done well. And if it is done well, then 

there will be substantial improvement in the bankruptcy system 

that will—— Mr. NADLER. I didn’t ask about substantial improvement. I asked 

about a lowering of interest rates. 

Mr. WALLACE. Well, there needs to be an improvement in the 

bankruptcy system in order for there to be a lowering to cost. 

Mr. NADLER. But you are saying that there will be that lowering 

of costs? 

Mr. WALLACE. If the implementation is effective and as full 

as——

Mr. NADLER. And if we don’t see it, we can assume that either 

the implementation was ineffective in ways that we could point out 

or that the bill was defective in some way? 

Mr. WALLACE. On the whole, that should be the case. Yes. 

Mr. NADLER. Okay. Thank you. 

Mr. White, when we were considering the legislation, some Members of the Committee—myself included, former Chairman Hyde— were concerned that a debtor who was found ineligible for Chapter 

7—he flunked the means test—but who could not confirm or complete a plan in Chapter 13. In other words, he might be—would be 

ineligible for relief under any chapter. In other words, colloquially, 

too rich for Chapter 7, too poor for Chapter 13. 

Mr. Wallace, among others, assured this Committee these concerns were unfounded. What guidance will the executive office provide to ensure that the discretion it has under the legislation will 

be used so as to make Mr. Wallace’s predictions not untrue? In 

other words, to make sure that nobody is too rich for Chapter 7, 

too poor for Chapter 13. 

Mr. WHITE. You are very correct, Mr. Nadler, that although we 

are dealing with a formula under the Code with regard to the presumption on the means test that, in fact, the U.S. Trustee has a 

responsibility to exercise some level of discretion in deciding whether to file a motion or if it doesn’t file a motion to dismiss in Chapter 7, to provide reasons for that. 

We’ve been studying those issues, and we will be working with 

our field to try to ensure that all appropriate factors are taken into 

account. The Congress has clearly made a change in the standard. 

It is also indicated clearly in the statute that even if the means 

test shows disposable income, if the reasons for that were catastrophic medical issues, military service, and so forth, that should 

not be the basis for pursuing a motion based upon a presumption. 

I don’t have a precise answer to your question——

Mr. NADLER. But I understand that, and I appreciate that. I’m 

concerned sort of about the further application of that. In other 

words, if someone has enough income so that he doesn’t meet the 

means test, then you would direct him to Chapter 13 rather than 

55

Chapter 7. But he has too much income to be able to confirm a 

plan under—not too much income. The Chapter 13, there are requirements in the law that say that the plan, that any plan that 

is confirmed must enable him to pay certain things, and it may 

very well be that the income is not sufficient to enable him to pay 

those things. So you couldn’t confirm Chapter 13. 

How can you make sure that he isn’t directed to Chapter 13 

when you can’t confirm a plan because the means test is just as 

rigid in Chapter 13 as it is in Chapter 7? 

Mr. WHITE. There is no formula we can then issue to our field 

to say that we can take care of all particular circumstances in 

every case. Every case, before a motion is filed, should be the basis 

of a reasoned judgment by an attorney looking at the totality of circumstances in a case. 

Mr. NADLER. But before you file a motion, what I am really asking is before you file a motion under Chapter 7, could you look at 

whether that means test applied to both Chapter 7 and Chapter 13 

would allow a plan to be confirmed under Chapter 13? If the answer is no, not file the objection to go into Chapter 7. 

Mr. WHITE. I’m not going to suggest that in every Chapter 7 case 

that we are going to do a hypothetical 13 plan and run it through 

to the Nth degree. 

Mr. NADLER. Why not? Why not? 

Mr. WHITE. I don’t think that’s a feasible alternative. I am saying, Mr. Nadler, that you are absolutely correct that we should not 

be filing a motion based strictly upon a formula that doesn’t take 

into account what the statute tells us to take into account, which 

are appropriate factors and the debtor also having an opportunity 

to rebut. 

I just don’t want to commit that we can come up with some formula or some magic wand to say that in all cases that we’ll have 

properly taken into account all factors and done it right 100 percent of the time the first time around. You are correct. And we believe, and we’ve talked to our attorneys. We’ll continue to counsel 

them and watch the performance in the field to ensure that we are 

exercising prudent discretion. 

And a debtor in some cases, for example, sir, who perhaps 

doesn’t qualify for 13 might—and I can not anticipate all circumstances—might be able to confirm an 11 plan. There are all 

kinds of possibilities out there. There is no way we can reduce it 

to a simple formula. 

Mr. NADLER. I must say, if you can’t afford a 13, I can’t imagine 

how you can do an 11. 

Let me ask one quick question to Mr. Small—or to Judge Small, 

excuse me. Judge Small, for debtors who fit into one of the safe 

harbors, that is debtors not subject to the means test or whose 

cases cannot be dismissed under the means test, will the forms and 

schedules reflect this fact? Or will debtors be required to bear the 

paperwork burden of the means test even if they’re exempt from 

it? 

Judge SMALL. Well, as I understand the forms, and Mr. White 

can answer this as well, I believe that if it’s shown that their income is below the median income, that would be the end of it. They 

56

wouldn’t have to go forward and fill out the rest of the means test 

because the means test just simply wouldn’t apply to them. 

Mr. NADLER. Okay. That applies, I assume, to some of the 

other——

Mr. CANNON. Would the gentleman like to ask unanimous consent for an additional minute or two? 

Mr. NADLER. I would like to ask unanimous consent for an additional 30 seconds. That’s all I think I require. 

Mr. CANNON. Without objection. 

Mr. NADLER. My only other question was that there are a number of safe harbors. And your answer, I assume, applies to the 

other safe harbors, not just the means test? 

Judge SMALL. If the means test is not applicable to them, I don’t 

see why they should have to fill out the rest of the means test. 

Mr. NADLER. Thank you. I yield back. 

Mr. CANNON. The gentleman yields back. Mr. Watt? 

Mr. WATT. Am I the last one on the horizon? 

Mr. CANNON. More or less. 

Mr. WATT. Oh, next to you. I’m sorry. 

First of all, let me just apologize to the witnesses for being in 

and out. Unfortunately, there are a number of other things going 

on in the world at the same time. 

So I saw some estimates, when we were considering this bill, 

that suggested that the amount of paperwork and administrative 

obligation to administer this new system was going to be fairly 

high. Do you all remember what those projections were or have an 

estimate of what the additional cost of administering our bankruptcy system is likely to be compared to what it was before this 

reform? 

Mr. White, maybe? 

Mr. WHITE. In answering a similar question before, I do not 

know the overall number. In the recent supplemental appropriations bill, Congress has changed the filing fee structure to provide 

additional funding for the courts and the U.S. Trustee. We will get 

an additional $241 million over 5 years, and the President has requested $37 million for us in the next fiscal year to implement 

bankruptcy reform. 

Mr. WATT. And what part of that is it anticipated will be covered 

by the filing fees? 

Mr. WHITE. All of the costs of the U.S. Trustee Program will be 

fully covered by filing fees, just as all of the costs of our previous 

budgets have been covered by filing fees. 

Mr. WATT. So you anticipate that, basically, this will just be a 

pass-through then. The appropriation and the income that comes 

from filing fees should pay for the entire bankruptcy system? 

Mr. WHITE. Well, the budget we have out, it will have revenues 

that will at least match what we expect it will cost us to administer bankruptcy reform next year. Yes, Mr. Watt. 

Mr. WATT. Next year and going forward or——

Mr. WHITE. Well, the President’s budget is for fiscal year 2006. 

With regard to any out-years, all I can say is that there is the $241 

million in the filing fee increase. So we are being given growth revenues, growth by 20 percent or more because of bankruptcy reform. 

57

Mr. WATT. Okay. How many new additional bankruptcy judges 

do you anticipate will be necessary to administer the reform part 

of this? 

Mr. WHITE. We don’t have any estimates on that. The growth of 

our staff will be approximately 320 additional staff. 

Mr. WATT. Judge Small? 

Judge SMALL. Well, I think the Judicial Conference projected 47 

judges would be needed, and I know 28 were included in the bill. 

So I think there is a need for more judges. 

Mr. WATT. And the cost of those judges will be offset by the filing 

fees also, do you anticipate? 

Judge SMALL. I can’t answer that question. 

Mr. WATT. Mr. White, do you anticipate the cost of the judges 

will be covered by the filing fees also? 

Mr. WHITE. That is not a matter within, sir, my knowledge. 

Mr. WATT. Mr. Plunkett or Mr. Wallace, have any idea about 

that? 

Mr. WALLACE. No, sir. 

Mr. WATT. Okay. The supply of credit counseling agencies—well, 

before I get to the supply, let me just try to figure out who is paying for that cost. Anybody care to venture an answer for that? Mr. 

Plunkett, you seem like you were about to say something. 

Mr. PLUNKETT. Well, the cost will be borne by debtors and potentially by agencies. There are two requirements in the law. Fees 

must be reasonable, but agencies are not allowed to turn away 

debtors because of inability to pay. 

What I’ve said in my testimony is that we anticipate that a significant number of those who are required to go to credit counseling will have little ability or an inability to pay. And so, that 

presents a whole series of problems. For the agencies, some of them 

may have to bear that cost if they are properly complying with the 

law. If they aren’t, they may be doing what we call cherry-picking. 

That is finding sophisticated ways to provide counseling to people 

they believe can pay whatever fee it is that they’re charging while 

subtly turning away people who can’t. And that presents a problem. 

Mr. WATT. I ask unanimous consent for 2 additional minutes. 

Mr. CANNON. Without objection, so ordered. 

Mr. WATT. I’m looking at a newspaper article from the Seattle 

Times, dated July 24, 2005, Mr. Plunkett, in which you estimated 

2 million to 9 million additional credit counselors or credit counselors who would be needed. Am I misreading what you estimated? 

Mr. PLUNKETT. Those are the broad estimates that have been 

made over the last few years about how many people seek assistance. 

Mr. WATT. Oh, that is how many people seek assistance from 

credit counselors. 

Mr. PLUNKETT. From credit counseling agencies. 

Mr. WATT. Before the bankruptcy reform? 

Mr. PLUNKETT. Correct. Now if we look at the number of people 

who filed for bankruptcy last year, Chapter 7 or Chapter 13, that 

would be just under 1.5 million. We assume that some portion of 

those people will have already met at least the first requirement, 

58

that they receive a credit counseling briefing within 6 months of filing. 

One can safely assume that somewhere around a million people, 

maybe a little more, maybe a little less, are going to be new to the 

system. 

Mr. WATT. So I’m bankrupt, and then I seek credit counseling. 

That’s supposed to do something good for me, I presume. I mean, 

is your experience with credit counselors that they can perform 

those Houdini reversals, or what is your experience with credit 

counseling? Maybe I shouldn’t lead the witness. Judge Small is 

saying I’m leading the witness. 

Mr. PLUNKETT. Well, we’ve looked at the industry hard for the 

last 5 years, and our experience is that if credit counseling is delivered at the right time by a reputable agency that provides good 

quality counseling, it can help some people. But if they——

Mr. WATT. Okay. Well, let’s evaluate the components of that. 

What is the right time? 

Mr. PLUNKETT. Well—— Mr. WATT. What is the capable person, and what are the some 

people? 

Mr. PLUNKETT. Okay. The right time is early. That is probably 

before the person is on the brink of bankruptcy to the point where 

they are actually considering bankruptcy. And those are many of 

the people that will be seen by credit counselors right now. 

So I’m not sure that this requirement is going to work as those 

who drafted it think it will because I think many people are simply 

going to view the credit counseling requirement as a college student would a required class that they have to sit through. They are 

too far gone financially to benefit from what counseling can do. 

Who are the ‘‘some people?’’ Well, if their secured debts aren’t too 

high and their unsecured debts, creditors offer a reasonable repayment plan on unsecured debt, a debt management plan, a credit 

card consolidation plan over 3 to 5 years can give those people 

enough breathing room to pay down their unsecured debts and 

start to work their way back away from the financial brink. That’s 

some people, but that’s not many people who are on the brink of 

bankruptcy. 

Mr. WATT. Just one final question, Mr. Chairman. Now does the 

credit counseling requirement apply to people above the means test 

and below, or just to people—— Mr. PLUNKETT. It applies to everyone. 

Mr. WATT. Everybody. Okay. 

All right. Thank you, Mr. Chairman. 

Mr. CANNON. The gentleman yields back. 

Is there a more compelling voice than that sotto voce that we just 

heard asking insightful questions? I am trying to learn from the 

Ranking Member to speak more slowly and carefully myself. 

Without objection, the record will be kept open for 5 additional 

days for any follow-up questions for the witnesses. 

Mr. WATT. Would the Chairman consider extending that to 7? 

Mr. CANNON. Oh, sure. Without objection, the record will be kept 

open for 7 legislative days for follow-up questions for the witnesses. 

Mr. WATT. Thank you. 

Mr. CANNON. And so ordered. 

59

One concern I have is privacy, and so I’m going to ask a question 

to the whole panel, and I hope that you can all comment. But principally for those organizations that are involved in overseeing this, 

what organizational steps are you taking—and this will be both for 

you, Mr. White, and for you, Judge Small—how are you creating 

a function to evaluate and to continue evaluating issues of privacy? 

And then, Mr. Plunkett and Mr. Wallace, if you could comment 

on those comments, and we’ll come back for a final follow-up from 

the two of you, if you could? Thank you, Mr. White. 

Mr. WHITE. Mr. Chairman, the responsibility in that matter that 

falls to us would generally be in the nature of the oversight of the 

trustees who would look at the tax returns. And so we have been 

discussing and will continue to discuss with the trustees the protocols for their handling. And it may well be that the trustees, who 

need the tax returns primarily for purposes of verification, should 

not, in most instances, retain the tax returns. They should return 

them at the 341 table or destroy them. 

But we’re very cognizant of the delicacy of that matter, and I believe our appointed trustees are as well, and we will continue to 

develop the appropriate protocols with them. 

Mr. CANNON. Will you have someone assigned to do that in the 

structure of your office? 

Mr. WHITE. We hadn’t decided that that was necessary, but that 

is a point well taken. 

Mr. CANNON. Let me suggest that for both the Department of 

Homeland Security now and the recent reauthorization of the Department of Justice, we have created a privacy officer. We’ve 

learned a great deal about that. I think Kelly O’Connor, who has 

done that job at DHS, has done a remarkable job in improving the 

way the whole department works. And this is an area where I see 

the potential for a huge problem. 

So without a legislatively mandated officer, it may be good to 

think in terms of having a person or a place where the responsibility lies because, over time, you are going to see new ways of 

abuse, new permutations of the problem, and evolution of forms. 

And so, to have someone to come back and be responsible to go 

through a process, saying how does this affect privacy, might be a 

good idea. 

Did you have anything you wanted to add to that, Mr. White? 

Mr. WHITE. No. Point is well taken, Mr. Chairman. I appreciate 

it. 

Mr. CANNON. Judge Small? 

Judge SMALL. The director of the Administrative Office has the 

statutory duty to come up with some guidelines to protect the privacy, and I can give you those guidelines in about 2 weeks. The Judicial Conference is going to approve those guidelines. 

Mr. CANNON. But my concern is not the guidelines so much, but 

the person who would be looking at those guidelines over time to 

say are these adequate? Given the changes in what is happening, 

are we doing an adequate job? In other words, some person—it 

could be a part-time position—somebody who exists there to occasionally come back and look at privacy. 

Judge SMALL. I don’t know that there is a specific person other 

than the director. And the director’s staff has the obligation to do 

60

these guidelines, and I assume that he’ll be constantly reviewing 

them as we go along. 

Mr. CANNON. As you create those guidelines, it might be good to 

keep in mind that a place with a job description with that element 

of the job description might actually be helpful. 

Judge SMALL. I’ll mention that to the director. 

Mr. CANNON. Thank you. Mr. Plunkett? 

Mr. PLUNKETT. Mr. Chairman, your point is well taken. I know 

under the privacy act, Federal agencies have to have such a privacy officer, and I think it would help ensure that as changes are 

made and as the situation develops that the courts can respond 

very quickly. 

Just so you know, some of the other steps we’re urging the Administrative Office to take, starting with the obvious, tax returns 

and transcripts shouldn’t be put on the Internet or placed in public 

files. But also there needs to be a system of transparent recordkeeping by interested parties that receive these tax returns. And 

they should be able—they should be required to disclose upon request exactly who has access and has seen this information. That 

is a fairly inexpensive way of ensuring compliance. 

We also think interested parties should be completely forbidden 

from redistributing this information in any fashion unless it’s approved by the court. What we want to avoid is a situation, either 

through sloppiness or intent, where this information is lying in 

files or in a database somewhere where it can be accessed inappropriately. We certainly don’t want creditors to be tempted to include 

any of this information in their internal databases. 

Mr. CANNON. I suspect, Mr. Plunkett, that you would actually 

like to have somebody in the oversight process looking at privacy 

so that your groups could contact and say, hey, here is a thing you 

ought to look at and maybe you ought to consider? 

Mr. PLUNKETT. I think that would be very helpful. 

Mr. CANNON. Mr. Wallace, did you have any comments? 

Mr. WALLACE. Oh, yes, sir. On the whole, I think that this discussion assumes that creditors have no interest in seeing those tax 

returns, and that’s not the case. We approach this from a history 

in which despite the good interests and the good intentions of both 

the trustees—the Chapter 7 trustees and the U.S. Trustee—there 

has not been enforcement of the means test which was in the old 

act. That is the substantial abuse standard under 707(b). 

For a number of years, creditors were basically left holding the 

bag. And therefore, the bill specifically, the act specifically provided 

that creditors could enforce, under certain circumstances, the 

means test. And they can also raise with by reporting to the United 

States trustee or to a trustee, a Chapter 7 trustee, if they think 

that there is an abusive case for appropriate action to be taken, regardless of whether the means test is triggered. 

In order to perform that function, which is an important enforcement function and vital to their interests as well as the society as 

a whole in keeping the system honest, they need to have access to 

those tax returns. And that’s important. That’s an important function, a governmental function, which the bill recognized. Those provisions were contested. These issues were fully debated during the 

enactment process. The privacy concerns with regard to the tax reVerDate 0ct 09 2002 16:45 Nov 17, 2005 Jkt 000000 PO 00000 Frm 00064 Fmt 6633 Sfmt 6601 G:\WORK\COMM\072605\22627.000 HJUD1 PsN: 22627
61

turns were always an issue, and the compromises were made as described. 

Now the bill says creditors have access to those tax returns. They 

need to have access to them. It’s an important function for them 

to do that. They are subject to the Gramm-Leach-Bliley Act, which 

once—this is personal, private information. Once they get that information, there is a whole host of Federal regulations that are 

triggered in, that apply to this information. 

They cannot pass it on. They can’t disseminate it. There is no 

such thing as putting this stuff on a Web site. Nobody is suggesting 

that kind of an approach. That would be ridiculous. 

So everybody is very sensitive to this information, but there is 

a vital function that the creditors have, and this act preserved the 

ability of the creditor to do this because Government had failed, 

year in and year out, in the enforcement of 707(b). 

Mr. CANNON. Thank you. Let me just say that I think everybody 

concurs that there’s going to be a problem with privacy, that we 

need to watch it, that there needs to be input from outside groups. 

And having somebody responsible I think will be very, very important. 

Mr. WALLACE. And we agree with that, sir. 

Mr. CANNON. Yes, in particular, you guys want a system that 

will work and be above reproach. So absolutely. 

The Ranking Member is recognized for an additional 5 minutes. 

Mr. WATT. No, I don’t need 5 minutes. I just wanted to inquire 

about one thing, which was the increased filing fee. What was the 

cost of the filing fee for bankruptcy under the old system, under 

the current system, and what is the projected cost under the new 

system? 

Mr. WHITE. I’m afraid I don’t have right at the tip of my tongue 

all of the exact numbers. I think the filing fee for Chapter 7—all 

fees put together, filing fees and other fees that must be paid at 

filing—is in the neighborhood of $275 for Chapter 7. It’s somewhat 

less for Chapter 13. 

Under the bill, the fee went up for 7. It went down for 13. 

Mr. WATT. You mean we set the fee, the new filing fee in the 

bill? 

Mr. WHITE. You did, and that—— Mr. WATT. As opposed to you all doing it administratively? 

Mr. WHITE. Yes. And the supplemental appropriations bill made 

further adjustments in the filing fee structure and allocation of the 

filing fees between the court, U.S. Trustee, and general treasury. 

Mr. PLUNKETT. Mr. Watt, the current fee is $209. It will rise to 

$274. So that is a $65 increase. 

Mr. WATT. Okay. Thank you, Mr. Chair. 

Mr. CANNON. As long as we keep it under $210 and under $275, 

I guess that is okay, right? 

I want to thank the panel for being here. This is an important 

area. We look forward to having input in the future on this matter. 

We will continue to oversee it carefully. 

And I want to thank the Ranking Member and other members 

of the panel who have been here today, and with that, we’re adjourned. 

[Whereupon, at 3:36 p.m., the Subcommittee was adjourned.] 

(63)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

64

LETTER TO THE HONORABLE F. JAMES SENSENBRENNER, JR., HOUSE JUDICIARY COMMITTEE, FROM BRUCE LEONARD, CHAIR, AND JOHN A. BARRETT, CHAIR, BOARD OF

GOVERNORS, INTERNATIONAL INSOLVENCY INSTITUTE


III0001.eps
65


III0002.eps
66


III0003.eps
67

PREPARED STATEMENT OF THE INTERNATIONAL INSOLVENCY INSTITUTE


III20001.eps
68


III20002.eps
69


III20003.eps
70


III20004.eps
71


III20005.eps
72


III20006.eps
73


III20007.eps
74


III20008.eps
75


III20009.eps
76


III20010.eps
77


III20011.eps
78


III20012.eps
79


III20013.eps
80


III20014.eps
81


III20015.eps
82


III20016.eps
83


III20017.eps
84

PREPARED STATEMENT OF SAMUEL K. CROCKER, ON BEHALF OF THE

NATIONAL ASSOCIATION OF BANKRUPTCY TRUSTEES, SUBMITTED BY THE HONORABLE MARK GREEN, A REPRESENTATIVE IN CONGRESS, FROM THE STATE OF UTAH

On behalf of the National Association of Bankruptcy Trustees (NABT), I would 

like to thank the Subcommittee for the opportunity to comment on the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the 

‘‘ACT’’). NABT represents the interests of over 1,200 private panel Trustees who administer cases filed under Chapter 7. Panel Trustees will have an important role 

in the administration of the new provisions of the Act and we are committed to 

making the Act work. Our comments today are focused on issues relating to the implementation of the Act. 

First let me say that Chapter 7 panel Trustees are committed to implementing 

the changes to the Code which have been proscribed by Congress. As the ‘‘gatekeepers’’ of the bankruptcy system, we will always utilize the tools provided us to 

help honest but unfortunate Debtors get the relief intended them, while being ever 

vigilant for fraudulent and abusive filings. The NABT is committed to maintaining 

the effectiveness of the system, and to that end we believe there are several areas 

of the law that Congress may want to look at with an eye toward implementation, 

which may effectively allow us to do what was intended.

1. Notification of Child Support Claimants

NABT is at work developing methods to implement the new § 704(a)(10), through 

which child support claimants will be notified of their rights as creditors in Chapter 7 cases of Debtors from whom a support obligation is due. We envision that 

this provision will, with the cooperation of the EODST, be effectively implemented through a series of procedures and notices provided by the panel Trustee 

throughout the case. We believe that, through this process, claimants owed domestic support obligations can and will be made aware of the options available 

to them to enforce Court-ordered support.

2. Additional Information Required of Debtors

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

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

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

working on methods of delivery which will allow us to effectively utilize the volume of information which will be provided to us by each Debtor. Additionally, we 

will attempt to insure that this information will remain confidential, and be used 

solely for the purposes intended by the statute.

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

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

will allow the panel Trustee to perform the job more effectively.

3. Waiver of Filing Fee

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

fees for individuals with ‘‘income less than 150 percent of the income official poverty line’’ if the Court determines the individual is unable to pay the fee in installments.

Trustees are paid compensation of $60.00 for administering cases in which no assets are available for liquidation. The funding for these fees is derived from the 

Chapter 7 case filing fee [see 11 U.S.C. § 330(b)(I)] and Miscellaneous Bankruptcy 

Court Fees prescribed by the Judicial Conference of the United States [see 11 

U.S.C. § 330(b)(2)].

The Act makes no provision for payments to Trustees in those cases where the 

filing fees are waived. Some have even suggested that the statutory language as 

drafted may prevent Trustees from being paid for services in such cases. This apparent oversight needs to be corrected, and a system established to provide adequate funding for payment of Trustee fees in these cases.

4. Protecting Patient Records

The Act adds a new § 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 cirVerDate 0ct 09 2002 16:45 Nov 17, 2005 Jkt 000000 PO 00000 Frm 00088 Fmt 6601 Sfmt 6621 G:\WORK\COMM\072605\22627.000 HJUD1 PsN: 22627
85

cumstances 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 moneys to parties in interest in such cases (which that statute requires as a prerequisite).

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

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

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

convert under § 707(b) and such motion is granted, or if the case is converted 

from Chapter 7 to another chapter, and the actions or positions of the Chapter 

7 Trustee were a factor in the conversion of the case. Since cases are most often 

converted from Chapter 7 to 13 without the processing of a formal § 707(b) motion 

(a threat of a motion is often sufficient), Trustees should be allowed compensation 

if their actions or positions were a factor in the conversion of the case.

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

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

intent of Congress to reward us for these efforts, and encourage the continued 

vigilance.

6. Avoiding Automatic Dismissal in Asset Cases

The Act modifies § 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.

Terminating the stay under § 326(a) is adequate to allow a creditor to take action 

with respect to property as permitted under applicable law. This would also serve 

to avoid decreeing that the property is ‘‘no longer property of the estate’’ and ensure that valuable property will not be lost to the estate and its creditors in some 

cases.

86

7. Increase in ‘‘No Asset Fee’’

Under the present law, Trustees receive $60.00 for administering Chapter 7 cases 

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

occurred in 1996, when the fee was raised from $45.00 to $60.00.

Æ