Personal Bankruptcy

Methodological Similarities

and Differences in Three

Reports on Debtors’ Ability

to Pay

Statement of Richard M. Stana, Associate Director

Administration of Justice Issues

General Government Division

United States General Accounting Office

GAO Testimony

Before the Subcommittee on Commercial and

Administrative Law, Committee on the Judiciary,

House of Representatives

For Release on Delivery

Expected at

10:00 a.m., EST

on Wednesday

March 17, 1999

GAO/T-GGD-99-58

Summary

Personal Bankruptcy: Methodological

Similarities and Differences in Three Reports

on Debtors’ Ability to Pay

Page 1 GAO/T-GGD-99-58 Personal Bankruptcy

Those who file for personal bankruptcy generally file under chapters 7 or

13 of the bankruptcy code. Those who file under chapter 7 generally seek

discharge of their eligible debts. Those who file under chapter 13 submit a

repayment plan, which must be confirmed by the bankruptcy court, to pay

all or part of their debts over a period not to exceed 3 or 5 years. Personal

bankruptcy filings have set new records in each of the last 3 years,

although there is little agreement on the causes for such high bankruptcy

filings in a period of relatively low unemployment, low inflation, and

steady economic growth. Nor is there agreement on the number of debtors

who seek relief through the bankruptcy process who have the ability to

pay at least some of their debts and the amount of debt such debtors could

repay.

Three reports—by the Credit Research Center (October 1997), Ernst &

Young (March 1998), and Creighton University/American Bankruptcy

Institute (March 1999)—have examined different samples of debtors who

filed for bankruptcy under chapter 7 and estimated the percentage of such

debtors who could repay a “substantial portion of their debts.” The Credit

Center estimated that 30 percent of the chapter 7 debtors in its sample

could repay at least 21 percent of their “nonhousing, nonpriority debts,”

such as car loans and credit card debts, over a 5-year period. The Ernst &

Young and ABI reports estimated that 15 percent and 3.6 percent,

respectively, of the chapter 7 debtors in their individual samples could

repay (1) all of their nonhousing secured debts (such as auto loans), (2) all

of their unsecured priority debts (such as certain taxes), and (3) at least 20

percent of their unsecured nonpriority debts (such as credit card debt)

over a 5-year period.

The reports have some characteristics in common. Each used for its

analysis the data on income, expenses, and debts that debtors file with

their bankruptcy petitions. Although these are the only data available for

analyzing debtors’ repayment capacity, the reliability and accuracy of

these data are unknown. Each report’s estimates also assumed that a

debtor’s income would be stable over the 5-year repayment period and that

all debtors who entered a 5-year repayment plan would successfully

complete their plans.

Differences in the three reports’ methodologies contributed to each

report’s different estimate of the percentage of chapter 7 debtors who

could potentially repay a “substantial portion” of their debts and the

percentage of those debts that could be repaid over 5-year repayment

period. These differences include different (1) groupings of the types of

debts that could be repaid, (2) gross income thresholds to identify those
Summary

Personal Bankruptcy: Methodological Similarities and Differences in Three Reports on

Debtors’ Ability to Pay

Page 2 GAO/T-GGD-99-58 Personal Bankruptcy

debtors whose repayment capacity was analyzed, (3) assumptions about

debtors’ allowable living expenses, (4) treatment of student loans that

debtors had categorized as unsecured priority debts; (5) assumptions

about the administrative expenses that would accompany a debtor

repayment plan. It is also possible that differences in the sampling

methods and time periods each report used to select the debtors for

analysis could have contributed to the different results.
Statement

Personal Bankruptcy: Methodological

Similarities and Differences in Three Reports

on Debtors’ Ability to Pay

Page 3 GAO/T-GGD-99-58 Personal Bankruptcy

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to share our observations on the principal

methodological similarities and differences of three reports on bankruptcy

debtors’ ability to pay their debts. These reports endeavor to address an

important public policy issue—whether some proportion of debtors who

file for personal bankruptcy have sufficient income, after expenses, to pay

a “substantial” portion of their debts.

The three reports were issued by the Credit Research Center (Credit

Center),1

 Ernst & Young,2 and Creighton University/American Bankruptcy

Institute (ABI).3

 Last year we reported on our analyses of the Credit Center

and Ernst & Young reports.4

 It is important to emphasize that our review of

the ABI study is still underway. Consequently, it is too early for us to

discuss the results of our analysis of the ABI report. Our objective in

reviewing each of these reports has been the same—to assess the

strengths and limitations, if any, of the report’s assumptions and

methodology for determining debtors’ ability to pay and the amount of

debt that debtors could potentially repay. We have used the same criteria

to review each report.

The Credit Center report estimated that 30 percent of the chapter 7

debtors in its sample could pay at least 21 percent of their “nonhousing,

nonpriority debt,” after deducting their mortgage debt payments and living

expenses (exclusive of debt payments). Ernst & Young and ABI estimated

that 15 percent and 3.6 percent, respectively, of the debtors in their

individual samples had sufficient income, after deducting allowable living

expenses, to pay all of their nonhousing secured debts, all of their

unsecured priority debts, and at least 20 percent of their unsecured

nonpriority debts. The reports have some characteristics in common, such

as the use of debtor-prepared income, expense and debt schedules, the

assumption that the debtor’s income would remain stable over a 5-year

repayment period, and the assumption that all debtors who entered a 5-

 

1

 John M. Barron, Ph.D., and Michael E. Staten, Ph.D., Personal Bankruptcy: A Report on Petitioners’

Ability to Pay (October 7, 1997).

2

 Ernst & Young, LLP, Chapter 7 Bankruptcy Petitioners’ Ability to Repay: The National Perspective,

1997 (March 11, 1998).

3

 Marianne B. Culhane, J.D., and Michaela M. White, J.D., Taking the New Consumer Bankruptcy Model

for a Test Drive: Means-Testing Real Chapter 7 Debtors (March 8, 1999).

4

 Personal Bankruptcy: The Credit Research Center Report on Debtors’ Ability to Pay (GAO/GGD-98-

47, Feb. 9, 1998) and Personal Bankruptcy: The Credit Research Center and Ernst & Young Reports on

Debtors’ Ability to Pay (GAO/T-GGD-98-79, March 12, 1998).
Statement

Personal Bankruptcy: Methodological Similarities and Differences in Three Reports on

Debtors’ Ability to Pay

Page 4 GAO/T-GGD-99-58 Personal Bankruptcy

year repayment plan would successfully complete the plans—an

assumption that historical experience suggests is unlikely.5

 However, the

reports have some methodological differences, including different (1)

groupings of the types of debts that could be repaid; (2) gross income

thresholds used to identify those debtors whose repayment capacity was

analyzed, (3) assumptions about debtors’ allowable living expenses, (4)

treatment of student loans that debtors had categorized as unsecured

priority debts; and (5) and assumptions about administrative expenses.

The remainder of my statement discusses in greater detail the similarities

and differences in the findings and methodologies of the three reports. A

summary of these similarities and differences is found in attachment I.

Debtors who file for personal bankruptcy usually file under chapter 7 or

chapter 13 of the bankruptcy code. Generally, debtors who file under

chapter 7 of the bankruptcy code seek a discharge of their eligible

dischargeable debts.6

 Debtors who file under chapter 7 may voluntarily

reaffirm—that is, voluntarily agree to repay—any of their eligible

dischargeable debts. Debtors who file under chapter 13 submit a

repayment plan, which must be confirmed by the bankruptcy court, for

paying all or a portion of their debts over a period not to exceed 3 years

unless for cause the court approved a period not to exceed 5 years.

Personal bankruptcy filings have set new records in each of the past 3

years, although there is little agreement on the causes for such high

bankruptcy filings in a period of relatively low unemployment, low

inflation, and steady economic growth. Nor is there agreement on (1) the

number of debtors who seek relief through the bankruptcy process who

have the ability to pay at least some of their debts and (2) the amount of

debt such debtors could repay.

 

5

 A 1994 report by the Administrative Office of the U. S. Courts reviewed the outcome of 953,180

chapter 13 cases filed between calendar years 1980 and 1988 and terminated by September 30, 1993.

AOUSC found that debtors received a discharge in about 36 percent of the terminated cases. A chapter

13 discharge is generally granted when a debtor successfully completes a court-approved repayment

plan

6

 Eligible debts may be discharged in bankruptcy proceedings. A dischargeable debt is a debt for which

the bankruptcy code allows the debtor’s personal liability to be eliminated. By statute, some types of

debts and obligations, such as alimony, child support, some student loans, and certain taxes cannot

generally be discharged in bankruptcy proceedings. The debtor remains financially responsible for

nondischargeable debts after the close of his or her bankruptcy case.

Background
Statement

Personal Bankruptcy: Methodological Similarities and Differences in Three Reports on

Debtors’ Ability to Pay

Page 5 GAO/T-GGD-99-58 Personal Bankruptcy

Several bills have been introduced in the 105th and 106th Congresses that

would implement some form of “needs-based” bankruptcy. Each of these

bills includes provisions for determining when a debtor could be required

to file under chapter 13, rather than chapter 7. Currently, the debtor

generally determines whether to file under chapter 7 or 13. Generally,

these bills would establish a “needs-based” test, whose specific provisions

vary among the bills. H.R. 3150, the bill used in the Ernst & Young and ABI

analyses, would require a debtor whose gross monthly income met a

specified income threshold to file under chapter 13 if the debtor’s net

monthly income after allowable expenses was more than $50 and would be

sufficient to pay 20 percent of the debtor’s unsecured nonpriority debt

over a 5-year period. Debtors who did not meet these criteria would be

permitted to file under chapter 7.

Under the bankruptcy code, a debtor’s debts may be grouped into three

general categories for the purposes of determining creditor payment

priority: (1) secured debts, for which the debtor has pledged collateral,

such as home mortgage or automobile loans; (2) unsecured priority debt,

such as child support, alimony, and certain taxes; and (3) unsecured

nonpriority debt, such as credit card debts. In analyzing debtors’ ability to

pay, the three reports have focused principally on the percentage of total

unsecured nonpriority debt that debtors could potentially repay.

The Credit Center, Ernst & Young, and ABI reports have each attempted to

estimate (1) how many debtors who filed under chapter 7 may have had

sufficient income, after expenses, to repay a “substantial” portion of their

debts, and (2) what proportion of their debts could potentially be repaid.

Each of the reports used to some degree data from the financial schedules

that debtors file with their bankruptcy petitions. Although these schedules

are the only source of the detailed data needed for an analysis of debtors’

repayment capacity, the data in the schedules are of unknown accuracy

and reliability. There are no empirical studies of the accuracy and

reliability of the data debtors’ report in their financial schedules, and the

National Bankruptcy Review Commission’s report recommended that

these schedules be randomly audited.7

To develop its estimate of the total amount of debt that could be repaid

over a 5-year period, each report assumed that all debtors would

successfully complete a 5-year repayment plan. Each report also assumed

that each debtor’s gross income, as reported in the debtor’s financial

 

7

 Bankruptcy: The Next Twenty Years (October 20, 1997).

Shared Characteristics

of the Three Reports
Statement

Personal Bankruptcy: Methodological Similarities and Differences in Three Reports on

Debtors’ Ability to Pay

Page 6 GAO/T-GGD-99-58 Personal Bankruptcy

schedules, would remain unchanged over the 5-year repayment period.

Historically, only about one-third of chapter 13 debtors have successfully

completed their repayment plans, suggesting that for two-thirds of debtors

something changed between the time the plans were confirmed by the

bankruptcy court and the time the actual repayment plan was to be

successfully completed.

The three reports focus on the potential debt that debtors could repay

should more debtors be required to file under chapter 13. However, should

the number of debtors who file under chapter 13 increase, there would

also be additional costs for bankruptcy judges and administrative support

requirements that would be borne by the government. This is because

bankruptcy judges would be involved in debtor screening to a greater

extent than they are now and chapter 13 cases require more judicial time

than chapter 7 cases do. None of the reports estimated these additional

costs, although the ABI report acknowledges that such additional costs

could accompany means-testing of bankruptcy debtors. In addition, the

Religious Liberty and Charitable Donation Protection Act of 19988

 permits

chapter 13 bankruptcy debtors to include certain charitable deductions of

up to 15 percent of their annual gross income in their allowable living

expenses. The implementation of this statute could affect the estimates in

each of the three reports. The potential effect could be to reduce (1) the

number of bankruptcy debtors who could be required under the “needsbased” tests to file under chapter 13 or (2) the amount of debt repaid to

unsecured nonpriority creditors by those debtors who are required to file

under chapter 13. The act was enacted after the Credit Center and Ernst &

Young issued their reports. The ABI report noted the act could effect the

results of debtor means-testing, but did not attempt to apply the act to its

sample of debtors.

The reports differed in the types of debts that they estimated debtors could

repay, their sampling methods, the calendar period from which each

report’s sample cases were selected, and the assumptions used to estimate

debtors’ allowable living expenses and debt repayments. The ABI report

classified student loans differently than the other two reports. We have not

analyzed the impact these differences may have had on each report’s

findings and conclusions.

 

8

 P.L. 105-183 (1998).

Methodological

Differences Among the

Three Reports
Statement

Personal Bankruptcy: Methodological Similarities and Differences in Three Reports on

Debtors’ Ability to Pay

Page 7 GAO/T-GGD-99-58 Personal Bankruptcy

The Credit Center report estimated the percentage of chapter 7 debtors

who could repay a percentage of their “nonhousing, nonpriority debt.”

These debts included secured nonhousing debt and unsecured nonprority

debt. The Credit Center estimated that 30 percent of the chapter 7 debtors

in its sample could repay at least 21 percent of their nonhousing,

nonpriority debts, after deducting from their gross monthly income

monthly mortgage payments and monthly living expenses.

The Ernst & Young and ABI reports estimated the proportion of debtors

who had sufficient income, after living expenses, to repay over a 5-year

repayment period:

• all of their nonhousing secured debt, such as automobile loans (debtors’

payments on home mortgage debt were included in the debtors’ living

expenses);

• all of their secured priority debts, such as back taxes, alimony, and child

support (child support and alimony payments were assumed to continue

for the full 5-year payment period unless otherwise noted in the debtors’

financial schedules); and

• at least 20 percent of their unsecured nonpriority debts.

The Ernst & Young and ABI reports estimated that 15 percent and 3.6

percent, respectively, of the chapter 7 debtors in their individual samples

met all of these criteria.

Each of the reports used somewhat different sampling methods, and the

bankruptcy filings included in their analyses cover different districts and

different calendar periods. The Credit Center selected 2,441 chapter 7

cases filed primarily at the beginning of the month in a single, large urban

location in each of 13 judgmentally selected bankruptcy districts.9

 The

cases were generally selected during the first few days of a one or two

month period in 1996. Ernst & Young’s analysis was based on a national

random sample of 2,142 calendar year 1997 chapter 7 case filings as

reported in VISA’s bankruptcy notification service. VISA collects copies of

the bankruptcy petitions filed in the bankruptcy courts. Ernst & Young’s

analysis included chapter 7 bankruptcy filings from each of the 90

bankruptcy districts. 10 The ABI report is based on 1,041 randomly selected

 

9

 This is the number of cases filings used in the analysis. The Credit Center also included an analysis

of 1,357 chapter 13 case filings, and compared the repayment capacity of the debtors who filed under

chapter 7 and 13.

10 The number of cases selected in each district was proportional to each district’s share of total

national chapter 7 nonbusiness bankruptcy filings in 1997.

Differences in the Types of

Debts Each Report

Estimated Could Be Repaid

Sampling Differences
Statement

Personal Bankruptcy: Methodological Similarities and Differences in Three Reports on

Debtors’ Ability to Pay

Page 8 GAO/T-GGD-99-58 Personal Bankruptcy

chapter 7 case filings from calendar year 1995 in 7 judgmentally selected

districts. The Credit Center and ABI reports have one district—Northern

Georgia—in common.

It is possible that there are differences in each sample’s debtor

characteristics that could affect each report’s estimate of debtor

repayment capacity. The differences could result from the different time

periods and the different sampling methods for selecting districts and

filers within each district. Such differences, should they exist, could have

affected each report’s estimate of the percentage of chapter 7 debtors who

could potentially repay a substantial portion of their debts and how much

they could repay.

Both the Credit Center and Ernst & Young reports assumed that debtors

would incur no additional debt during the 5-year repayment period. The

ABI report assumed that debtors could potentially incur expenses for

major repairs or replacement of automobiles during the course of the 5-

year repayment plan, but that they would incur no other additional debt.

The Credit Center report was completed before H.R. 3150 was introduced,

and its repayment capacity analysis was not based on any specific

proposed legislation. The Credit Center report analyzed the repayment

capacity of all the chapter 7 debtors in its sample, regardless of their

annual gross income.

The Ernst & Young and ABI report used the “needs-based” provisions of

different versions of H.R. 3150 as the basis for their analysis of debtor

repayment capacity. H.R. 3150 passed the House in June 1998. Under the

provisions of H.R. 3150 as introduced and as it passed the House, debtors

must pass three tests to be required to file under chapter 13:

• debtors must have monthly gross income that exceeds a set percentage of

the national median income for households of comparable size (debtors

below this threshold are presumed to be eligible to file under chapter 7);

• debtors must have income of more than $50 per month after allowable

living expenses and payments on secured and unsecured priority debts;

and,

• debtors could repay at least 20 percent of their unsecured nonpriority

debts over a 5-year period if they used this remaining income for such

payments.

In their respective analyses, Ernst & Young used the provisions of H.R.

3150 as introduced and ABI used the provisions of H.R. 3150 as it was

Differences in Assumptions

Used to Estimate

Repayment Capacity
Statement

Personal Bankruptcy: Methodological Similarities and Differences in Three Reports on

Debtors’ Ability to Pay

Page 9 GAO/T-GGD-99-58 Personal Bankruptcy

passed by the House of Representatives. The principal effect of using the

two different versions of H.R. 3150 was that each report used a different

threshold of gross annual income to screen debtors for further repayment

analysis. In the Ernst & Young analysis, debtors whose gross annual

income was 75 percent or less of the national median income for a

household of comparable size were deemed eligible for chapter 7. Debtors

whose gross annual income was more than 75 percent of the national

median household income were subject to further analysis of their

repayment capacity. In the ABI report’s analysis, debtors whose gross

annual income was at least 100 percent of the national median income for

households of comparable were subject to further repayment analysis.

The three reports used different estimates of debtors’ allowable living

expenses. The Credit Center report established its own criteria for debtors’

living expenses. Basically, the Credit Center’s analysis used the debtor’s

living expenses as reported on the debtor’s schedule of estimated monthly

living expenses. The Ernst & Young and ABI reports used the Internal

Revenue Service’s (IRS) Financial Collection Standards, as specified in

H.R. 3150. However, Ernst & Young and ABI interpreted them somewhat

differently. The principal difference was for transportation expenses. Ernst

& Young did not include an automobile ownership allowance for debtors

who leased cars or whose cars were debt-free. ABI included an ownership

allowance for leased cars and for debtors with debt-free cars. The ABI

report noted that this difference in allowable transportation expenses

accounted for “a substantial part” of the difference between the ABI and

Ernst & Young estimates of the percentage of chapter 7 debtors who could

potentially repay at least 20 percent of their unsecured nonpriority debt.

ABI also deducted from the debtors’ total unsecured priority debt the value

of any student loans and added the value of these loans to debtors total

unsecured nonpriority debt. To the extent this was done, it had the effect

of freeing debtor income to pay unsecured nonpriority debt.

Finally, the ABI report assumed that administrative expenses, such as the

trustee fee, would consume about 5.6 percent of debtors’ nonhousing

payments to creditors under a 5-year repayment plan. The Credit Center

and Ernst & Young reports assumed that none of the debtors’ payments

would be used for administrative expenses, but that 100 percent of

debtors’ payments would be used to pay creditors.

In summary, each of the three reports provide a different perspective on

bankruptcy debtors’ ability to pay their debts. Each has added to our

knowledge and understanding of the potential impact of means-testing on

Differences in Assumptions

About Debtors’ Allowable

Living Expenses
Statement

Personal Bankruptcy: Methodological Similarities and Differences in Three Reports on

Debtors’ Ability to Pay

Page 10 GAO/T-GGD-99-58 Personal Bankruptcy

the number of debtors who would be required to file under chapter 13 and

the amount of debt that such debtors could potentially repay. However,

the assumptions and data used in these reports lead to different estimates

of debtors’ repayment capacity and require the reader to use caution in

interpreting and comparing the results of each report. The actual number

of chapter 7 debtors who could repay at least a portion of their nonhousing

debt could be more or less than the estimates in these studies. Similarly,

the amount of debt these debtors could potentially repay could also be

more or less than the reports estimated.

We agree that there are likely some debtors who file for bankruptcy under

chapter 7 who have the financial ability to repay at least a portion of their

debt, and that those who are able to repay their debts should do so. But we

believe that more research is needed to verify and refine the estimates of

debtors’ repayment capacity to better inform policymakers.

Mr. Chairman, this concludes my prepared statement. I would be pleased

to answer any questions that you or other Members of the Subcommittee

may have.
Page 11 GAO/T-GGD-99-58 Personal Bankruptcy
Attachment I

Major Methodological Similarities and

Differences in Three Reports on Debtors’

Ability to Pay

Page 12 GAO/T-GGD-99-58 Personal Bankruptcy

Specific Aspects of Report

 Credit Research Center

 (October 1997)

Ernst & Young

(March 1998)

Creighton University/American

Bankruptcy Institute

 (March 1999)

Estimated percent of chapter 7

debtors who could repay

“substantial portion of their debts” 30 percenta 15 percent 3.6 percent

Estimated amount of debt that

could be repaid over 5-year

repayment period

21 percent of “nonhousing,

nonpriority” debts.

All nonhousing secured debt, all

unsecured priority debt, 20

percent of unsecured nonpriority

debt. Same as Ernst & Young.

Proposed legislation used as

basis for assessment of

repayment capacity No specific proposed legislation. H.R. 3150 as introduced.

H.R. 3150 as passed by the

House of Representatives, June

10, 1998.

Key overall assumptions

Stability of debtors’ income and

expenses

Debtors’ income and living

expenses remain unchanged over

5-year repayment period. Same as Center report.

Debtors’ income stable for 5-year

period, but assumed some

expenses may change.

Percentage of chapter 13 plans

successfully completed 100% 100% 100%

Trustee and other administrative

expenses for chapter 13

repayment plans. None None

5.6% of annual debtor

nonhousing debt payments over

5-year period, not including

debtor attorney fee.

Debtor sample

Selection of bankruptcy districts

included in sample

Sample drawn from single

location in each of 13

judgmentally selected bankruptcy

districts.

National sample that included

nonbusiness chapter 7 filings

from all 90 bankruptcy districts.

Sample drawn from 7

judgmentally selected bankruptcy

districts.

Calendar period from which

sample was drawn.

Generally, May or June of 1996,

but months varied among the 13

districts. Calendar year 1997. Calendar year 1995.

Selection of debtors included in

final sample used for analysis

Nonrandomly selected sample of

nonbusiness chapter 7 and

chapter 13 filings filed primarily in

the first few days of 1 or 2 months

in 1996 in each district. (Total of

2,441 chapter 7 and 1,357

chapter 13 filings.) May include

cases that were dismissed and in

which debtors received no

discharge of their debts.

Random sample from all

nonbusiness chapter 7 filings

during the year. Analysis included

2,142 chapter 7 cases, adjusted

to exclude estimated percentage

of cases dismissed.

Random sample of cases closed

as nonbusiness chapter 7 that

were filed in 1995, including

some cases filed under other

chapters. (Total of 1,041 filings.)

Excluded cases dismissed

because debtor did not file all

required schedules.

Determination of debtor’s

gross annual income

Calculation of debtor’s gross

monthly income

Basically, gross monthly income

as reported on debtor’s schedule

of estimated monthly income. Same. Same.

Gross income threshold used for

further repayment capacity

analysis.

Examined repayment capacity of

all debtors in sample.

Analysis of repayment capacity

limited to those debtors whose

reported gross annual income

was greater than 75 percent of

national median income as

defined in H.R. 3150 as

introduced.

 Analysis of repayment capacity

limited to those debtors whose

reported gross annual income

was at least100 percent of

national median income as

defined in H.R. 3150 as it passed

the House of Representatives,

June 10,1998.
Attachment I

Page 13 GAO/T-GGD-99-58 Personal Bankruptcy

Specific Aspects of Report

 Credit Research Center

 (October 1997)

Ernst & Young

(March 1998)

Creighton University/American

Bankruptcy Institute

 (March 1999)

Calculation of debtor’s

allowable monthly living

expensesb

Housingc

Housing expenses as listed by

debtor on schedule of estimated

monthly expenses.

IRS allowance, which could be

exceeded if necessary to pay

monthly mortgage. Same as Ernst & Young

Food and clothing allowance

Expenses as listed on debtor’s

schedule of estimated monthly

expenses.d

IRS allowance. Same as Ernst & Young

Transportation

Expenses as listed on debtor’s

schedule of estimated monthly

expenses

IRS operating allowance, plus

monthly payments necessary to

pay existing automobile debt in

full over 60 months. No

ownership allowance for leased

cars.

IRS operating allowance, plus

monthly payments necessary to

pay existing automobile debt in

full over 60 months, or the

ownership allowance for up to 2

debt-free cars. Ownership

allowance for leased cars in

some circumstances.

Other necessary expenses

Basically expenses as listed on

debtor’s schedule of estimated

monthly expenses

IRS has no fixed dollar amount.

Generally included debtor

expenses as listed on debtor’s

schedule for estimated monthly

expenses not covered in other

categories.

Generally, same as Ernst &

Young.

Categorization of debts

Secured debts As listed on debtor schedules Same Same.

Unsecured priority debts As listed on debtor schedules. Same

As listed on debtor schedules

with one exception. Total value of

all student loans listed was

deducted from total.

Unsecured nonpriority debts As listed on debtor schedules Same

As listed on debtor schedules

with one exception. Added total

value of student loans listed to

unsecured priority debt total. a The Center Report noted that 30 percent of chapter 7 debtors could repay at least 21 percent of their

unsecured nonpriority debts.

b

Both the Ernst & Young and ABI reports used the Internal Revenue Service Collection Financial

Standards for determining debtors’ allowable living expenses.

c

Includes monthly rent, mortgage payments, utilities, property taxes, homeowner’s or renter’s

insurance, maintenance and repairs, and homeowner dues and condominium fees. IRS standards are

adjusted for cost of living at the county level.

d

Except for housing, the Credit Center report did not group a debtor’s monthly living expenses by

category. Rather it determined total monthly allowable expenses, using the expenses listed on the

debtor’s schedule of estimated monthly expenses, with some adjustments, such as deducting monthly

contributions to nonretirement savings.

e The IRS transportation allowance includes a uniform national standard for ownership expense and

local standards (adjusted for cost-of-living) for operating expenses. A public transportation expense is

included if the debtor does not own or lease a car.

Source: GAO analysis of the Credit Center, Ernst & Young, and ABI reports.
Page 14 GAO/T-GGD-99-58 Personal Bankruptcy
Page 15 GAO/T-GGD-99-58 Personal Bankruptcy
Page 16 GAO/T-GGD-99-58 Personal Bankruptcy
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