Bankruptcy Reform: Dollar Costs Associated with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Published: 2008-06-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Bankruptcy Reform Act) made significant changes to the administration of bankruptcy relief, affecting (1) the U.S. Trustee Program (Trustee Program), which oversees the bankruptcy process; (2) the federal judiciary, which includes bankruptcy courts and a central administrative support office; (3) consumers filing for bankruptcy; and (4) private trustees--individuals who administer bankruptcy cases and are supervised by the Trustee Program but are not government employees. The number of new personal bankruptcy filings declined after the act--about 600,000 people filed in 2006 as compared to an average of 1.5 million annually between 2001 and 2004. GAO was asked to examine (1) new costs incurred as a result of the Bankruptcy Reform Act by the Trustee Program and federal judiciary, (2) new costs to consumers, and (3) the impact of the act on private trustees. GAO reviewed budget information from the Trustee Program and federal judiciary, and collected data on attorney fees from a random and projectable sample of personal bankruptcy cases. GAO also obtained documentation and interviewed staff from these entities, as well as from organizations representing consumers, bankruptcy attorneys, creditors, and private trustees.
section_title: What GAO Found
paragraphs: The Trustee Program estimated that its costs to carry out responsibilities resulting from the Bankruptcy Reform Act were approximately $72.4 million for fiscal years 2005 through 2007. These costs were mostly for staff time for ongoing activities related to the means test, debtor audits, data collection and reporting, and counseling and education requirements. The federal judiciary could not isolate all costs related to the act since it broadly affected nearly all bankruptcy court staff and operations, but estimated about $48 million was incurred in one-time start-up costs for such things as training and revisions of rules, forms, and procedures. These estimates do not incorporate the effect of the decline in bankruptcy filings since the act, which presumably has helped reduce the Trustee Program's and judiciary's overall costs, but has also reduced fee revenues. Trustee Program filing fee revenues declined from $74 million to $52 million between fiscal years 2005 and 2007, and federal judiciary filing and miscellaneous fee revenues declined from $237 million to $135 million. Consumers filing for bankruptcy pay higher legal and filing fees since the Bankruptcy Reform Act went into effect. Based on a random sample of bankruptcy files, GAO estimated that the average attorney fee for a Chapter 7 case increased from $712 in February-March 2005 to $1,078 in February-March 2007. For Chapter 13 cases, the standard attorney fees that individual courts approve rose in nearly all the districts and divisions with such fees that GAO reviewed, and in more than half the cases the increase was 55 percent or more. As a result of the act and subsequent budget legislation, total bankruptcy filing fees have risen from $209 to $299 for Chapter 7 and from $194 to $274 for Chapter 13. GAO estimated that the proportion of Chapter 7 debtors filing without an attorney had declined and did not find a significant change in the proportion of such debtors receiving free legal assistance. In addition, fees to meet the act's credit counseling and debtor education requirements are typically about $100, although some clients receive a fee reduction or a full waiver. Private trustees told GAO that new Bankruptcy Reform Act requirements related to documentation, verification, and reporting have increased the time and resources they spend administering each case. The caseload of some private trustees has declined in concert with the significant decline in bankruptcy filings that has occurred since the act went into effect, but trustees' overall rate of attrition has not changed significantly.

section_title: Letter
paragraphs: Congress enacted major bankruptcy reform legislation with the  Bankruptcy Abuse Prevention and Consumer Protection Act of 2005  (Bankruptcy Reform Act), most of the provisions of which became  effective in October 2005. The act made many significant changes to the  administration of consumer bankruptcy relief and has resulted in certain  new responsibilities for the various entities involved in the bankruptcy  process. Within the judicial branch (or federal judiciary), these entities  include the 90 bankruptcy courts; the Administrative Office of the United  States Courts, which provides the courts with central support functions;  and the bankruptcy administrators in the six judicial districts in Alabama  and North Carolina. Within the executive branch, the Department of  Justice’s U.S. Trustee Program (Trustee Program) oversees bankruptcy  case administration in most federal judicial districts and litigates to  enforce the bankruptcy laws. The Bankruptcy Reform Act also has  affected the roles and responsibilities of the approximately 1,400 “private  trustees.” These trustees are private individuals who are appointed and  supervised by the Trustee Program or bankruptcy administrators and are  responsible for administering bankruptcy estates and distributing assets as  appropriate to creditors.
Among other things, the Bankruptcy Reform Act established a means test  for determining whether a consumer is eligible for bankruptcy relief under  Chapter 7 (in which assets are liquidated and debts discharged) or must  file under Chapter 13 (which involves a court-approved plan for repayment  of debts) or under Chapter 11. The act required procedures be established  for audits of consumer bankruptcy cases by a certified public or licensed  accountant. Further, the act required the federal judiciary to collect and  publish certain annual statistics on bankruptcy cases. In addition,  consumers must receive approved credit counseling before filing a petition  in bankruptcy court and take an approved debtor education course before  having debts discharged. The act also increased bankruptcy filing fees, and  is widely believed to have affected the fees bankruptcy attorneys charge  consumers for these cases. The number of new consumer bankruptcy  filings declined after implementation of the Bankruptcy Reform Act— about 600,000 people filed for bankruptcy in 2006 as compared with an  average of 1.5 million people annually from 2001 through 2004.
In light of these changes, you asked us to report on new costs resulting  from the Bankruptcy Reform Act. The specific objectives of this report are  to examine (1) new costs incurred as a result of the Bankruptcy Reform  Act by the Department of Justice and the federal judiciary, (2) new costs  incurred as a result of the act by consumers filing for bankruptcy, and (3)  the impact of the act on private trustees. Our review focused on the impact  of the act with regard to consumer (that is, personal) bankruptcies and not  business bankruptcies. Further, the scope of the first two objectives is  limited to the monetary (dollar) costs incurred by federal entities and  consumers and not on other ways the Bankruptcy Reform Act may have  affected them. The scope of this report also is limited to costs directly  related to the process of filing for bankruptcy, and not on the overall  financial impact the act may be having on consumers. Finally, this report  did not seek to assess the benefits of the Bankruptcy Reform Act and is  therefore not an evaluation of the merits of the act.
To address the objectives, we obtained documentation from, and  interviewed representatives of, the Trustee Program; the federal judiciary,  including the Administrative Office of the United States Courts (AOUSC)  and selected individual bankruptcy courts; Congressional Budget Office;  and organizations representing consumers, bankruptcy attorneys, the  financial services industry, and Chapter 7 and Chapter 13 trustees. For the  first objective, we reviewed available data on the budgets of the Trustee  Program and the federal judiciary for fiscal years 2003 to 2009. We asked  the Trustee Program and the judiciary to provide estimates of their  spending, including staff time, dedicated to implementing the Bankruptcy  Reform Act. We did not verify these estimates, although we reviewed and  analyzed them and we interviewed the staff who provided the estimates to  understand how they were created. We determined that the estimates  were sufficiently reliable for our purposes. For the second objective, to  determine changes in attorney fees for Chapter 7 bankruptcy cases, we  selected two random and projectable samples of cases (from before and  after the act) and collected information on the attorney compensation, if  any, from the disclosure statements regarding compensation that are  required to be filed by debtors’ attorneys. To determine changes in  attorney fees for Chapter 13 cases, we collected data on the standard fees  set by 48 judicial districts or divisions (a sublevel below that of judicial  district). These fees represent the amount most attorneys charge  consumers to handle a Chapter 13 case in those divisions or districts. To  determine costs associated with credit counseling and debtor education  courses, we obtained data from the Trustee Program and a credit  counseling trade organization and reviewed information we collected  previously for a report on that topic. To determine changes in filing fees,  we reviewed changes in fees made by the Bankruptcy Reform Act and  subsequent budget legislation. For the third objective, we reviewed  provisions of the Bankruptcy Reform Act that affect private trustees’ roles  and responsibilities and the Trustee Program’s policy and procedure  manuals for private trustees. We also interviewed professional  associations representing private trustees and conducted individual and  group interviews of, collectively, 21 Chapter 7 and Chapter 13 private  trustees, who were chosen because they served in districts that  represented a range of sizes and geographic regions. A more extensive  discussion of our scope and methodology appears in appendix I.
We conducted this performance audit from June 2007 through June 2008 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
subsections: section_title: Background
paragraphs: Bankruptcy is a federal court procedure designed to help both individuals  and businesses eliminate debts they cannot fully repay as well as help  creditors receive some payment in an equitable manner. Individuals  usually file for bankruptcy under one of two chapters of the Bankruptcy  Code. Under Chapter 7, the filer’s eligible nonexempt assets are reduced to  cash and distributed to creditors in accordance with distribution priorities  and procedures set out in the Bankruptcy Code. Under Chapter 13, filers  submit a repayment plan to the court agreeing to pay part or all of their  debts over time, usually 3 to 5 years. Upon the successful completion of  both Chapter 7 and 13 cases, the filer’s personal liability for eligible debts  is discharged at the end of the bankruptcy process, which means that  creditors may take no further action against the individual to collect any  unpaid portion of the debt. Most debtors who file for bankruptcy use an  attorney, but some debtors represent themselves without the aid of an  attorney and are referred to as pro se debtors.
The bankruptcy system is complex and involves entities in both the  judicial and executive branches of government (see fig. 1).
Within the judicial branch, 90 federal bankruptcy courts have jurisdiction  over bankruptcy cases. The Administrative Office of the United States  Courts (AOUSC) serves as the central support entity for federal courts,  including bankruptcy courts, providing a wide range of administrative,  legal, financial, management, and information technology functions. The  Director of AOUSC is supervised by the Judicial Conference of the United  States, the judiciary’s principal policy-making body. Within the executive  branch, the Trustee Program, a component of the Department of Justice, is  responsible for overseeing the administration of most bankruptcy cases.  The program consists of the Executive Office for U.S. Trustees, which  provides general policy and legal guidance, oversees operations, and  handles administrative functions, as well as 95 field offices and 21 U.S.  Trustees—federal officials charged with supervising the administration of  federal bankruptcy cases. The Trustee Program appoints and supervises  approximately 1,400 private trustees, who are not government employees,  to administer bankruptcy estates and distribute payments to creditors.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005  was signed into law on April 20, 2005, and most of its provisions became  effective on October 17, 2005. The following are among the most  significant changes the act made with respect to consumer bankruptcies:    Means test. The act established a new means test to determine whether a  debtor is eligible to file under Chapter 7. If a debtor’s current monthly  income minus allowable living expenses exceeds certain thresholds, a  Chapter 7 petition is presumed to be abusive and the debtor may have to  file under Chapter 11 or under Chapter 13 (which requires repayment of at  least a portion of outstanding debt over a period of several years under a  court-approved plan) or receive no bankruptcy relief at all.
Credit counseling and debtor education. The act created certain  counseling and education requirements for filers. To be a “debtor” (that is,  eligible to file for bankruptcy), an individual, except in limited  circumstances, must receive credit counseling from a provider approved  by the Trustee Program (or the bankruptcy administrator, if applicable). In  addition, prior to discharge of debts, debtors must complete a personal  financial management instructional course—typically referred to as debtor  education—from an approved provider.
Debtor audits. The act required that procedures be established for  independent audit firms to audit bankruptcy petitions, schedules, and  other information in consumer bankruptcy cases filed on or after October  20, 2006. The act specified that the procedures should include random  audits of at least one out of every 250 bankruptcy cases in each judicial  district, as well as additional audits of cases with incomes or expenditures  above certain statistical norms.
New reporting and data collection requirements. The act required that  the judiciary collect certain new aggregate statistics and report on them  annually beginning no later than July 1, 2008. The act also required that  the Attorney General—who delegated the authority to the Trustee  Program—draft rules requiring private trustees to submit uniform final  reports on individual bankruptcy cases that include certain specified  information about the case.
The Bankruptcy Reform Act was enacted, in part, to address certain  factors viewed as contributing to an escalation in bankruptcy filings. As  shown in figure 2, consumer bankruptcy filings in the United States more  than doubled between 1990 and 2004, with an average of more than 1.5  million people filing annually between 2001 and 2004. In the months  leading up to the effective date of the act (October 17, 2005), bankruptcy  filings rose dramatically because many consumers believed it would be  more difficult to receive bankruptcy protection once the act went into  effect. Immediately after the act went into effect, filings fell substantially.  Although filings have been rising since that time, they are still well below  historic levels, with about 823,000 Chapter 7 and Chapter 13 consumer  bankruptcies reported in calendar year 2007.
section_title: Trustee Program Incurred Approximately $72 Million in Overall Costs, and the Judiciary Approximately $48 Million in Start-up Costs, Related to the Bankruptcy Reform Act
paragraphs: The Trustee Program estimated its costs related to carrying out  responsibilities resulting from the Bankruptcy Reform Act to be  approximately $72.4 million in fiscal years 2005-2007, mostly in personnel  costs, to implement the means test and credit counseling and debtor  education requirements, conduct debtor audits, comply with reporting  requirements, establish information technology systems, and expand  facilities. The federal judiciary could not isolate costs specifically resulting  from the Bankruptcy Reform Act since the act had a broad effect on nearly  all bankruptcy court staff and operations, but did estimate that $48.4  million was incurred in one-time costs associated with start-up activities to  implement the act’s requirements. The largest of these expenses related to  necessary revisions of the Bankruptcy Rules, official forms, and court  operating procedures. The cost estimates for the Trustee Program and the  judiciary do not incorporate the effect of the decline in bankruptcy filings  since the act, which presumably has helped reduce their overall costs to  some extent. However, this decline in filings also has resulted in some  reduction in fee revenues for the Trustee Program and the judiciary.
subsections: section_title: In Fiscal Years 2005–2007, the Trustee Program Allocated about $72 Million for Responsibilities Resulting from the Bankruptcy Reform Act
paragraphs: Based on estimates developed at our request, the Trustee Program  allocated approximately $72.4 million in fiscal years 2005 through 2007 to  carry out responsibilities resulting from the Bankruptcy Reform Act. The  majority of these costs represented staff time dedicated to new tasks  required by the act. In some cases, the Trustee Program hired new staff— including 156 bankruptcy analysts, attorneys, paralegals, and other  administrative and information technology personnel hired as of October  1, 2007—to fulfill new responsibilities. In other cases, the program  reallocated the time and responsibilities of existing staff to meet the  requirements of the act. While the scope of this report is largely limited to  describing costs incurred through fiscal year 2007, many or most of those  costs are for ongoing tasks that will continue in fiscal year 2008 and  beyond.
These cost estimates are approximate for two major reasons. First, the  Bankruptcy Reform Act had a broad impact on the agency’s overall  operations, and thus it is difficult to isolate staff time devoted specifically  to elements of the act. Second, although the cost of overseeing each  bankruptcy filing may have increased, to some extent this has been offset  by the significant decline in the number of bankruptcy filings following the  act, and the net effect on overall costs is difficult to measure.
As shown in table 1, the Trustee Program’s most significant costs resulting  from the Bankruptcy Reform Act for fiscal years 2005 through 2007 were  related to the means test ($42.5 million), credit counseling and debtor  education requirements ($6.1 million), debtor audits ($3.0 million), studies  and reporting requirements ($5.6 million), information technology ($13.7  million), and facilities expansion ($1.5 million).
Means test. As of October 1, 2007, the Trustee Program had hired 127 new  staff for duties related to the means test, including attorneys who litigate  cases and paralegals, bankruptcy analysts, and legal clerks who review the  bankruptcy petition, supporting forms, and financial materials filed by  every individual debtor in a Chapter 7 case to identify whether the case is  “presumed abusive.” This involves an initial review of each debtor’s  income, a more thorough review of debtors with income exceeding the  state median, and any related litigation. The program estimated it allocated  $15.76 million in fiscal year 2006 and $26.7 million in fiscal year 2007 to  implementing the means test.
Credit counseling and debtor education. The Trustee Program established  a separate unit responsible for developing application forms and  procedures, approving and monitoring approved credit counseling and  debtor education agencies, and taking steps to help ensure that filers were  meeting the new requirements. The program initially used detailees from  field offices to staff this unit until permanent staff could be hired. The  program estimated its costs related to credit counseling and debtor  education to be approximately $6.1 million for fiscal years 2005 through  2007.
Debtor audits. The Trustee Program had to develop procedures for the  audits described in the act. The program contracted with and supervised  six third-party auditors, who completed nearly 4,000 debtor audits during  fiscal year 2007. The program obligated $2.6 million in fiscal year 2007 for  audit contracts. The Trustee Program estimated that staff time allocated to  developing audit procedures and overseeing contractors cost $160,000 in  fiscal year 2006 and $280,000 in fiscal year 2007.
Studies and reporting requirements. The Trustee Program estimated the  costs of the act’s various studies and reporting requirements—which  include reports on the results of debtor audits and a study of the  effectiveness of debtor education— to have been approximately $263,363  in fiscal year 2005, $3.15 million in fiscal year 2006, and $2.21 million in  fiscal year 2007.
Information technology. The Trustee Program created several new data  systems—including the Means Test Review Management System, Credit  Counseling/Debtor Education Tracking System, and Debtor Audit  Management System—and modified or updated several others. According  to Trustee Program officials, these efforts cost $1.9 million in fiscal year  2005, $7.2 million in fiscal year 2006, and $4.6 million in fiscal year 2007.
Facilities expansion. To accommodate the additional staff hired as a  result of the act, the Trustee Program expanded numerous offices. The  expansion involved one-time build-out costs, for which the Trustee  Program spent $1.42 million in fiscal year 2006 and $69,863 in fiscal year  2007.
section_title: As of December 2007, the Federal Judiciary Had Dedicated Approximately $48 Million in Start-up Costs to Implement the Bankruptcy Reform Act
paragraphs: The Bankruptcy Reform Act had a significant effect on the operations of  AOUSC and the bankruptcy courts. However, unlike the Trustee Program,  where the act resulted in several discrete new functions and tasks, the  impact on the judiciary has been more diffuse. In congressional testimony,  a representative of the Judicial Conference noted that the act created new  docketing, noticing, and hearing requirements that make addressing  bankruptcy cases more complex and time-consuming. In its fiscal year  2008 congressional budget justification, the judiciary estimated that as a  result of the Bankruptcy Reform Act, it takes at least 10 percent more time  to process a bankruptcy case. New or expanded tasks relate to additional  petition documents, an increased number of motions and hearings, and  new procedures associated with such things as rent deposits, tax return  filings, and petitions to waive filing fees.
Because of the broad impact the Bankruptcy Reform Act has had on  bankruptcy court staff and operations—affecting nearly all aspects of  court operations and staff responsibilities and tasks—AOUSC could not  readily differentiate costs resulting from the act (“new costs”) from those  costs incurred in everyday operations. Therefore, it did not provide us  with estimates of the costs associated with any additional staff time  needed to process a case resulting from the act. Further, as noted earlier,  it is difficult to determine the extent to which new costs related to the act  may be offset by overall cost savings associated with the decline in  bankruptcy filings following the act. However, at our request, AOUSC did  estimate that as of December 2007, $48.4 million was incurred for specific  start-up activities to implement the act, which included $47.2 million in  staff time and $1.2 million for travel, equipment, and contractors.
As shown in table 2, these costs were incurred for the following functions:    Revision of rules, forms, and procedures. The judiciary estimated that it  spent approximately $32.5 million revising the Bankruptcy Rules, official  forms, and court operating procedures to reflect provisions of the  Bankruptcy Reform Act. About 98 percent of this amount was attributed to  staff time and the remainder to travel and other expenses related to  changes in the courts’ case management system.
Training and communication to courts. The judiciary estimated that it  spent about $7.3 million to disseminate information on changes made by  the act—through training and other means—to judges, clerks, bankruptcy  administrators, and other personnel. The judiciary used broadcasts over  the Federal Judicial Television Network, conference calls, national  workshops and conferences, and the Internet to conduct training and  make the information available. About 98 percent of the costs related to  training and communication was for staffing.
Bankruptcy administrator responsibilities. As noted earlier, in the six  judicial districts in North Carolina and Alabama, the bankruptcy  administrator program, rather than the Trustee Program, oversees the  administration of bankruptcy cases. AOUSC estimated that the bankruptcy  administrators’ offices incurred an estimated $3.6 million in expenses for  activities similar to those described above for the Trustee Program.
Statistical and reporting responsibilities. The judiciary spent about $2.8  million—88 percent for staffing costs—on statistical and reporting  responsibilities, which required revisions to the courts’ electronic filing,  docketing, and case management system. To prepare its annual statistical  reports, the judiciary modified its electronic database and statistical  infrastructure, reprogrammed software to accept new data elements, and  prepared additional tables to conform to the statistical reporting required  by the act. The judiciary also prepared several reports required by the act,  including a report to Congress outlining the courts’ procedures for  safeguarding the confidentiality of filers’ tax information.
Other items. The judiciary spent an estimated $2 million on other activities  related to the implementation of the act, of which about 98 percent was for  staffing costs. These activities included revisions to studies to determine  staffing needs and the revision and updating of publications and manuals  for external parties.
section_title: As a Result of Fewer Filings Since the Bankruptcy Reform Act, Revenues from Bankruptcy Filing Fees Have Declined
paragraphs: Revenues to the Trustee Program and federal judiciary from bankruptcy  filing fees and other fees have declined since the implementation of the  Bankruptcy Reform Act due to the reduction in the number of bankruptcy  filings.
subsections: section_title: Trustee Program
paragraphs: Since 1997, the Trustee Program has been entirely self-funded from a  portion of the filing fees paid by bankruptcy debtors, which are deposited  in the U. S. Trustee System Fund. As shown in figure 3, the Trustee  Program’s filing fee revenues (excluding Chapter 11 quarterly fees) have  declined since the Bankruptcy Reform Act—from $68 million and $74  million in fiscal years 2004 and 2005, respectively, to $58 million and $52  million in fiscal years 2006 and 2007. The Bankruptcy Reform Act and  subsequent budget legislation increased bankruptcy filing fees, as  discussed later in this report. In addition, the Bankruptcy Reform Act  changed the portion of the filing fee allocated to various parties. The net  effect was that the amount received by the Trustee Program for each  Chapter 7 filing increased from $42.50 to $89 while the amount received by  the program for each Chapter 13 filing remained unchanged at $42.50.  However, the decline in the number of consumer bankruptcy filings since  the implementation of the act offset the increase in revenue per Chapter 7  case. As we discussed previously, the number of filings in 2006 and 2007  was less than half the annual number of filings in the years just prior to the  act. To a more limited extent, Trustee Program revenues also have been  affected by a provision of the act that allows the court to waive the  Chapter 7 filing fee for debtors below certain income thresholds. Chapter  7 filing fees were waived for 2.1 percent of cases in fiscal year 2007,  according to data provided by AOUSC.
The Trustee Program may expend the funds in the U.S. Trustee System  Fund as appropriated by Congress. In its annual budget request to  Congress, the Trustee Program provides an estimate of its filing fee  revenues, based on the anticipated number of bankruptcy filings. In years  where the actual amount of fee revenues deposited in the U.S. Trustee  System Fund is greater than the amount appropriated for that year, the  excess fee revenue remains in the fund and is available until expended.  Accordingly, in years where the actual amount of fee revenues falls short  of the amount appropriated for that year, the program may draw down  monies from the fund. In fiscal years 2006 and 2007, the program drew  down about $44 million and $92 million, respectively, from the U.S.  Trustee System Fund, with congressional approval, to allow the program  to operate at appropriated levels. In its 2009 budget request, the Trustee  Program stated it expected bankruptcy filings to increase in the coming  years and estimated its fee revenues would rise to approximately $70  million and $83 million for fiscal years 2008 and 2009, respectively.
section_title: Federal Judiciary
paragraphs: Funding for the federal judiciary comes from appropriations that are  funded from filing and other fees, as well as “carry forward” balances from  prior years. The judiciary receives revenues from a portion of the fee  charged for filing a bankruptcy petition, as well as from certain  administrative fees and fees charged for filing certain motions. The  portion of the statutory filing fee received by the judiciary for each  Chapter 7 bankruptcy petition increased from $52.50 to $63.51 and the  portion received for each Chapter 13 petition remained unchanged at  $52.50. In addition, the “miscellaneous administrative fee” paid to the  courts by debtors in all bankruptcy cases remained at $39.
However, as with the Trustee Program, the decline in the number of  bankruptcy filings (and to a lesser extent the provision allowing fee  waivers in a limited number of cases) resulted in a reduction in the  judiciary’s overall bankruptcy fee revenues. As shown in figure 4, the  judiciary’s bankruptcy-related fee revenues declined from $221 million and  $237 million in fiscal years 2004 and 2005, respectively, to $168 million and  $135 million in fiscal years 2006 and 2007. According to an AOUSC  official, the reduction in bankruptcy fee revenues is offset by increases in  appropriated funds. AOUSC officials have estimated that fee revenues will  be $158 million in fiscal year 2008 and $172 million in fiscal year 2009.
section_title: Cost to Bankruptcy Filers Has Risen Due to Increased Legal and Filing Fees and New Counseling and Education Requirements
paragraphs: Based on our sample of bankruptcy files, we estimate that the average  attorney fee for a Chapter 7 case has increased roughly 50 percent since  the Bankruptcy Reform Act. The proportion of Chapter 7 debtors filing  without attorney representation (pro se) appears to have declined, but we  did not find a change in the proportion of Chapter 7 debtors receiving free  legal assistance. For Chapter 13 cases, our analysis found the standard  attorney fees that individual courts approve rose in nearly all the districts  and divisions with such fees that we reviewed. Due to changes made by  the Bankruptcy Reform Act and the Deficit Reduction Act of 2005,  bankruptcy filing fees have risen by $90 and $80 for Chapter 7 and Chapter  13 filers, respectively. Fees related to the new credit counseling and  debtor education requirements typically total about $100.
subsections: section_title: Average Attorney Fees Have Risen an Estimated 51 Percent for Chapter 7 Filings and Many Courts Have Approved Attorney Fee Increases for Chapter 13 Filings
paragraphs: Most debtors hire an attorney when seeking bankruptcy relief, and  bankruptcy attorneys typically charge a fixed fee to handle a consumer  bankruptcy case. Anecdotal evidence from a variety of stakeholders— including organizations representing bankruptcy attorneys, private  trustees, and consumers—indicated that legal fees associated with seeking  consumer bankruptcy relief have risen significantly since the effective  date of the Bankruptcy Reform Act. According to bankruptcy attorneys  and other parties involved in the process, significantly more legal work is  required to meet the requirements of the new law. For example, satisfying  the new means test for a bankruptcy filing requires completing a lengthy  form that includes various calculations of the debtor’s income and  expenses. Attorneys also must collect additional documents from the  debtor—such as pay stubs and tax returns—to satisfy new documentation  requirements, and ensure compliance with new provisions related to  credit counseling and domestic support obligations. Bankruptcy cases  since the act typically have involved a greater number of motions and  hearings, according to AOUSC officials, which further can increase the  time an attorney spends on a case. Finally, new provisions in the act  require attorneys to attest to the accuracy of information in bankruptcy  petitions. Some parties have said that concerns about increased liability  may have affected legal costs, but others have said this has not been a  significant factor.
subsections: section_title: Chapter 7 Attorney Fees
paragraphs: To estimate how legal fees for Chapter 7 consumer bankruptcy cases may  have changed since the implementation of the Bankruptcy Reform Act, we  reviewed disclosures of legal fees contained in a nationwide random  sample of 468 Chapter 7 consumer bankruptcy filings. Our sample  included 176 cases filed in February and March 2005—prior to the act’s  enactment—and 292 cases filed in February and March 2007—more than  15 months after the act went into effect. The fee disclosure form that we  reviewed does not necessarily constitute a full or final accounting of  compensation actually paid, but rather states the amount the attorney  agreed to accept. However, bankruptcy attorneys, private trustees, and  representatives of AOUSC and the National Association of Consumer  Bankruptcy Attorneys with whom we spoke told us that the fee amount in  these disclosures typically represents the actual amount paid by the  debtor.
As shown in figure 5, on the basis of our sample we estimate that the  average attorney fee in Chapter 7 consumer bankruptcy cases was $712 in  February–March 2005 and $1,078 in February–March 2007. The average  fee therefore increased by $366—or 51 percent—during this 2-year  period. (These averages include only cases in which the debtor paid an  attorney; they exclude those cases in which the debtor filed without an  attorney or received legal assistance at no charge. We discuss pro se and  pro bono cases later in this report.)
Within each time period, the attorney fees showed considerable variability,  but the increase in fees was evident across all fee ranges. For cases filed in  February–March 2005, the fee was less than $750 in 59 percent of cases,  from $750 to $999 in 27 percent of cases, and $1,000 or more in 14 percent  of cases. For cases filed in February–March 2007, the fee was less than  $750 in 20 percent of cases, from $750 to $999 in 28 percent of cases, and  $1,000 or more in 52 percent of cases. Further, the fee exceeded $1,499 in  18 percent of cases in the 2007 time frame, as compared with 3 percent of  cases in the 2005 time frame. Figure 6 illustrates the estimated frequency  of these attorney fees.
To determine the impact of the Bankruptcy Reform Act on legal fees paid  for Chapter 13 bankruptcy cases, we collected and analyzed information  on how standard attorney fees have changed since the effective date of the  act. These fees—which often are also referred to as either “presumptively  reasonable” or “no-look” fees—are fee amounts that individual courts have  predetermined as reasonable compensation to an attorney representing a  Chapter 13 debtor. An attorney who seeks to collect a fee up to that  predetermined amount does not need to apply for court approval of the  fee. Such fees are used widely throughout the country for Chapter 13  cases and can be uniform across an entire judicial district or can vary by  division or individual judge. According to many of the participants with  whom we spoke—including attorneys, private trustees, and court  personnel—in locations with an established fee, that amount represents  the actual fee attorneys charge Chapter 13 bankruptcy filers in the  majority of cases.
We collected information on the standard fees in place before and after  the Bankruptcy Reform Act in 48 districts or divisions that collectively  accounted for 65 percent of Chapter 13 filings in fiscal year 2007. For  each of these districts or divisions, we gathered data on the amount of the  standard fee, if any, as of (1) October 2005, just prior to the effective date  of the Bankruptcy Reform Act; and (2) February 2008, which was more  than 2 years after the act had been in effect. Of the 48 districts or  divisions we reviewed, 42 had court-set standard fees as of October 2005  and 41 had them as of February 2008.
Our analysis found that the Chapter 13 standard fee had increased in  nearly all the districts and divisions with such fees. In more than half of  those districts and divisions, the increase was 55 percent or more. As  shown in figure 7, just prior to implementation of the act, standard fees  ranged from $1,500 to $3,000 (with a median of $2,000). As of February  2008, the standard fees ranged from $1,800 to $4,000 (with a median of  $3,000). (See app. II for the full list of standard fees in these selected  districts and divisions.)
Several of the local rules and administrative orders that raised the  standard fees specifically cited the Bankruptcy Reform Act as the reason  for the change. For example, one order noted that the act’s amendments  “have had a material effect on the amount of time attorneys must devote to  the representation of a Chapter 13 debtor” and that “many tasks which  formerly might have been delegated to [nonattorney professionals, such as  a paralegal] must now be handled personally by an attorney.” Similarly,  several of the Chapter 13 trustees with whom we spoke told us that the  standard fees were increased as a direct result of the act, which had  increased the average amount of time an attorney spent on each case.
Although legal fees associated with seeking consumer bankruptcy relief  have risen since the Bankruptcy Reform Act went into effect, in some  cases creditors rather than debtors bear the true financial costs of the fee  increase. For example, in many Chapter 13 cases, debtors enter a  repayment plan in which only part of their total debt is paid to creditors  and the rest is discharged. Approved claims for Chapter 13 attorneys’ fees  are paid out of the debtor’s estate as an administrative claim—which are  to be paid before most unsecured claims. As a result, in a Chapter 13  bankruptcy case with a partial repayment plan, it may be the unsecured  creditors rather than the debtor who absorb the cost of higher attorney  fees.
section_title: Pro Se Filings
paragraphs: According to data from AOUSC, 6.3 percent of Chapter 13 cases and 5.9  percent of Chapter 7 cases were filed pro se (without an attorney) in  calendar year 2007, which was the first year that the agency collected  complete data on pro se filings. The proportion of bankruptcy cases filed  pro se varied substantially across judicial districts. For example, fewer  than 2 percent of Chapter 7 cases were filed pro se in 25 districts, while  more than 10 percent were filed pro se in another 16 districts. Some  bankruptcy attorneys, consumer advocates, and bankruptcy court staff  told us that based on anecdotal evidence, they believed that the overall  proportion of bankruptcy petitioners filing pro se had increased since the  Bankruptcy Reform Act, in large part because increases in legal fees made  hiring an attorney less affordable. However, data from our sample of  Chapter 7 consumer case files and from AOUSC suggest that the  proportion of Chapter 7 bankruptcy cases filed pro se may actually have  declined since the act. We estimate that 11 percent of Chapter 7 consumer  cases were filed pro se in February–March 2005, compared with the 5.9  percent of Chapter 7 cases that AOUSC reported were filed pro se in  calendar year 2007.
Debtors who file for bankruptcy without an attorney sometimes use the  services of a nonattorney “bankruptcy petition preparer” to assist them in  filing the petition. Of the 19 cases filed pro se in our sample of Chapter 7  filings in February–March 2005, 15 were prepared by a nonattorney  petition preparer; fee information was available for 9 of those cases and  the average fee was $179. Of the nine cases filed pro se in our sample of  Chapter 7 filings in February–March 2007, seven were prepared by a non- attorney petition preparer and the average fee was $302. (Because of the  small sample size, these figures cannot be projected beyond the sample to  all Chapter 7 petition preparer fees.)
section_title: Pro Bono Services
paragraphs: Various local legal services providers throughout the country employ staff  attorneys who assist clients or match clients with private attorneys who  volunteer their time to provide legal services at a discount or at no cost  (pro bono). We spoke with providers at five agencies that provide legal  services to bankruptcy filers, as well as a representative of the American  Bar Association’s Center for Pro Bono, about the effect the Bankruptcy  Reform Act has had on the availability of pro bono services. In general,  they said that fewer attorneys have been willing to volunteer their services  to assist bankruptcy filers since the act went into effect, largely due to the  increased time and responsibilities required to handle a bankruptcy case.  As a result, clients must sometimes wait longer for a referral and one  agency noted it had reduced the number of clients for whom it provided  pro bono assistance.
We did not find a statistically significant difference in the proportion of  Chapter 7 bankruptcy filers receiving free legal services since  implementation of the Bankruptcy Reform Act. We estimate that 2.8  percent of filers received free legal services in February–March 2005,  compared with 4.5 percent of cases filed in February–March 2007.  (Additional filers may have received legal services at a discounted fee.)  These findings do not necessarily contradict the anecdotal evidence that  fewer attorneys may be offering pro bono bankruptcy services, because  the decline in the number of bankruptcy filings since the act may diminish  the effect of the reduced supply of such services.
section_title: Bankruptcy Reform Act Changed Filing Fees and Permitted Fee Waivers
paragraphs: As shown in tables 3 and 4, as a result of changes made in the Bankruptcy  Reform Act and the subsequent Deficit Reduction Act of 2005, the total  fees paid at the time of filing a bankruptcy petition under Chapter 7 rose  from $209 to $299—an increase of $90. The total fees paid for cases under  Chapter 13 rose from $194 to $274—an increase of $80. The total fees paid  to file for bankruptcy protection include both statutory fees and  “miscellaneous” fees, which are set by the Judicial Conference of the  United States pursuant to statutory authority. The Bankruptcy Reform  Act, as amended, increased the statutory filing fee from $155 to $220 for  Chapter 7 cases and decreased the statutory filing fee from $155 to $150  for Chapter 13 cases. Subsequently, the Deficit Reduction Act, which was  signed into law on February 8, 2006, raised these statutory filing fees from  $220 to $245 for Chapter 7 cases and from $150 to $235 for Chapter 13  cases. The “miscellaneous administrative fee” of $39 paid by all filers and  the “miscellaneous fee for Chapter 7 trustees” of $15 paid by filers in a  Chapter 7 case were not affected by either piece of legislation.
However, the Bankruptcy Reform Act also contains a provision that allows  the bankruptcy court to waive the filing fee in a Chapter 7 filing if the  court determines that the filer has (1) an income of less than 150 percent  of the income official poverty line (as defined in the Bankruptcy Code),  and (2) the debtor is unable to pay the fee in installments. Prior to the  Bankruptcy Reform Act, bankruptcy courts had no authority to waive  filing fees. Courts waived Chapter 7 filing fees in 2.1 percent of cases filed  during fiscal year 2007, according to data provided by AOUSC.
section_title: Required Credit Counseling and Education Cost about $100, and Fees Are Waived for Consumers Unable to Pay
paragraphs: As noted earlier, the Bankruptcy Reform Act required that individuals  receive credit counseling before filing for bankruptcy and take a debtor  education course before having debts discharged. Information from a  variety of sources indicates that most providers charge around $50 each,  or slightly less, for the required credit counseling and debtor education  sessions—a total of about $100 to fulfill both requirements. During the  summer of 2007, the Trustee Program’s Credit Counseling and Debtor  Education Unit collected and analyzed fee information from agencies  approved to provide prefiling credit counseling and predischarge debtor  education. The unit’s review found that the median fee for credit  counseling was $50 for an individual and $50 for a couple among the 156  approved credit counseling providers that charged a fee and for whom  data were available. An additional three credit counseling providers  charged no fee. For debtor education, the reports indicated that the  median fee was $50 for an individual and $55 for a couple for 81 approved  debtor education providers that charged a fee and for whom data were  available. An additional 20 debtor education providers charged no fee. The  National Foundation for Credit Counseling, which periodically collects fee  data from its members, reported similar findings. The average prefiling  credit counseling fee charged by the 68 member agencies that provided  data to the National Foundation for Credit Counseling was $46.05 during  the period from July 1 to September 30, 2007. Further, in our April 2007  report on credit counseling and debtor education, we reported that each of  three largest providers of prefiling credit counseling—which together had  issued about half of all certificates as of October 2006—charged exactly  $50 for an individual credit counseling or debtor education session. In a  few cases, we identified smaller counseling and education providers with  higher fees, such as $75 per session.
The Bankruptcy Reform Act requires that in order to become an approved  provider of credit counseling or debtor education, any fee charged by such  provider must be reasonable. However, the act did not specify criteria for  determining whether a fee amount is “reasonable.” On February 1, 2008,  the Trustee Program’s proposed procedures and criteria to be used by the  program to approve credit counseling agencies were published. The  proposed rule provides that a fee of $50 or less for credit counseling  services would be presumed to be reasonable, and that an agency seeking  to be an approved provider must obtain prior approval from the Trustee  Program in order to charge a fee of more than $50. Trustee Program  officials told us that a separate proposed rulemaking covering debtor  education agencies was forthcoming.
The Bankruptcy Reform Act also required that credit counseling and  debtor education providers offer their services without regard to the  client’s ability to pay. Based on the periodic activity reports submitted by  providers to the Trustee Program in 2006 and 2007, approximately 11  percent and 13 percent of clients had their fees waived for credit  counseling and debtor education, respectively, and an additional 28  percent and 19 percent of clients received a partial reduction of the fee.  Similarly, the National Foundation for Credit Counseling provided us with  data showing that among member agencies surveyed, the fee for prefiling  credit counseling was waived about 18 percent of the time between July, 1,  2007 and September 30, 2007.
Our April 2007 report noted that the policies of individual providers for  waiving fees varied. Trustee Program data on the three largest providers  showed significant variations in the proportions of clients whose fees  were waived—from 4 percent to 26 percent for counseling sessions and  from 6 percent to 34 percent for debtor education courses. As a result, our  report recommended that the Trustee Program issue formal guidance on  what constitutes a client’s “ability to pay.” In its proposed rule of February  1, 2008, the Trustee Program stated that the client shall be deemed unable  to pay, and thereby entitled to a fee waiver, if the client’s household  income is less than 150 percent of the poverty line as defined by the Office  of Management and Budget.
section_title: Bankruptcy Reform Act Has Affected the Duties and Caseloads of Private Trustees
paragraphs: The Bankruptcy Reform Act has affected the responsibilities of Chapter 7  and Chapter 13 private trustees, largely as a result of new documentation,  verification, and reporting requirements. The trustees with whom we  spoke said the act significantly increased the amount of staff time needed  to administer a bankruptcy case. The caseloads of many Chapter 7 and  Chapter 13 trustees have declined since the act in concert with the decline  in bankruptcy filings. However, as yet, the overall compensation to  trustees collectively has not declined significantly because disbursements  and repayments are still being made from the surge in bankruptcy filings  that occurred just prior to the effective date of the act. Further, according  to data provided by the Trustee Program, attrition among trustees has not  changed significantly since the implementation of the act.
subsections: section_title: Private Trustees Have Additional Documentation, Verification, and Reporting Requirements
paragraphs: The Bankruptcy Reform Act has affected the responsibilities of Chapter 7  and Chapter 13 private trustees, largely as a result of new documentation,  verification, and reporting requirements. As noted earlier, private  trustees—individuals who are not government employees and are  overseen in most districts by the Trustee Program—administer individual  Chapter 7 and Chapter 13 bankruptcy cases. Chapter 7 trustees identify the  debtor’s available assets, liquidate them (turn them into cash), and  distribute the proceeds to creditors. Chapter 13 trustees administer cases  according to a court-approved plan for the repayment of debt, collecting  payments from the debtor and making distributions to creditors. One of  the key responsibilities for both Chapter 7 and Chapter 13 trustees is to  preside over the meeting of creditors (commonly known as the “341  meeting”), in which the debtor must appear and answer questions under  oath from the trustee and creditors. In addition, trustees collect, review,  and verify the information in the bankruptcy petition and the supporting  documentation that lists the debtor’s assets, liabilities, income, and  expenditures. This ensures that exemptions are accurately claimed and  that assets that can be liquidated are distributed to creditors.
The provisions of the Bankruptcy Reform Act with the most significant  impact on the duties of the private trustees for personal bankruptcy cases  are the following:    New documentation requirements. Trustees must confirm that debtors  have submitted documentation required under the act, which includes 2  months of wage statements and the tax return from the year prior to filing.  The trustees must safeguard all tax return documents according to  procedures set by the Trustee Program—for example, access to tax  records must be restricted and sensitive documents must be properly  secured, destroyed, or returned to the debtor.
Domestic support obligations. In cases where a debtor has a domestic  support obligation—alimony or child support—private trustees must  notify the claimant (such as the custodial parent) and the relevant state  child support enforcement agency of the bankruptcy. The trustee must  notify applicable parties twice during the bankruptcy process—once  around the time of the meeting of the creditors and once at the time of  discharge.
Means test. Chapter 7 trustees must review the means test form submitted  by debtors and verify the calculation of current monthly income. In those  cases where the income is below the state median—and therefore not  presumed abusive—the trustees are to verify that the income is truly  below the median by examining wage statements and tax documents.  Chapter 13 trustees use the means test form—in conjunction with other  documents, such as tax returns—to determine what the debtor can afford  to pay each month in a repayment plan.
Uniform final reports. Once the Trustee Program issues a final rule,  private trustees will be required to submit a uniform final report of each  bankruptcy case. For Chapter 7 trustees, the proposed reporting forms  add additional responsibilities since they require reporting data not  currently collected for no-asset cases, and they must enter this  information manually. Chapter 13 trustees already submit final reports,  although the proposed new forms require some additional information  they must collect, such as assets abandoned.
section_title: Bankruptcy Reform Act Has Affected the Time and Resources Trustees Require to Administer Cases and Has Reduced Some Trustees’ Caseloads
paragraphs: The Bankruptcy Reform Act has affected the time and resources required  by trustees to administer bankruptcy cases, according to private trustees  and representatives of the Trustee Program. We spoke with, collectively,  18 Chapter 7 and Chapter 13 trustees, as well as organizations representing  them, about how the act has affected their work. While the experiences of  individual trustees varied, all said that the act increased the amount of  staff time it took to administer a bankruptcy case, with many reporting  that the staff time needed per case roughly doubled. For example, trustees  told us they require additional administrative and clerical support to help  collect and track newly required documents, such as tax returns and wage  statements. There also are costs associated with printing, storing,  securing, and shredding these documents. The trustees also told us that  the means test significantly increased the time spent reviewing  documentation.
In addition, while individual experiences varied, Chapter 7 and Chapter 13  trustees typically told us that the 341 meetings were taking longer, in part  due to more questions about the documents submitted; additional time  also is sometimes required to determine the addresses for notifying child  support claimants for the domestic support obligations. Furthermore, the  341 meetings have been postponed more frequently because of debtors’  delays in gathering the required documentation. In addition, according to  the Trustee Program’s notice of proposed rule making, the new uniform  final reports will require Chapter 7 trustees to spend an estimated 10  additional minutes per case to collect and input newly required  information, potentially adding $2,100 a year in increased costs. Finally, a  representative of the National Association of Chapter 13 Trustees noted  that trustees have been required to make significantly more court  appearances as a consequence of the additional hearings and litigation  that have resulted from the Bankruptcy Reform Act.
The caseload of Chapter 7 trustees has declined significantly since the  Bankruptcy Reform Act in concert with the decline in filings—from 1.2  million personal and business Chapter 7 bankruptcy filings in fiscal year  2004 to about 484,000 in fiscal year 2007. Chapter 7 trustees are unsalaried  and typically work part time in their trustee duties. They collect a fee of  $60 for each case they administer and this amount remained unchanged  with the passage of the Bankruptcy Reform Act. In addition, as noted  earlier, a provision of the act allows the court to waive the filing fee for  qualified Chapter 7 debtors, and for these cases the trustee receives no  compensation at all. In addition, for cases where there are assets to be  liquidated, the Chapter 7 trustee receives a percentage—as prescribed by  statute—of the assets distributed to creditors, and also may be reimbursed  for certain direct expenses.
Although about 95 percent of Chapter 7 filings have traditionally been “no- asset” cases with $60 as the trustee’s sole compensation, Chapter 7  trustees derive the majority of their overall revenues from those few cases  involving disbursement of assets. It can take several years to completely  disburse available assets. As a result, the dramatic surge in bankruptcy  filings just prior to the Bankruptcy Reform Act’s October 2005  implementation resulted in an increase in Chapter 7 trustees’ overall  compensation from 2005 to 2007, despite the decline in their caseload.  According to our analysis of Trustee Program data, in fiscal year 2005,  Chapter 7 trustees collectively received $191.7 million in total  compensation ($111 million from asset disbursements and an estimated  $80.7 million from filing fees), while in fiscal year 2007, they received  $212.4 million in total compensation ($183.7 million from asset  disbursements and an estimated $28.5 million from filing fees). However,  these revenues may decline in future years as assets from cases filed in  2005 are disbursed fully.
The caseload for Chapter 13 trustees since the Bankruptcy Reform Act  also has declined, although less substantially—from 454,412 personal and  business Chapter 13 filings in fiscal year 2005 to 310,802 in fiscal year 2007.  In contrast to Chapter 7 trustees, Chapter 13 trustees are full time and  typically run offices that employ other full-time staff. Chapter 13 trustees’  compensation is based—up to a preset limit—on a percentage of the total  payments made to creditors. The Chapter 13 trustee uses these funds to  pay for rent, staff, and certain other office expenses. Most Chapter 13  repayment plans are either 3 years or 5 years in length and, as with  Chapter 7 trustees, the surge in filings just prior to the Bankruptcy Reform  Act has continued to be a source of revenue for Chapter 13 trustees  despite the decline in filings. According to data provided by the Trustee  Program, in fiscal year 2005, total compensation to Chapter 13 trustees  was $31.02 million, averaging $162,432 per trustee. In fiscal year 2007, total  compensation was $31.85 million, averaging $165,870 per trustee.
Attrition among Chapter 7 and Chapter 13 trustees has not changed  significantly since the implementation of the Bankruptcy Reform Act,  according to our analysis of Trustee Program data. This analysis found  that the rate of attrition—due to resignations, retirements, or  terminations—has stayed consistent at approximately 3 percent to 4  percent over the past several years. Almost all of the private trustees with  whom we spoke told us that they were not likely to leave their position,  despite the challenges resulting from the Bankruptcy Reform Act.  However, a Trustee Program official noted that the program has not  always sought to fill vacancies that have occurred since the act because of  the decline in filings.
section_title: Agency Comments
paragraphs: We provided a draft of this report to AOUSC and the Department of  Justice for comment. These agencies provided technical comments that  we incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution of it until 30 days from  the date of this letter. We will then send copies of this report to the  Ranking Member of the Committee on the Judiciary, U.S. Senate; the  Ranking Member of the Committee on the Judiciary, House of  Representatives; the Director of the Administrative Office of the United  States Courts; the Attorney General; and other interested committees and  parties. We will also make copies available to others upon request. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov. If you or your staffs have any questions concerning  this report, please contact me at (202) 512-8678 or jonesy@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  major contributions to this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our report objectives were to examine (1) new costs incurred as a result  of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005  (Bankruptcy Reform Act) by the Department of Justice and the federal  judiciary, (2) new costs incurred as a result of the act by consumers filing  for bankruptcy, and (3) the impact of the act on private trustees. Our  review focused on the impact of the act on personal and not business  bankruptcies. Further, the first two objectives examined only the  monetary (dollar) costs incurred by federal agencies and consumers and  not on other ways that the Bankruptcy Reform Act may have affected  them. In addition, the scope of this report is limited to costs directly  related to the process of filing for bankruptcy, and not on the overall  financial impact the act may be having on consumers. Finally, this report  did not seek to assess the benefits of the Bankruptcy Reform Act and is  therefore not an evaluation of the merits of the act.
To address all of the objectives, we reviewed the relevant provisions of the  Bankruptcy Reform Act. We also obtained documentation from, and  interviewed representatives of, the Department of Justice’s U.S. Trustee  Program (Trustee Program); the federal judiciary, including the  Administrative Office of the United States Courts (AOUSC) and selected  individual bankruptcy courts; Congressional Budget Office; and  organizations representing consumers, including the National Consumer  Law Center, and the financial services industry, including the Financial  Services Roundtable.
To address the first objective on new costs to the federal government, we  reviewed relevant budget-related documents. For the Department of  Justice’s Trustee Program, these included its actual or projected annual  budgets for fiscal years 2005 through 2009, as well as annual budget and  performance summaries, strategic plans, annual reports, and  congressional testimonies by Trustee Program officials. For the federal  judiciary, we reviewed congressional budget justifications for fiscal years  2003 through 2008, as well as annual reports, and congressional  testimonies by officials of the Judicial Conference of United States and  AOUSC. We also reviewed internal documentation from AOUSC on  activities and timelines for implementing requirements of the Bankruptcy  Reform Act.
Since the budget documentation generally did not identify costs specific to  implementation of the Bankruptcy Reform Act, we requested the Trustee  Program and federal judiciary to estimate costs to date incurred  specifically as a result of the act, including the cost of allocated staff time.  To develop its estimates, the Trustee Program primarily used information  from its fiscal year 2006 budget justification, which specified funds needed  to address specific provisions of the act. For costs for debtor audit  contracts, information technology, and facilities expansion—which were  largely contract costs—the program provided actual obligations. The cost  estimates from the judiciary were specific to a set of one-time activities  undertaken to initially implement the Bankruptcy Reform Act and were  based on a tracking report developed by AOUSC to monitor its efforts to  implement the act. We did not verify the estimates provided to us by the  Trustee Program and the federal judiciary, although we reviewed and  analyzed them and we interviewed the staff who provided the estimates to  understand how they were created. We determined that the estimates  were sufficiently reliable for our purposes. The Bankruptcy Reform Act  included provisions authorizing new bankruptcy judgeships, but we did  not include the costs of these new judgeships because they had been  planned prior to and independent of the act. In addition, we collected and  analyzed data on the Trustee Program’s and judiciary’s revenues from  bankruptcy-related statutory and miscellaneous filing fees.
To address the second objective on new costs to consumers, we reviewed  changes in attorney fees and filing fees, as well as fees to fulfill the new  credit counseling and debtor education requirements. To determine  changes in attorney fees for Chapter 7 bankruptcy cases, we selected two  random and projectable samples of cases (from before and after the  Bankruptcy Reform Act) and collected information on the attorney  compensation, if any, disclosed in the case file. From AOUSC’s U.S.  Party/Case Index, we selected a random sample of 193 Chapter 7 cases  that had been filed nationwide during February or March 2005 and had  closed within 272 days from the filing date. We chose this time period  because it occurred just before the act was enacted. We selected another  random sample of 307 cases filed during February or March 2007 that had  closed within 272 days from the filing date. We chose this time period  because it was about 16 months after the effective date of the Bankruptcy  Reform Act; bankruptcy attorneys with whom we spoke said that most  significant changes in attorney fees resulting from the act had occurred by  that time. For both timeframes, we included only cases that had closed  within 272 days of filing to ensure we did not include cases that were still  open at the time of our review. From our sample, we excluded business  cases since these were outside the scope of our review. We also excluded  cases that had converted from Chapter 13 to Chapter 7 because it would  not have been possible to determine the extent to which the attorney fee  was based on work related to the Chapter 7 filing. Finally, we excluded  cases in which necessary data were not accessible from the electronic file  (which represented fewer than 3 percent of cases).
With these exclusions, we had an effective sample of 176 Chapter 7 cases  from February–March 2005 and 292 cases from February–March 2007.  Table 5 summarizes the population and sample disposition for the Chapter  7 filings sample.
Because we followed a probability procedure based on random selections,  our sample is only one of a large number of samples that we might have  drawn. Since each sample could have provided different estimates, we  express our confidence in the precision of our particular sample’s results  as a 95 percent confidence interval (for example, plus or minus 6  percentage points). This is the interval that would contain the actual  population value for 95 percent of the samples we could have drawn. As a  result, we are 95 percent confident that each of the confidence intervals in  this report will include the true values in the study population. All  percentage estimates in this report based on our sample review of Chapter  7 filings have 95 percent confidence intervals of plus or minus 6  percentage points or less, unless otherwise noted. All numerical estimates  other than percentages (for example, estimated mean Chapter 7 fees) have  95 percent confidence intervals of within plus or minus 6.3 percent of the  value of those estimates, unless otherwise noted.
We performed our case file review using a data collection instrument that  included uniform questions to ensure data were collected consistently. For  each case, we reviewed the docket and relevant documents from the  bankruptcy file to determine (1) the attorney fee, if any, disclosed in Form  B203, the Disclosure of Compensation of Attorneys for Debtor(s), and any  amendments to that form; (2) whether the attorney represented the debtor  at no charge (pro bono); (3) whether the debtor filed without an attorney  (pro se); and (4) the bankruptcy petition preparer fee, if any, disclosed in  Form B280, the Disclosure of Compensation of Bankruptcy Petition  Preparer.
We relied on data presented in bankruptcy documents filed with the courts  by debtors, creditors, and debtor attorneys and electronically stored in the  courts’ Public Access to Court Electronic Records system. Bankruptcy  courts and U.S. Trustees manage bankruptcy cases and perform some  measures to verify data that help ensure the reliability of information  provided in these case files. For example, bankruptcy court officials have  measures to ensure that data entered into information systems are  accurate. Other measures we used to ensure reliability of these data  included relying on our past work using the U.S. Party/Case Index and  Public Access to Court Electronic Records and by performing additional  steps during our review to compare information between these two  systems.
For attorney fees for Chapter 13 cases, we collected and analyzed changes  since the Bankruptcy Reform Act in standard attorney fees approved by  individual judicial districts or divisions—in 48 districts or divisions that  collectively accounted for 65 percent of Chapter 13 filings in fiscal year  2007. For each of these districts or divisions, we collected the amount of  the standard fee, if any, as of (1) October 2005, just prior to the effective  date of the Bankruptcy Reform Act, and (2) February 2008, more than 2  years after the act went into effect. We obtained these data from published  local rules or administrative orders, as well as through interviews with  relevant Chapter 13 trustees and bankruptcy court personnel. A few  districts and divisions had two or more standard fees based on the extent  of services provided or the specific characteristics of the case. In such  instances, we used the highest fee for both time periods for our analysis,  although in one case, we used the mid-level fee because the Chapter 13  trustee told us it was the fee most commonly charged by attorneys in that  district.
We also collected available data from AOUSC on the number of  bankruptcies filed without an attorney (pro se) and spoke with  representatives of the National Association of Consumer Bankruptcy  Attorneys and the Business Law Pro Bono Project of the American Bar  Association’s Center for Pro Bono, and with attorneys at five firms that  provide free or reduced-cost legal assistance to bankruptcy filers.
To review filing fees, we reviewed changes to these fees made by the  Bankruptcy Reform Act, as amended, and the Deficit Reduction Act of  2005, as well as any changes made by the judiciary to nonstatutory fees.  We obtained from AOUSC data on the number of cases in which the court  waived the filing fee. To determine costs associated with credit counseling  and debtor education requirements, we reviewed information in our prior  report, Bankruptcy Reform: Value of Credit Counseling Requirement Is  Not Clear (GAO-07-203), and reviewed and analyzed additional fee and  waiver data provided to us by the Trustee Program. We also reviewed data  provided to us by the National Foundation for Credit Counseling that  included its members’ fees for prefiling credit counseling. Finally, we  interviewed officials from the Trustee Program’s Credit Counseling and  Debtor Education Unit and reviewed provisions of the agency’s proposed  rule related to credit counseling fees.
To address the third objective on private trustees, we reviewed provisions  of the Bankruptcy Reform Act that affect private trustees’ roles and  responsibilities, as well as the Trustee Program’s interim guidance and  policy and procedure manuals for private trustees. We spoke with Trustee  Program staff responsible for overseeing trustees and with officials from  the National Association of Bankruptcy Trustees and National Association  of Chapter 13 Trustees, two professional associations representing  Chapter 7 and Chapter 13 trustees, respectively. We also reviewed  published materials from the National Association of Bankruptcy Trustees,  including a survey conducted of its members on the impact of the  Bankruptcy Reform Act. In addition, we conducted individual and small  group interviews of 10 Chapter 7 and 11 Chapter 13 private trustees. These  trustees were chosen because they served in districts that represented a  range of sizes and geographic regions. Finally, we collected and analyzed  data from the Trustee Program on attrition rates for private trustees from  fiscal years 2003 through 2007.
We conducted this performance audit from June 2007 through June 2008 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: Standard Attorney Fees for Chapter 13 Cases
paragraphs: The “standard fees” provided in table 6 represent standard amounts  individual courts approve as reasonable compensation for an attorney  representing a Chapter 13 debtor. The districts and divisions shown here  collectively accounted for 65 percent of Chapter 13 filings in fiscal year  2007. A few districts and divisions had two or more standard fees. In such  cases, the applicable fee is based on the extent of services provided or the  specific characteristics of the case, as prescribed by local rules or  administrative orders.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Jason Bromberg, Assistant  Director; Randy Fasnacht; Cynthia Grant; Carol Henn; Tiffani Humble;  Kristeen McLain; Marc Molino; Mark Ramage; Carl M. Ramirez; Omyra  Ramsingh; Barbara Roesmann; and Rhonda P. Rose made key  contributions to this report.