[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
UNITED STATES TRUSTEE PROGRAM:
WATCHDOG OR ATTACK DOG?
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HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
OCTOBER 2, 2007
__________
Serial No. 110-161
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio
MAXINE WATERS, California DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts CHRIS CANNON, Utah
ROBERT WEXLER, Florida RIC KELLER, Florida
LINDA T. SANCHEZ, California DARRELL ISSA, California
STEVE COHEN, Tennessee MIKE PENCE, Indiana
HANK JOHNSON, Georgia J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois TOM FEENEY, Florida
BRAD SHERMAN, California TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota
Perry Apelbaum, Staff Director and Chief Counsel
Joseph Gibson, Minority Chief Counsel
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Subcommittee on Commercial and Administrative Law
LINDA T. SANCHEZ, California, Chairwoman
JOHN CONYERS, Jr., Michigan CHRIS CANNON, Utah
HANK JOHNSON, Georgia JIM JORDAN, Ohio
ZOE LOFGREN, California RIC KELLER, Florida
WILLIAM D. DELAHUNT, Massachusetts TOM FEENEY, Florida
MELVIN L. WATT, North Carolina TRENT FRANKS, Arizona
STEVE COHEN, Tennessee
Michone Johnson, Chief Counsel
Daniel Flores, Minority Counsel
C O N T E N T S
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OCTOBER 2, 2007
Page
OPENING STATEMENT
The Honorable Linda T. Sanchez, a Representative in Congress from
the State of California, and Chairwoman, Subcommittee on
Commercial and Administrative Law.............................. 1
The Honorable Chris Cannon, a Representative in Congress from the
State of Utah, and Ranking Member, Subcommittee on Commercial
and Administrative Law......................................... 2
WITNESSES
Mr. Clifford J. White, III, Director, Executive Office for United
States Trustees, United States Department of Justice,
Washington, DC
Oral Testimony................................................. 4
Prepared Statement............................................. 6
The Honorable A. Jay Cristol, Judge, United States Bankruptcy
Court, Southern District of Florida, Miami, FL
Oral Testimony................................................. 15
Prepared Statement............................................. 17
Mary Powers, Esquire, former United States Trustee Program Trial
Attorney, Amherst, NY
Oral Testimony................................................. 93
Prepared Statement............................................. 94
The Honorable Eugene R. Wedoff, Judge, United States Bankruptcy
Court, Northern District of Illinois, Chicago, IL
Oral Testimony................................................. 96
Prepared Statement............................................. 99
Paul M. Uyehara, Esquire, Community Legal Services Language
Access Project, Philadelphia, PA
Oral Testimony................................................. 104
Prepared Statement............................................. 106
APPENDIX
Material Submitted for the Hearing Record
Response to Questions submitted by the Honorable Linda T.
Sanchez, Chairperson, Subcommittee on Commercial and
Adminsitrative Law to Clifford J. White, III, Director,
Executive Office for United States Trustees, United States
Department of Justice.......................................... 186
UNITED STATES TRUSTEE PROGRAM: WATCHDOG OR ATTACK DOG?
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TUESDAY, OCTOBER 2, 2007
House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:06 p.m., in
room 2237, Rayburn House Office Building, the Honorable Linda
Sanchez (Chairwoman of the Subcommittee) presiding.
Present: Representatives Sanchez, Johnson, and Cannon.
Staff present: Susan Jensen, Majority Counsel; Stewart
Jeffries, Minority Counsel; and Adam Russell, Majority
Professional Staff Member.
Ms. Sanchez. This hearing of the Committee on the
Judiciary, Subcommittee on Commercial and Administrative Law,
will now come to order.
I will recognize myself for a short statement.
This past May, the Subcommittee conducted an oversight
hearing focusing on the implementation of the 2005 amendments
to the bankruptcy code. Critics noted that these so-called
reforms were particularly problematic with respect to how they
impacted consumer debtors.
Bankruptcy, which once served as a safety net for the
honest, but unfortunate, debtor is now a minefield, as
exemplified by the 2005 amendment's new means testing and
credit counseling requirement.
To satisfy the means test, a chapter 7 debtor must now
complete official Form 22, consisting of 57 sections. This
complex form requires the debtor to supply extensive financial
information and supporting documentation.
And even the GAO found that while credit counseling was
generally a useful tool, there were several shortcomings
regarding the implementation of the credit or counseling
requirement.
We are putting people through a bureaucratic maze while
they are trying desperately to regain their financial footing.
This is why Congressman Brad Miller and I, as part of our
legislation to address the subprime mortgage crisis, included
provisions alleviating some of these barriers to the bankruptcy
process.
As highlighted at our hearing in May and subsequently
underscored at a hearing in the Subcommittee held last month,
recent developments in the subprime mortgage industry have
brought to light additional problems.
After being lured into easy mortgage refinancing
arrangements with teaser interest rates, more and more American
homeowners find that they are unable to make their monthly
mortgage payments. As a result, many attempt to enter into
bankruptcy to avoid losing their homes to foreclosure.
However, the new rules prevent many of them from doing so
because of the difficulty in navigating the bankruptcy process.
According to a recent survey of bankruptcy attorneys by the
National Association of Consumer Bankruptcy Attorneys, 81
percent agreed that it is more difficult for people facing
foreclosure to obtain bankruptcy relief since the 2005
amendments were enacted.
There may yet be another contributing factor to the
problems presented by the 2005 amendments. Earlier this year,
the Appropriations Committee expressed concern that the United
States Trustee Program is expending excessive resources to
dismiss consumer bankruptcy cases for insignificant filing
defects and that as a result of these efforts, the program was
imposing additional burdens on the judicial system and debtors.
The Committee also asserted that the program was making
burdensome requests for debtors to provide documentation that
has no material effect on the outcome of bankruptcy cases. Such
actions, according to the Appropriations Committee, are making
the bankruptcy process more costly and, therefore, less
available for those who truly need it.
More importantly, the Committee recommended reducing the
program's appropriations by approximately $30 million. These
are very serious allegations by the Appropriations Committee,
particularly in light of the fact that it plays a primary role
in controlling the program's purse strings.
In an effort to help us get to the bottom of these
allegations, I sent a series of questions to the Executive
Office for United States Trustee last August. Copies of those
questions and the answers, which were received yesterday
evening, are included in your hearing materials.
It is my hope that today's hearing provides an opportunity
for us to get to the bottom of these allegations. As you know,
the Commercial and Administrative Law Subcommittee has primary
jurisdiction for the program.
Accordingly, if there are any legislative reforms that we
conclude are necessary as a result of today's hearing, I intend
to recommend them to the full Judiciary Committee for
consideration.
I very much look forward to today's hearing and to
receiving testimony from all of our witnesses.
At this time, I would now like to recognize my colleague,
Mr. Cannon, the distinguished Ranking Member of the
Subcommittee, for his opening remarks.
Mr. Cannon. Thank you, Madam Chair. I would like to submit
my full written statement for the record, but make a couple of
comments at the outset.
In the first place, we have talked in many of these
hearings about how bankruptcy is complex, the fact that it is a
maze, or can be characterized as a maze, for a debtor is not
inappropriate, given the benefits that come out of the process.
The question of our Committee is are we making reasonable
requirements and how is that being implemented. It was my
policy, as Chairman of this Committee, and it continues to be
my policy in support of the Chair of this Committee, to assert
our jurisdiction directly, and I think the nature of the
Appropriations Committee and their actions, whatever they may
be, are not well founded, because they don't have the
understanding of the program that this Committee has.
So I find their conclusions remarkably unpersuasive and, to
the degree they have drawn conclusions and wielded the
political bat of an appropriation process, is not very
meaningful to me and, in fact, I hope that what we do here is
push back with clarity.
And that doesn't mean that I am taking any side on this
issue, and we have worked very hard to come to a balance in the
Reform Act, and I want to know if those things work.
We had questions on both sides of the aisle, bipartisan,
and it is complex. And so I think the point is what is working
and what is not working and how do we make it better. And to
the degree that the appropriators disagree, let's help them get
educated on the issue.
Thank you, Madam Chair. I yield back.
Ms. Sanchez. I thank the gentleman for his opening
statement.
Without objection, other Members' opening statements will
be included in the record.
Without objection, the Chair will be authorized to declare
a recess of the hearing at any point.
I am now pleased to introduce the witnesses for today's
hearing. Our first witness is Clifford White, III. Mr. White is
the director of the Executive Office for United States
Trustees. He has served in the Federal Government for 27 years,
including previous service as an assistant United States
Trustee and a deputy assistant attorney general within the
Department of Justice, and as assistant general counsel at the
U.S. Office of Personnel Management.
Mr. White was recognized with a Presidential Rank Award for
Meritorious Executive in 2006 and the Attorney General's Award
for Distinguished Service in 2003.
Welcome, Mr. White.
Our second witness is the Honorable Jay Cristol. In 1985,
after 25 years of law practice, Judge Cristol left his position
as senior partner in a firm he founded to accept an appointment
to the Federal bench. He serves as chief judge emeritus in the
southern district of Florida.
Prior to his appointment, he served as Special Assistant
Attorney General of Florida during the 1959, 1961, 1963 and
1965 sessions of the Florida legislature. Judge Cristol is an
adjunct professor, teaching at the University of Miami School
of Law.
Welcome to you.
Our third witness is the Honorable Eugene Wedoff. Judge
Wedoff was appointed for a 14-year term of office and continues
to serve the bankruptcy court of the northern district of
Illinois. He is the co-chair of the American Bankruptcy
Institute's Consumer Bankruptcy Committee and the associate
editor of the American Bankruptcy Law Journal.
We want to welcome you.
Our fourth witness is Paul Uyehara. Mr. Uyehara is a senior
staff attorney in the Language Access Project of Community
Legal Services, Incorporated of Philadelphia, where he focused
on language rights advocacy, improving program accessibility
for language minority clients and representing limited English
proficient clients with consumer problems, particularly
mortgage foreclosure and bankruptcies.
Mr. Uyehara has over 25 years of experience at Philadelphia
Legal Assistance, CLS and Delaware County Legal Assistance,
both as a paralegal and a lawyer. Mr. Uyehara also worked as an
assistant city solicitor for the city of Philadelphia and a law
clerk in the Federal district court.
Thank you for being here.
Our final witness is Mary Powers, the rose among our panel.
Ms. Powers is a former trial attorney for the Department of
Justice, Office of the United States Trustee. In that capacity,
she reviewed cases for bankruptcy fraud and abuse, drafted
motions, pleas and briefs in connection with presentation and
litigation of cases under the bankruptcy code and conducted
hearings and trials.
Prior to that position, Ms. Powers was in private practice,
representing debtors, creditors and credit committees in all
aspects of bankruptcy proceedings.
Thank you all for your willingness to participate in
today's hearing. Without objection, your written statements
will be included in their entirety into the record. So we are
going to ask that you limit your oral statements to 5 minutes.
You will note that we have a lighting system. When your
time begins, the light will turn green. When you are 4 minutes
into your testimony, the light will turn yellow as a warning
that you have a minute to wrap up your testimony and, at the
end of the 5 minutes, the light will turn red, warning you that
your time has expired.
If you are mid-sentence when your light turns red, please
feel free to complete your final thought, so that we may move
on to our next witness.
After each witness has had an opportunity to present his or
her testimony, Members of the Subcommittee will be permitted to
ask questions, subject to the 5-minute limit.
So with the ground rules underway, I am going to invite Mr.
White to begin.
TESTIMONY OF CLIFFORD J. WHITE, III, DIRECTOR, EXECUTIVE OFFICE
FOR UNITED STATES TRUSTEES, UNITED STATES DEPARTMENT OF
JUSTICE, WASHINGTON, DC
Mr. White. Thank you, Madam Chairwoman, Ranking Member
Cannon, Members of the Subcommittee. I thank you for the
opportunity to discuss the activities of the U.S. Trustee
Program.
We are the component of the Justice Department with the
responsibility, with the mission, of both the integrity and the
efficiency of the bankruptcy system. Over the past 2 years, our
focus has been on implementing substantial new responsibilities
given to the program by the Congress under the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005.
In performing our duties, we are guided by a simple
principle--to faithfully carry out the law, as written by the
Congress, and to do so with prudence, with discretion and with
sound legal judgment.
We balance many factors in every case. We vigorously
enforce the law, but we recognize that not every technical
violation merits an enforcement action. We work to combat fraud
and abuse committed by debtors, as well as violations committed
against debtors who are vulnerable to exploitation because of
their financial situation.
One of our major challenges is the litigation of issues of
first impression. It is our duty to clarify the many new and
sometimes complex provisions of BAPCPA by bringing issues
before the bankruptcy and the appellate courts to promote the
coherent, the uniform and the prompt development of case law.
Another important and continuing part of our strategy that
makes the new law work effectively has been an enormous
outreach effort with other constituencies in the bankruptcy
system. We have regularly consulted with Government agencies,
consumer advocates and debtor bar, creditor organizations,
private trustees, the courts and others to gain a broader
perspective on our new duties.
Objective evidence demonstrates that we are achieving our
mission and this is due to the extraordinary efforts of the
staff of the U.S. Trustee Programs around the country.
My testimony outlines our activity in a number of areas.
Let me now, if I may, highlight just three here.
First, means testing. BAPCPA requires means testing to
determine if debtors with incomes above their State median have
sufficient disposable income to repay all or part of their
debt. Chapter 7 cases of those who have the ability to repay
are deemed or presumed abusive.
The U.S. Trustee is required to file a statement indicating
if a case is presumed abusive and, if it is, then we must file
a motion to dismiss or an explanation of why we are not filing
a motion.
Data compiled thus far show that only about 9 percent of
chapter 7 debtors are subject to the complete means test. Of
those, only about one out of ten is presumed abusive under the
statutory formula.
Significantly, the U.S. Trustee declines to file a motion
to dismiss in about 30 percent of all presumed abuse cases that
don't voluntarily convert or dismiss. Reasons for declination
include loss of employment or continuing high medical expenses,
among other reasons, and we prevail in 97 percent of the cases
in which we seek dismissal.
Thus, the U.S. Trustee Program, I would suggest, has
successfully enforced the new means testing law, but has done
so with discretion and with restraint.
Second, the new law requires the U.S. Trustees to approve
qualified credit counselors who are authorized to issue
certificates that debtors must obtain prior to filing for
bankruptcy.
As confirmed in a report issued last April by the
Government Accountability Office, the U.S. Trustee Program has
put into place an effective mechanism to screen applicants to
ensure that only qualified counseling agencies are approved.
Those agencies have adequate capacity to serve debtors in a
timely fashion, and they waive or they reduce the standard $50
fee in about one out of every three cases.
In addition, we are making much progress in serving limited
English proficient debtors. Credit counseling services are
available in about 150 languages by telephone and in many
languages at more than 350 in-person locations.
Third, in chapter 11 cases, we also have new
responsibilities in many areas that are designed to enhance the
accountability of management of bankrupt companies. Among other
things, we enforce the new section 503(c), which restricts the
ability of companies to pay bonuses to senior executives
through key employee retention plans.
Through the beginning of August, we filed approximately 40
objections to executive bonus plans and have prevailed in
almost 70 percent of these cases. In addition, we have
successfully negotiated with debtors and modified compensation
schemes to avoid an objection even before the bonus plan is
filed.
The U.S. Trustee Program, we suggest, has compiled a
substantial record of accomplishment. Compliance with the new
law has presented significant challenges to the U.S. Trustees,
to debtors, to creditors, attorneys and others.
The entire bankruptcy system is in a time of transition.
The program will continue its efforts to work cooperatively
with all components of the system to satisfy our obligations to
enforce and implement the law with fairness, with efficiency
and effectiveness, for the benefit of all stakeholders.
I would be happy to answer any questions you may have.
[The prepared statement of Mr. White follows:]
Prepared Statement of Clifford J. White, III
Madam Chairman, Ranking Member Cannon, and Members of the
Subcommittee:
Thank you for the opportunity to appear before you today to discuss
the activities of the United States Trustee Program (USTP or Program).
We are the component of the United States Department of Justice whose
mission it is to promote the integrity and efficiency of the bankruptcy
system.\1\ Our duties, which are set out primarily in titles 11 and 28
of the United States Code, range from consumer bankruptcy cases to
large corporate reorganizations.
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\1\ The USTP has jurisdiction in all judicial districts except
those in Alabama and North Carolina. In addition to specific statutory
duties and responsibilities, United States Trustees ``may raise and may
appear and be heard on any issue in any case or proceeding under this
title but may not file a plan pursuant to section 1121(c) of this
title.'' 11 U.S.C. Sec. 307.
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Over the past two years, our focus necessarily has been on
implementing the substantial new responsibilities given to the Program
by the Congress in the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005 (BAPCPA). We are now responsible, for example,
for conducting a more transparent and objective test to determine a
consumer debtor's eligibility for chapter 7 relief, scrutinizing
applications by credit counselors and debtor educators to ensure that
only qualified providers are approved to offer these services to
debtors, supervising audits of chapters 7 and 13 cases, and enforcing
new provisions to hold corporate managers more accountable after their
companies file for bankruptcy relief. These have been daunting tasks,
but objective evidence suggests that we are meeting the challenges. We
understand that our work to effectuate the BAPCPA is far from over, and
every day we strive to refine our efforts and to improve upon our
performance for the benefit of all stakeholders in the bankruptcy
system.
In carrying out the BAPCPA and other statutory mandates, the
Program is guided by a simple principle: to faithfully carry out the
law as written by Congress, and to do so with prudence, discretion, and
sound legal judgment. We balance many factors in every case and, while
we vigorously enforce the law, we recognize that not every technical
violation merits an enforcement action. Further, we work to combat both
fraud and abuse committed by debtors, as well as violations committed
against debtors who are vulnerable to exploitation because of their
financial situation.
One of the major challenges we have faced has been the litigation
of numerous cases on issues of first impression. It is our duty to help
clarify the many new and complex provisions of the BAPCPA by bringing
issues before the bankruptcy and appellate courts to promote the
coherent, uniform, and prompt development of case law.
The Program's success in fulfilling the broad responsibilities
assigned to it in the BAPCPA is a result of the extraordinary efforts
of staff in the Executive Office and in our field offices. Prior to the
effective date of the BAPCPA, teams of employees from around the
country were assembled to develop policies and procedures to ensure the
effective and efficient implementation of the new law. These teams also
conducted comprehensive training for all employees in the Program, as
well as for the private trustees and members of the bar. As we retooled
our internal operations, we engaged in an enormous outreach effort with
other constituencies in the bankruptcy system. We have regularly
consulted with government agencies, the consumer bar, consumer
advocates, creditor organizations, the courts, and others to gain a
broader perspective on our new duties. Both internal analyses and
external outreach are a continuing part of our strategy to enhance our
ability to make the BAPCPA work for all stakeholders in the bankruptcy
system.
The following highlights some of the most significant activities of
the Program over the past year.
CIVIL ENFORCEMENT, MEANS TESTING, AND CONSUMER PROTECTION
Civil Enforcement
One of the core functions of the USTP is to combat bankruptcy fraud
and abuse. This is reflected both in our statutory mandate and in our
track record over the past 20 years. In launching a Civil Enforcement
Initiative in 2002, the Program adopted a balanced approach to address
wrongdoing both by debtors and by those who exploit debtors. The
Program combats fraud and abuse by debtors by seeking denial of
discharge for the concealment of assets and other violations, by
seeking case dismissal if a debtor has an ability to repay debts, and
by taking other enforcement actions. We protect consumer debtors from
wrongdoing by attorneys, bankruptcy petition preparers, creditors, and
others by pursuing a variety of remedies, including disgorgement of
fees, fines, and injunctive relief.
In the first three quarters of Fiscal Year (FY) 2007, the Program
took more than 55,000 civil enforcement and related actions, including
actions not requiring court resolution, with a monetary impact of more
than $651 million in debts not discharged, fines, penalties, and other
relief. Since we began tracking our results in 2003, we have taken more
than 270,000 actions with a monetary impact in excess of $3.2 billion.
Means Testing
A major new aspect of our civil enforcement efforts is the
implementation of the means test that was established under the
bankruptcy reform law. The new section 707(b) and other provisions
replaced the former subjective ``substantial abuse'' standard with more
transparent and objective criteria to determine whether a case is
``presumed abusive'' and potentially subject to dismissal. Under the
means test, all individual debtors who have above median income are
subject to a statutorily prescribed formula to determine disposable
income. The formula is partially based on allowable expense standards
issued by the Internal Revenue Service for its use in tax collection.
The primary purpose of the means test is to help determine eligibility
for chapter 7 bankruptcy relief.
The Judicial Conference of the United States promulgated the
official means test forms that debtors are required to complete. It is
important to note that the means test calculation of disposable income
applies only to debtors with income above their state median level. For
more than 90 percent of chapter 7 debtors and nearly three-quarters of
chapter 13 debtors, the means test is abbreviated to an income
calculation without consideration of expenses.
The BAPCPA requires the United States Trustee to file a statement
with the court within 10 days after the section 341 meeting of
creditors indicating if the case is ``presumed abusive'' under the
statutory formula. Within 30 days thereafter in ``presumed abusive''
cases, the United States Trustee is required to file either a motion to
dismiss or a statement explaining why filing such a motion would not be
appropriate. We have endeavored to implement these mandates in a manner
that allows us to identify cases of abuse and also to exercise our
discretion to ensure that dismissal is sought only in meritorious
cases.
Between October 1, 2006, and June 30, 2007, approximately nine
percent of chapter 7 debtors had income above their state median. Of
those cases filed by above median income debtors, approximately 10
percent were ``presumed abusive.'' However, after consideration of
special circumstances, such as a job loss, reduction in income, or
medical condition, we exercised our statutory discretion to decline to
file motions in about 30 percent of the ``presumed abusive'' cases that
did not voluntarily convert or dismiss.
Despite the high rate of declinations, we are filing motions to
dismiss at nearly three times the rate prior to enactment of the
BAPCPA. Notably, the United States Trustee has prevailed in nearly 97
percent of the cases that were either adjudicated by the bankruptcy
court or voluntarily dismissed or converted under the ``presumed
abuse'' standard contained in 11 U.S.C. Sec. 707(b)(2). For example, in
a recent case in the Northern District of Texas, an investigation by
the United States Trustee's office revealed that a married couple had
under-reported their income by more than $5,000 per month and had over-
reported their mortgage expense. When the means test was adjusted to
align with the facts, it reflected that the debtors had over $1,000 per
month in disposable income, as opposed to the minus $18 they had
initially claimed. In response to the United States Trustee's motion to
dismiss, the debtors converted their case to chapter 13 and will repay
nearly $62,000 to unsecured creditors.
It is important to note that even if a case is determined not to be
``presumed abusive'' under the means test calculation, the reform law
does not preclude the USTP from taking action when it finds it to be
abusive under a ``totality of the circumstances'' or bad faith
analysis. The following examples illustrate this point.
Despite annual income exceeding $125,000, a debtor in
the Western District of Washington attempted to discharge
$642,181 in unsecured debt in order to retain what he described
as his $810,000 ``dream home'' with a $7,200 monthly mortgage
payment. Although the case was not ``presumed abusive'' under
the means test because his large monthly payments to secured
creditors reduced his current monthly income, the United States
Trustee successfully argued for dismissal under the totality of
the circumstances of the debtor's financial situation.
The United States Trustee obtained case dismissal for
bad faith against debtors in the District of Massachusetts who
earned nearly $10,000 per month; owned real estate valued at
almost $1 million; and owned or leased a Jaguar, a Mercedes
Benz, and a vintage 1965 Mustang. They incurred significant
debt on numerous credit cards to purchase luxury goods and
withdrew large cash advances against the cards within one year
before filing bankruptcy. The dismissal prevented the chapter 7
discharge of $300,775 in unsecured debt.
Congress mandated that the Director of the Executive Office report
on the impact of the use of the IRS standards in the means test
calculation. The Program contracted with the RAND Corporation to
collect data and to perform related research. Based on that research,
in July of this year, the Program issued its report to the Congress.
The most significant finding was that the IRS standards generally allow
chapter 13 debtors to deduct expenses in an amount above their actual
expenses, with the greatest advantage realized by above median chapter
13 debtors with lower income. The IRS standards allow above median
debtors, on average, $490 in expenses above the amount that debtors
report they actually spend. As income rises, the differential becomes
smaller. This means that the IRS standards have a progressive impact on
above median debtors, such that those with lower income are treated
more favorably than those with higher income. Further research using a
larger sample size is necessary to determine any long-term trends.
Unfortunately, the inability to extract data electronically from court
forms necessitates the use of manual data entry, which makes further
research cumbersome and expensive.
Consumer Protection
An important component of the Program's civil enforcement efforts
has been to protect consumer debtors. These enforcement efforts often
involve actions against debtors' counsel, non-attorney bankruptcy
petition preparers (BPPs), or other third parties. In the first nine
months of FY 2007, the Program took 394 formal actions against debtors'
counsel and 184 actions against petition preparers.
Among the most egregious schemes are those perpetrated upon
consumers facing foreclosure on their homes. In a recent case in the
Western District of Pennsylvania, the bankruptcy court entered a
default judgment against a BPP following an adversary proceeding filed
by the Office of the United States Trustee. The out-of-state BPP
contacted several Pittsburgh area residents faced with foreclosure by
mailing a postcard which guaranteed the BPP could help them keep their
homes. In exchange for fees ranging from $250 to $2,100, the BPP
provided the homeowners with skeletal chapter 13 petitions to file to
stay foreclosure. The debtors' bankruptcy cases were ultimately
dismissed. The court fined the BPP $72,000, ordered the disgorgement of
fees in the amount of $8,200, and permanently enjoined it from acting
as a BPP and offering legal advice or otherwise engaging in the
unauthorized practice of law in the district.
Regrettably, debtors sometimes are also exploited by their
bankruptcy lawyers. In a recent case in the District of Rhode Island,
the bankruptcy court approved an order in which a debtor's attorney
consented to a 36-month suspension from the practice of bankruptcy law
and agreed to disgorge $2,726 in fees to three former clients. The
order resulted from an investigation by the United States Trustee's
Providence office into numerous complaints that the attorney engaged in
professional malfeasance when handling consumer bankruptcy cases.
The Program also has a duty to redress violations by creditors,
particularly when the abuse is systemic or multi-jurisdictional. In
many cases, creditor abuse is best addressed by the private case
trustees we appoint who object to claims, or by debtors' lawyers who
dispute loan agreement terms. But sometimes, the integrity of the
system as a whole is at stake, and it is important for the Program to
take direct enforcement action.
In one ongoing case in the Southern District of Texas involving the
conduct of a large national mortgage servicer and its counsel, the
Program has invested substantial resources. USTP attorneys deposed more
than 20 witnesses, reviewed nearly 10,000 pages of documents, and
completed five full days of trial. In another case, the bankruptcy
court sanctioned the law firm of that same national mortgage servicer
for making inaccurate representations to the court. In his opinion, the
bankruptcy judge noted that creditor's counsel ``complained bitterly
about the participation of the U.S. Trustee in this matter.'' The court
concluded, however, that the United States Trustee's participation
``assured presentation of a complete factual and legal case'' and
``provided an invaluable benefit to the case and to the process by his
professional participation.''
The Program also has been active in enforcing 11 U.S.C.
Sec. 363(o), which is a less publicized consumer protection measure
added under the BAPCPA. Section 363(o) prohibits bankrupt lenders from
selling loan portfolios or other interests ``free and clear'' of the
rights of their customers to assert claims or defenses provided under
the Truth in Lending Act or other consumer protection laws. The United
States Trustee's role to enforce section 363(o) is paramount because
consumer borrowers may not receive notice of the intended sale of their
loans. Even if they receive notice, they may not have the financial
means to object to the sale or request the sale provisions contain
section 363(o) safeguards to preserve their rights. To date, United
States Trustees have filed pleadings to enforce section 363(o) in at
least a dozen cases in which bankruptcy sales by lenders did not
provide the required and appropriate consumer protection.
The BAPCPA created 11 U.S.C. Sec. Sec. 526-528 to protect consumer
debtors by regulating the conduct of debt relief agencies (DRA), as
defined in the Bankruptcy Code, that provide bankruptcy-related
services. Approximately 20 cases have raised statutory challenges to
the DRA provisions, including challenges to the application of the
provisions to attorneys, to the requirement that a DRA provide certain
written disclosures to consumer debtors, to the constitutionality of
the prohibition on advising debtors to incur additional debt in
contemplation of filing bankruptcy, and to the constitutionality of the
required disclosure in advertisements touting bankruptcy assistance.
The Program has worked closely with the Department's Civil
Division, which has taken the lead in defending the DRA provisions in
cases brought in United States bankruptcy and district courts. The
majority of these cases have been resolved, with several cases being
dismissed. Appeals are pending in the Second, Fifth, Eighth, and Ninth
Circuits, all of which involve constitutional challenges. In addition,
arguments on similar issues have been fully briefed in two district
court cases.
CRIMINAL ENFORCEMENT
Criminal enforcement is another key component of the Program's
efforts to uphold the integrity of the bankruptcy system. We recently
issued our first annual report to the Congress on criminal referrals by
the Program. We reported that in FY 2006, the Program made 925
bankruptcy and bankruptcy-related criminal referrals. We are on track
to exceed that number for FY 2007.
Under the leadership of our Criminal Enforcement Unit (CrEU),
consisting primarily of career federal prosecutors, we have enhanced
the Program's work in this critical area. The CrEU has conducted
extensive training for federal prosecutors and law enforcement
personnel, USTP staff, private trustees, and others; published internal
resource documents and a training video for use by Program personnel
involved in the criminal referral process; and established a bankruptcy
fraud Internet ``hotline'' that became operational at the beginning of
FY 2007. In addition, approximately 25 of the Program's attorneys have
been cross-designated as Special Assistant United States Attorneys to
assist in the prosecution of bankruptcy fraud.
The following examples demonstrate the wide array of bankruptcy
fraud prosecutions that address both debtor fraud and criminal
violations by those who exploit debtors:
On April 13, 2007, in the District of Minnesota,
husband and wife debtors were convicted on eight counts and
nine counts, respectively, including false declaration in
bankruptcy, concealment of assets, and money laundering. In
their bankruptcy case, the couple did not disclose their
interests in an Individual Retirement Account (IRA) and
substantially understated the value of their house. When the
chapter 7 trustee discovered the IRA, valued at approximately
$208,000, the debtors liquidated the asset, cashed the check,
and concealed the cash from the trustee. After the trustee
learned of the true value of the debtors' interest in their
house, the house burned down and the couple received a check
for the insurance proceeds from the loss. The debtors cashed
the check, which was property of their bankruptcy estate, and
carried $244,535 in currency from the bank. The insurance
proceeds have not been recovered by the trustee. The United
States Trustee's Minneapolis office referred the case and
assisted in the investigation, and a member of CrEU assisted in
the preparation of the indictment.
A ``foreclosure rescue'' operator was sentenced on
August 8, 2007, in the District of Arizona to 33 months in
prison, fined $5,000, and ordered to pay $86,409 in
restitution, based on his guilty plea to two counts of false
declaration in bankruptcy. The operator sought out individuals
who were losing their homes to foreclosure and prevailed upon
them to transfer their homes to him to avoid having a
foreclosure on their credit reports. To stay foreclosure, he
filed bankruptcy petitions in the homeowners' names without
their knowledge. While the cases were pending, he collected
rental income on the properties. The United States Trustee's
Phoenix office referred the matter, conducted the
investigation, and provided assistance to the United States
Attorney's office.
CREDIT COUNSELING AND DEBTOR EDUCATION
One of the key elements of the bankruptcy reform law is financial
education. Individual debtors must now receive credit counseling prior
to filing and education on personal financial management prior to
discharge. These new requirements are designed to ensure that debtors
know what their options are before entering bankruptcy and have the
tools to avoid future financial catastrophe when they exit bankruptcy.
The primary responsibility of the United States Trustees is to
approve providers who meet statutory qualifications to offer credit
counseling and debtor education services to debtors. In light of the
troubled history of the credit counseling industry, our priority was to
design an application screening and approval process that would protect
debtors from unscrupulous providers. We developed our approval and
monitoring criteria with assistance from the Internal Revenue Service
and the Federal Trade Commission.
There are currently 161 approved credit counseling agencies and 297
approved debtor education providers. Approximately 41 percent of all
initial credit counseling applications and 28 percent of initial debtor
education applications were either rejected or withdrawn. In recent
months, the Program launched a schedule of on-site Quality Service
Reviews. This mechanism for post-approval monitoring will permit the
Program to interview provider staff, review records on-site, and
observe counseling sessions. These reviews will strengthen the
Program's efforts to ensure that debtors receive quality services from
approved providers.
Approximately 37 percent of debtors receive credit counseling by
telephone, 52 percent by Internet (which also may have a telephone
component), and 11 percent in person. From October 1, 2006, to June 30,
2007, credit counseling agencies issued 801,024 counseling
certificates. Interestingly, during the first nine months of FY 2007,
approximately 14 percent fewer bankruptcy cases were filed than credit
counseling certificates were issued. We will need time series data to
determine if this difference is probative of the question of whether
credit counseling is assisting debtors in identifying alternatives to
bankruptcy.
Another ongoing concern of the Program is the provision of credit
counseling and debtor education for limited English proficient debtors.
The Program has approved two national providers that offer interpreter
services without charge to their clients in more than 150 languages. In
addition, other approved national and local providers offer Internet,
telephonic, or in-person counseling in a total of 30 languages.
Approved providers are required to report to the Program on their
language capabilities, and the USTP Web site provides information on
the language capability of all providers on a district-by-district
basis.
The USTP also monitors compliance with the Congressional mandate
that approved providers offer services without regard to a debtor's
ability to pay. Available information suggests that fees charged for
services appear to be reasonable and that providers are waiving or
reducing fees in appropriate cases. Fees charged by credit counseling
agencies and debtor education providers generally are about $50. Fees
are waived by credit counseling agencies in 15 percent of all cases,
and are offered at a reduced rate in about another 14 percent of the
cases. Similarly, debtor education providers are waiving fees in 14
percent of cases and reducing fees in approximately 21 percent of
cases. This means that about one out of every three debtors is
receiving the required counseling and education services at no cost or
at a reduced cost.
In a report issued in April 2007, the Government Accountability
Office (GAO) credited the Program with developing a comprehensive,
timely, and effective process for the approval of eligible credit
counselors and debtor educators. GAO found few issues with the
competence, integrity, and performance of providers approved by the
USTP. Additionally, GAO found that debtors receive services within a
reasonable time frame and at a reasonable fee that is waived for
inability to pay. GAO did make two recommendations for further action
which the Program endorses.
The USTP should ``develop a mechanism that would
allow the Program or other parties to track outcomes of
prefiling credit counseling, including the number of
individuals issued counseling certificates who then file for
bankruptcy.'' In addition to refining efforts already made in
comparing certificates with bankruptcy filings, we also will
pursue recommendations made in a recent report prepared for the
Program by the RAND Corporation. Among others things, RAND
recommended that we develop outcome measures based upon results
from the Quality Service Reviews of approved providers that we
began to conduct this year. The scope and timeliness of our
research may be determined, in part, by our level of
appropriations in FY 2008.
The Program should ``issue formal guidance on what
constitutes `ability to pay' . . . [and] examine the reasons
behind the significant variation among providers in waiving
fees.'' We are preparing formal fee waiver guidance in a
rulemaking which we hope to issue for public comment in the
near future. We also will collect and analyze data from
providers so that we can enhance our ability to compare the
number of fee waivers granted by providers and the criteria
they used in making their decisions.
Section 105 of the BAPCPA requires the Program to develop and
evaluate the effectiveness of a financial management training
curriculum and materials. After consulting with a wide range of
individuals who are experts in the field of debtor education, including
chapter 13 trustees, a curriculum was developed and pilot tested. The
study is nearing completion and a report will be submitted to Congress
by the end of this calendar year.
DEBTOR AUDITS
The BAPCPA mandated a new regimen of debtor audits for consumer
cases filed on or after October 20, 2006. Audits must be conducted in
at least one out of every 250 consumer cases filed in a judicial
district, and in cases where income or expenses deviate from a
statistical norm. Each audit will verify the accuracy of the financial
information provided in a debtor's schedules and statement of financial
affairs. The audits are designed to assist the Program in identifying
cases of fraud, abuse, and error; to enhance deterrence; and to provide
baseline data to gauge the magnitude of fraud, abuse, and errors in the
bankruptcy system.
In FY 2007, the USTP contracted with six accounting firms to
perform the audits. By statute, debtors are required to cooperate with
the auditors, and a debtor's discharge may be revoked for failing to
adequately explain either a lack of cooperation with the auditor or a
material misstatement reported by the auditor. Before an audit firm
reports a material misstatement, it is required to offer the debtor an
opportunity to provide a written explanation. The Program also is
required to report annually to Congress on the results of the audits.
As of August 31, 2007, 3,344 cases had been selected for audit and
2,575 audits had been concluded. There are three potential outcomes for
a debtor audit: (1) no material misstatements reported, (2) at least
one material misstatement reported, or (3) issuance of a report of no
audit. About 27 percent of the audits concluded thus far have
identified at least one material misstatement, and an additional 10
percent were closed without audit completion generally because the
debtor did not respond to the audit notification letter, the debtor did
not provide a sufficient response to the audit firm's request for
information, or the case was dismissed before a sufficient response was
received.
When a debtor audit identifies a material misstatement, the Program
reviews the case to determine if enforcement action is appropriate. In
a recent case in the Eastern District of California, an audit revealed
that a debtor had under-reported several bank and financial accounts,
and had failed to disclose pre-petition transfers to insiders and
creditors. Based on these facts, the United States Trustee's Sacramento
office filed a complaint against the debtor, who agreed to forego the
discharge of $4.2 million in unsecured debt rather than proceed to
trial.
CHAPTER 11 ISSUES
The Program carries out significant responsibilities in business
reorganization cases. These responsibilities include such matters as
the appointment of official committees of creditors and equity security
holders, objections to the retention and compensation of professionals,
the review of disclosure statements, and the appointment of trustees
and examiners where warranted. The BAPCPA reformed chapter 11 practice
in many important respects, including the imposition of new deadlines
for reorganization in small business cases; the USTP appointment of
privacy and patient care ombudsmen to protect the rights of customers,
patients, and other third parties affected by chapter 11 cases; and the
addition of other requirements to enhance management accountability.
Because business reorganization cases often raise highly complex
questions of law and require sophisticated financial analysis, such
cases can be time intensive for United States Trustee staff.
In the first nine months of FY 2007, the Program filed 1,717
motions to convert or dismiss chapter 11 cases. The grounds for such
motions often involved debtors' failure to file financial reports or
debtors' dissipation of estate assets without a reasonable likelihood
of rehabilitation. In addition, the Program filed objections to
professional fees in 460 cases and obtained nearly $17 million in fee
reductions. An additional $11 million in reductions in 578 cases were
obtained through out-of-court resolution. It is not possible to
calculate other reductions voluntarily taken by professionals on
account of USTP scrutiny of compensation applications.
One recent case illustrates the USTP's role in the review of
professional compensation. In the case of Northwest Airlines in the
Southern District of New York, debtor's counsel was paid $35.5 million
and requested an additional bonus of $3.5 million due to ``exceptional
results achieved, the quality of work performed and the efficiency with
which the services were rendered'' in the case. The Program, along with
the flight attendants' union and a former member of the Ad Hoc
Committee of Certain Claims Holders, objected to the success fee. The
United States Trustee argued that debtor's counsel was well compensated
at market rates and provided no specific evidence of exceptional
results that were not adequately compensated by such rates. The court
ruled that the requirements for a fee enhancement were not met and
denied the success fee.
The Program also reviews applications for the retention of
professionals to ensure compliance with section 327 conflict of
interest prohibitions. During FY 2007, three courts of appeals upheld
objections by the USTP to the proposed retention of professionals who
had interests adverse to the estate, were not disinterested, or failed
to disclose connections that created potential and actual conflicts of
interest.
Another recent case demonstrates the important role of the United
States Trustee when management does not properly exercise its fiduciary
obligations to the estate and comply with the law. The United States
Trustee's Brooklyn office sought dismissal of a chapter 11 case due to
the debtor's failure to provide proof of insurance, cooperate with the
United States Trustee, meet disclosure and financial reporting
obligations, and otherwise demonstrate an ability to reorganize. On the
date the debtor filed its bankruptcy petition, it owned an apartment
building that had more than 1,400 uncorrected housing code violations
and was about to be sold through a HUD regulatory foreclosure. The
United States Trustee's motion to dismiss the case was supported by
HUD, the City of New York, and an informal committee of tenants. The
Bankruptcy Court for the Eastern District of New York dismissed the
case on September 6, 2007, with a six-month bar to refiling a
bankruptcy petition. The bar to refiling will allow HUD to proceed with
the foreclosure and transfer the property to a responsible owner who
will cure the housing code violations.
As noted, the BAPCPA added numerous provisions designed to enhance
management accountability and to provide greater protections to
creditors, shareholders, and the public. For example, Congress added
section 1104(e) to the Bankruptcy Code, which requires the United
States Trustee to seek to oust management if there are ``reasonable
grounds to suspect'' that current management participated in fraud,
dishonesty, or other criminal acts in the debtor's management or public
financial reporting. In addition, corporate debtors are under stricter
time deadlines to confirm a plan of reorganization. Under new 11 U.S.C.
Sec. 503(c), companies are also restricted in their ability to pay
bonuses to senior executives through Key Employee Retention Plans
(KERPs). Since enactment of section 503(c) through the beginning of
August 2007, United States Trustees have filed approximately 40
objections to executive bonus plans and have been successful in almost
70 percent of these cases. This number does not include additional
instances where the United States Trustee persuaded the debtor to
modify its compensation scheme to avoid an objection. Moreover, 11
U.S.C. Sec. 1112(b) was amended to lessen the court's discretion to
refuse to order conversion of a case to chapter 7 if the debtor is not
expeditiously reorganizing in accordance with the commands of chapter
11.
Two cases illustrate our actions to carry out the new chapter 11
provisions:
In the New Century TRS Holdings, Inc., subprime
mortgage lending case, the United States Trustee invoked
section 1104(e) and filed a motion for the appointment of a
trustee. As grounds, the motion cited New Century's admitted
inability to stand behind its SEC financial filings and
substantial issues about its internal financial controls. While
the court acknowledged that the United States Trustee had
raised serious concerns, the court granted alternative relief
by ordering the United States Trustee to appoint an examiner to
investigate the circumstances surrounding New Century's
inaccurate public financial filings. When New Century later
acknowledged that it could not stand behind its filings for a
prior year, the court, at the United States Trustee's request,
expanded the investigation to encompass that year as well.
In the case of Malden Mills, the debtor, having
failed to rehabilitate its business in a previous chapter 11
case, filed a new petition and immediately sought court
approval of substantial bonuses for top management and others.
The bonuses were payable upon the consummation by the debtor of
a pre-negotiated sale of assets. Unsecured creditors were to
receive nothing in the case, and most employees lost their
jobs. The United States Trustee objected to the excessive
bonuses, and the debtor withdrew the bonus proposal.
PRIVATE TRUSTEE OVERSIGHT
One of the core functions of the United States Trustees is to
appoint and supervise the private trustees who administer consumer
bankruptcy estates and distribute dividends to creditors. The Program
also trains trustees, evaluates their overall performance, reviews
their financial accounting, and ensures their prompt administration of
estate assets.
In the first nine months of FY 2007, approximately 530,000 consumer
and other non-business reorganization cases were filed under chapters
7, 12, and 13 of the Bankruptcy Code in the 88 judicial districts
covered by the Program. The United States Trustees oversee the
activities of the approximately 1,400 private trustees appointed by
them to handle the day-to-day activities in these cases. With
distributions by these trustees of about $7.9 billion last fiscal year,
the Program's effectiveness in this area is critical. The Program has
continued to strengthen its partnership with the private trustee
organizations to address areas of mutual concern and enhance the
operation of the bankruptcy system.
In implementing bankruptcy reform, the Program worked closely with
the trustees and provided extensive training, with a particular focus
on their new responsibilities with regard to serving as employee
benefit plan administrators and the handling of debtor tax returns. We
also have initiated the rulemaking process to issue uniform trustee
final reports, which will enhance consumer bankruptcy case
administration by improving access to case data and allowing for
greater analysis of the bankruptcy system.
INFORMATION TECHNOLOGY EFFORTS
To the maximum extent possible, the USTP has leveraged its
resources by utilizing information technology. In addition to enhancing
existing automated systems that help manage caseloads and measure
Program activity (e.g., the Automated Case Management System,
Significant Accomplishments Reporting System, Criminal Enforcement
Tracking System, and Professional Timekeeping System), the USTP has
developed a number of new systems. These include a Means Test Review
Management System, a Credit Counseling/Debtor Education Tracking
System, a Credit Counseling/Debtor Education Certificate Issuance
System, and a Debtor Audit Management System.
Notwithstanding the addition of these systems, the Program's
ability to achieve efficiencies and maximize data collection has been
hampered by an inability to electronically extract data from bankruptcy
petitions and schedules. As suggested in Congressional Appropriations
Committee Reports, we have been working with the Administrative Office
of the U.S. Courts (AOUSC) for more than two years to have a data-
enabled form standard made mandatory, subject to appropriate privacy
and access concerns. ``Data tags'' in a data-enabled form permit the
computer system to automatically extract and aggregate financial and
other information from bankruptcy filings. Such forms would make the
USTP's implementation of the new bankruptcy law vastly more time and
cost efficient in several key areas such as calculating the means test
to determine eligibility for chapter 7 relief and identifying cases for
audit under statutory case selection standards. They would also save
case trustees significant time and expense in the filing of final
reports in hundreds of thousands of no-asset consumer cases where
considerable new information is required under the BAPCPA. In addition,
data tags could aid the courts in performing administrative functions
and would assist policymakers and researchers in analyzing the
effectiveness of the bankruptcy system (by, for example, providing
better data on the relationship between medical expenses and bankruptcy
filings). Discussions with the courts on this critical issue are
continuing.
FISCAL YEAR 2008 APPROPRIATIONS REQUEST
The USTP is entirely self-funded through user fees paid by
bankruptcy debtors. All revenues are deposited into the United States
Trustee System Fund. The Program may expend funds as appropriated by
Congress. In FY 2007, approximately 50 percent of the funding was
derived from quarterly fees in chapter 11 reorganization cases. The
balance of the funds was derived from filing fees paid in chapters 7,
11, 12, and 13, as well as interest earnings and miscellaneous
revenues.
For FY 2007, Congress appropriated $223.1 million for the USTP.
This amount provided funding for operations, including the Executive
Office and 21 regions consisting of 95 field offices. The Program
employs approximately 1,300 attorneys, financial analysts, and support
staff. The USTP covers more than 300 sites where bankruptcy judges
conduct proceedings and more than 450 administrative hearing sites
(i.e., section 341 meeting rooms).
For FY 2008, the President requested appropriations of $231.9
million for the USTP. This amount would provide a current services
budget. The Senate Appropriations Committee approved the President's
budget. The House of Representatives passed legislation that would
satisfy the President's request, subject to collections. The Program
and the Department have re-estimated the level of receipts that are
expected to be collected in 2008. The Attorney General has addressed
the issue of the USTP funding in his appeal to the Appropriations
Subcommittee, pointing out that the U.S. Trustee System Fund has a
sufficient surplus to fully fund the FY 2008 request.
CONCLUSION
The United States Trustee Program has assembled a substantial
record of accomplishment since enactment of the BAPCPA. Compliance with
the comprehensive changes to the Bankruptcy Code has presented
significant challenges to the United States Trustees, the courts,
debtors, creditors, attorneys, and others. The bankruptcy system is in
a period of transition. The USTP will continue its efforts to work
cooperatively with all components of the system to satisfy our
obligations to implement the law with fairness, efficiency, and
effectiveness for the benefit of all stakeholders.
Ms. Sanchez. Thank you. Judge Cristol?
TESTIMONY OF THE HONORABLE A. JAY CRISTOL, JUDGE, UNITED STATES
BANKRUPTCY COURT, SOUTHERN DISTRICT OF FLORIDA, MIAMI, FL
Judge Cristol. I am proud of the bankruptcy system of the
United States and believe it is the most compassionate and, at
the same time, most effective system in the world, because it
goes beyond the archaic concept of looking only to the
distribution of assets to creditors and offers an honest debtor
a fresh start.
In answer to the question, ``Watch dog or attack dog,'' the
answer is the U.S. Trustee is not one dog. It is a pack of
dogs. In the area of chapter 11 reorganization, the U.S.
Trustee staff at local levels provide extremely valuable
assistance to the courts.
In this area, the U.S. Trustee is a beloved Lassie or a Rin
Tin Tin. Sadly, in the area of consumers, the U.S. Trustee is a
pit bull. The problem comes from the top. Over the tenure of
the past two directors, Lawrence Friedman and Clifford White,
the policies sent from Washington to the soldiers in the field
have made the U.S. Trustee program in the consumer area a pit
bull.
I do not mean to make ad hominem attacks on Mr. Friedman or
Mr. White. I respect them both as to integrity and professional
talents. The problem is their perspective.
Mr. White's distinguished career has been served in the
office of the Federal prosecutor. These gentlemen seem to view
all debtors with a suspicion through prosecutorial eyes as
dishonest crooks trying to beat the system and perceive
debtors' lawyers as disreputable and untrustworthy.
Nothing is further from the truth. In my more than two
decades on the bench, I have observed that almost all consumer
debtors seeking relief in bankruptcy are honest, decent,
hardworking citizens who suffered a catastrophic financial
tragedy, seldom of their own making, such as a medical disaster
and no health insurance, loss of employment, dissolution of a
marriage or other financial misfortune.
Consumer lawyers who represent them are generally competent
and well meaning, without blemish on their character.
The U.S. Trustee's most recent annual report boasts of the
national civil enforcement initiative yielding millions in
debts not discharged. There is a substantial difference between
debts not discharged and debts collected. They offer no figures
on debts collected.
The old adage, ``You cannot get blood from a stone,'' is
especially applicable here. Very little of the nondischarged
debts are collected.
So what has been accomplished?
The report also claims that they have a better than 99
percent success rate in complaints filed against debtors. It
fails to mention how many cases are won by default.
Think about it. A destitute, honest debtor that has
appropriately turned over all of his or her property to the
panel trustee, except for exempt property, which, in many
States, is meager, is served with a lawsuit filed by the United
States of America, represented by highly-skilled, well-paid
lawyers.
In these circumstances, most debtors have neither the money
nor the will to fight. In many instances, their remaining
exempt property will not even cover the amount of a retainer to
a competent counsel. It is not Goliath against David. It is
more like Goliath against an ant.
And what is the benefit to society of most of these
undischarged debts or denials of discharge? Without discharge
and the fresh start it provides, these victims of the
initiative find it difficult to get a job, get credit, or climb
out of the financial pit in which they are trapped.
They are denied a fresh start and the opportunity to re-
enter society as productive citizens. The mean-spirited streak
in the new law provides draconian penalties for the most minor
and insignificant compliance failures of even unimportant
matters. The U.S. Trustee seems to be enamored with these harsh
penalties.
The new law makes it harder for consumers to save a home
from foreclosure or a car from repossession, and the U.S.
Trustee's policy seeks the harshest implementation of these
provisions.
As a result, honest people, homeless or unable to drive to
work. If a debtor's papers contain minor discrepancies that
have no effect on the results of the case, there is no valid
reason to persecute them.
The problems of consumer debtors are only exacerbated by
the aggressive anti-consumer stance of the U.S. Trustee
Program. The independent decisions of career personnel in local
offices have been subordinated to central directives from a
politicized central office.
While spending enormous resources pursuing minor document
defects in papers filed by consumer debtors, the U.S. Trustee
spends little or no time on creditor wrongdoing. The U.S.
Trustee was supposed to be a neutral monitor of the system and,
for many years, it was. That neutrality has been maintained in
North Carolina and Alabama under the bankruptcy administration
system.
A final sad example is my case In re Jean Raul Petit-Louis,
a pauper. He did not own real estate. He did not own a car. He
had no money and little more than the clothes on his back.
He lost his job and could not pay his rent in public
housing. Upon getting back to work, he was in danger of
eviction because of a few dollars of unpaid rent. He could only
keep a roof over his head if the debt was paid, which he could
not do, or if he was discharged.
Petit-Louis, Little Louis, could not speak English and
could not obtain credit counseling in Creole, the language he
understood. Of ten U.S. Trustee approved credit counselors in
southern Florida, not one had a Creole-speaking counselor.
The U.S. Trustee had not carried out its statutory
obligation to provide credit counseling in a meaningful way.
Nevertheless, the U.S. Trustee sought to bar Little Louis
from bankruptcy release, and when I granted a waiver, which is
allowed by the statute, the U.S. Trustee filed a lengthy motion
to reconsider, followed by an appeal and a threat to Little
Louis that the U.S. Trustee would appeal all the way to the
Supreme Court.
So Little Louis gave up and voluntarily dismissed his
case--another ant smashed by the unlimited resources of the pit
bull doing good as it sees doing good.
I close with the words of Cicero, ``We are not those who do
evil in the name of evil, but heaven protect us from those who
do evil in the name of good.''
[The prepared statement of Judge Cristol follows:]
Prepared Statement of the Honorable A. Jay Cristol
Ms. Sanchez. Thank you for your testimony.
Ms. Powers?
TESTIMONY OF MARY POWERS, ESQUIRE, FORMER UNITED STATES TRUSTEE
PROGRAM TRIAL ATTORNEY, AMHERST, NY
Ms. Powers. Thank you for the opportunity to speak today.
Quite frankly, it was a difficult decision for me to come
here today. On the one hand, I believe the United States
Trustee's offices are filled with intelligent, hardworking
individuals who care about the mission of the United States
Trustee, working to promote the integrity and efficiency of the
bankruptcy system. Many of these people are sittin here today.
On the other hand, it was my distinct feeling, based on my
over 4 years employment there, that the policies and the
practices of the United States Trustee were moving farther away
from its mission to the integrity of the system. I felt that it
was going to be less and less about justice, and, at some
levels, actually served as an impediment.
It is that experience that brings me here to testify today.
My written testimony speaks for itself. Buffalo, in western New
York, is a community where economic hardship is a reality and
has been so for a number of years, most of my life, actually.
Buffalo was recently cited as the second poorest city in
America. Clearly, abusive bankruptcy filings were not
prevalent. The majority of cases where inquiries had been made
on our part, in an effort to stem any tide of abuse, there
would be notable mitigating factors.
The United States Trustee Program had implemented a
reporting system. They called Significant Accomplishment
Systems. They called it SARS. It was sort of like a report
card, a quarterly report card. And once I started to do that
report card every quarter, it became even more apparent,
because it confirmed the obvious, that western New Yorkers were
down on their luck. Entry after entry noted job loss, loss of
medical benefits and often marital dissolution. But,
unfortunately, that reality didn't seem acceptable in the
climate of the current office of the United States Trustee.
The belief was that you must not be looking hard enough if
you don't find cases of abuse, and I recount two personal
examples in my testimony, ones that, in my career, may seem
minor, but they did really strike home.
The first is when then director Larry Friedman came to town
and he pulled one of our inquiry files. It was that of a
retired teacher and his wife, and Mr. Friedman immediately
asked where the boat was. We weren't sure what he meant. He
said, ``Well, all retired teachers have boats.''
I stated I wasn't personally aware of the connection
between retired teachers and boats, but at his direction, we
did a detailed document request for his review. And we
conducted a review, and he flew back into town to conduct an
examination of the debtors.
Mr. Friedman found no intentional ommission of assets. The
case was eventually converted to a 13, which would have
happened anyway. That is what we had targeted it for.
Now, Buffalo is a small community. Lawyers cooperate with
one another and results can be achieved without putting all
parties through these rigorous hoops.
We understood that, sadly, the view from the top was that
the debtors and their attorneys were to be looked at as the
opposition, and that simply was not the case, at lease not in
Buffalo, New York. And, unfortunately, the emphasis on the
numbers only became worse after the passage of the new law.
I left when I realized that independent judgment was not
valued or sought after in the program.
I recount the example of the United States Trustee in
Region 2 inquiring about a garden variety case, one that wasn't
abusive in any way. I immediately thought we must have missed
something--but it reinforced my belief that it was all about
the numbers, and about micromanaging and bureaucracy was only
getting worse.
It was hard for me to believe that someone at that level
would not have something more important on her plate than that.
And I felt, when I realized my personal credibility and my
integrity was at risk and one well-respected attorney told me
that the U.S. Trustee had become a known as the ``useless
Trustee's office.''
On a personal level, I also couldn't imagine spending the
rest of my career looking at telephone bills and determining if
``grandma'' was part of the household, especially when those
endeavors meant very little in terms of monetary returns to
individual creditors.
It just seems to me, and the reason I am here today, is
that the talent and dedication of the staff that I was lucky
enough to work with in Buffalo, and that the people that I met
from all around the country could be used to serve the system
of justice in a much more effective manner.
[The prepared statement of Ms. Powers follows:]
Prepared Statement of Mary Powers
My name is Mary Powers and I am an attorney who for the majority of
my twenty year legal career practiced bankruptcy law. I was fortunate
to begin my career as confidential law clerk to the Honorable Beryl E.
McGuire, Chief Judge for the United States Bankruptcy Court for the
Western District of New York. After that I worked for two well
respected Buffalo law firms, representing debtors, creditors and
creditor committees in a variety of bankruptcy matters. In 2002, I
applied for the position of Trial Attorney in the Buffalo office of the
United States Trustee (``UST''). At that time, I was very happy at my
law firm, received challenging work, was well compensated and, above
all, was respected by my colleagues just as I respected them for their
integrity and dedication to their clients. There was only one legal
position which would have prompted me to leave this wonderful working
environment and that was a position with the Department of Justice's
United States Trustee's Office. I felt my background was ideal, but
more importantly, I felt that it would be an honor and a privilege to
serve the Department of Justice in its mission to promote the integrity
and efficiency of the bankruptcy system. It was a chance, for the lack
of a better phrase to ``wear the white hat''. I felt very fortunate to
have been offered the position. Over time, it became clear to me
however, that what I was doing had very little to do with ``justice''
and, as such, my personal passion and enthusiasm slowly eroded. In
February 2007, not wanting to spend the remainder of my career doing
something that I had trouble believing in, I resigned. I have never
once regretted that decision.
Upon my arrival, I came to understand more clearly what was meant
by ``civil enforcement ``and that the UST was now considered a
litigating component of the Department of Justice. I had enough
experience at that time to realize that the Buffalo office did not have
the resources to be a true ``litigating force'', but I was optimistic
that I could still make a difference, elevating the level of practice
and protecting both debtors and creditors. During my years, little
focus or training emphasized creditor abuse. I quickly came to
understand that ferreting out abuse by debtors was of primary
importance. I screened numerous filings. Through inquiries of debtors
and their attorneys, I confirmed what I could have intuitively guessed
from being a Buffalo and Western New York native. The majority of
filings were not abusive. Buffalo's poor economy caused loss of jobs,
loss of medical benefits and often marital dissolution, due in large
part to financial setbacks. These factors were at the heart of the vast
majority of filings. This became very apparent when the UST implemented
a reporting system (one of many) known as SARS (``Significant
Accomplishments Reporting System''). Every action taken by staff was to
be documented in this system. Every entry where no action was taken
referred to a ``mitigating factor'' which obviated the need for any
action. ``Cancer'', ``job loss'', ``divorce'' were noted frequently,
demonstrating what I knew to be the case: that Western New Yorkers were
down on their luck. When an abusive filing was found, dismissal or
conversion to Chapter 13, was pursued with vigor, but always
understanding that the judges in the Buffalo Bankruptcy Court were very
aware of the harsh economic realities in Western New York and gave
debtors every consideration. Initially it never occurred to me that
those in Washington and New York would not trust the assessments of
seasoned lawyers, those hired by them for their expertise and
experience. I thought it was common sense and easily understood that
regions and individual districts differed significantly in their
bankruptcy demographics. I learned later that I was quite naive in that
belief.
I became aware that the debtor abuse ``numbers'' for the Buffalo
office were low and that offices that had low numbers were perceived as
not looking hard enough to find abuse. This became very apparent when
then Director Lawrence Friedman on a visit to the Buffalo office pulled
one of our ``inquiry'' files and concluded on its face that a debtor
examination should take place and he would ``show us how it was done''.
He told us that as the debtor was a retired teacher it was likely he
had a boat, although none was listed. I was not familiar with the link
between retiring teachers and boats, but I assured him I would
investigate and do a detailed document request for his review prior to
his return to conduct the examination of the debtors. Our independent
investigation revealed no intentional omission of assets on the
debtors' schedules. The examination done by Mr. Friedman also revealed
nothing. The debtors were sincere and honest and nothing warranted the
dismissal of their case. The case was flagged by our office for one
more appropriately in Chapter 13 which is my recollection of what
ultimately happened in the case. I feel certain that this result, as
had occurred with other similar cases, would have occurred without the
burdensome document requests and a lengthy examination of the debtors.
Buffalo is a small community of bankruptcy practitioners and my
experience led me to know that for many cases aggressive pursuit was
unnecessary to achieve the same result. Unfortunately, as we did not
conduct as many unnecessary examinations as other districts , we
appeared less aggressive. Again, I felt that we understood the practice
in our district best and there was no need to put the debtors and their
attorneys through unnecessarily burdensome ``hoops'' if the same result
could be achieved in a more timely and cost efficient manner for all
involved. I felt that treatment of attorneys and debtors in that manner
raised our credibility with the bench and bar, fostered cooperation and
promoted a much more efficacious system. Unfortunately, the opinions of
those in the ``trenches'' in the individual offices seemed to matter
very little. Although, the same information could be easily obtained at
a meeting of creditors, we would have gotten more ``credit'' from the
powers that be had we engaged in costly examinations and document
requests. Our ``SARS'' report, a seeming ``report card'', certainly
wasn't impressive to those who measured success in terms of dismissals
and conversions only. Unfortunately, we could not manufacture ``abuse''
where little existed. Even when we did obtain a conversion to Chapter
13 and the total amount of unsecured debt deemed nondischargeable was
entered as the result, in truth, most of that debt would be ultimately
discharged because the majority of Chapter 13 payment plans were of a
very low percentage. If the case was dismissed, it was likely very
little of that debt was collectible either. We understood however, that
it was partially these numbers that the Office of the United States
Trustee relied upon to justify its existence and demonstrate success.
Feeding the SARs machine at times seemed as important as practicing
meaningful law.
The lack of autonomy and inability to exercise discretion as well
as the pressures to produce ``numbers'' was exacerbated after the
passage of BAPCPA in October of 2005. Admittedly, the UST was forced to
comply with a new law everyone was struggling to understand and
certainly there would and should be uniformity in policies regarding
application, but again the same pressures to produce presumed abuse
under the ``means test'' was paramount. I remember one pivotal moment
for me after the passage of the new bill. I, through the Assistant UST
in the office, learned that the US Trustee in the region asked about a
specific case. My first thought was that despite a multi-level
screening process, something big must have been missed. When I reviewed
the filing, I realized that the case wasn't flagged because the debtor
was only slightly over the median and had a blended family with six
children and all the legitimate expenses that accompany a family of
that size. You didn't need the means test to figure that out. Common
sense and living in the real world would have sufficed. More
importantly, I was incredulous that someone at the level of a UST would
not have something more important on her plate than this insignificant
case from Buffalo. It was clear that ``babysitting'' was the order of
the day and that the most important focus of the UST was accounting for
``debtor abuse'' and raising the numbers for statistical purposes. It
was that day when I knew I could not spend the rest of my career in a
micromanaging bureaucracy. I also knew that the satisfaction that would
arise from pouring over cell phone bills and determining if ``grandma''
was part of the household would be nonexistent, especially when
ultimately it would make very little monetary difference to creditors.
As one well respected Buffalo attorney told me, the UST had come to be
known as the ``useless Trustee's office'', not a flattering nickname,
but one I sadly understood.
The most unfortunate aspect of this to me was that the Office of
the United States Trustee employed many intelligent, hard working
individuals all over the country, many of whom I was fortunate to work
with and to meet. Those individuals produced many wonderful initiatives
over the years. Many of them expressed frustrations similar to those I
have expressed, but obviously only one who left government employment
would feel free to speak. In closing, it is my belief that the mission
of the Office of the United States Trustee is admirable however, the
current execution of the mission is flawed, an impediment to the
functioning of the system and does very little to promote the integrity
of the system.
Ms. Sanchez. Thank you, Ms. Powers, for your testimony.
At this time, I would invite Judge Wedoff.
TESTIMONY OF THE HONORABLE EUGENE R. WEDOFF, JUDGE, UNITED
STATES BANKRUPTCY COURT, NORTHERN DISTRICT OF ILLINOIS,
CHICAGO, IL
Judge Wedoff. I appreciate the opportunity to be here for
the purpose of offering a different perspective on the U.S.
Trustee Program.
I understand the question the Committee wants to ask is
whether the program has been administering the bankruptcy
system in an over-aggressive manner, like an attack dog, or
whether it has been safeguarding the integrity of the
bankruptcy system, like a watch dog.
I have been a bankruptcy judge for 20 years. I have been on
a number of organizations actively that work to support the
bankruptcy system and I have presided over big cases, like the
United Airlines case. But the reason that I want to talk to the
Committee today is because of the experience I have had from my
appointment to the Advisory Committee on Bankruptcy Rules.
When, what I will call BAPCPA, the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, was enacted,
there were 6 months--180 days to enact a whole host of new
rules and forms to implement BAPCPA, and one of the most
difficult tasks was to implement the new means tests that were
created to establish abuse in chapter 7 cases.
I was appointed, as a new Member of the Committee, to a
three-member working group to devise a means test form, to
draft one for the Committee. The other members of that working
group were Eric Frank, who is now a bankruptcy judge in
Philadelphia, but he was then a longstanding consumer debtor
attorney, and Mark Redmiles, who was then the enforcement
coordinator for the U.S. Trustee Program.
The three of us, over that 6-month period, spent literally
hundreds of hours drafting, debating, revising means test
forms, not just for chapter 7, but for chapter 13 and chapter
11, as well. The work was necessarily complex, because the
statute is complex.
Our chapter 7 means test form, as you mentioned, Madam
Chairwoman, has 57 different lines over six pages, not because
we wanted to make it complex, but because the law required
that.
Obviously, over that period of time, Mark, Eric and I got
to know one another really well, and what I want to convey to
the Subcommittee today is the very firm impression I have that
Mark Redmiles and the U.S. Trustee Program, throughout this
process, not just with the means test, all of the
considerations of the rules committee, were not out to attack
debtors.
To the contrary, the impression I had throughout this
process was that they were working with integrity and fairness,
to read the statute properly and come up with a workable
result.
Now, in my written testimony, I focused on two concrete
examples that I thought would illustrate the approach of the
U.S. Trustee Program in the rulemaking process. Both of them
involve the implementation of the needs test and the needs test
form, and they both have the potential to impose significantly
greater burdens on debtors than the ones that we actually
adopted.
The first of these has to do with the safe harbor of
section 707(b)(7) of the bankruptcy code. This makes it
impossible for any means test presumption to be asserted
against a debtor who has below median income and the impact of
that is that the debtor's income alone immunizes the debtor
from the means test.
However, there is statutory language suggesting that a
debtor might have to complete all of the calculations of the
means test in order to comply with the reporting requirement
and, in fact, some of the creditor organizations that promoted
BAPCPA argued to the rules committee that regardless of income
level, a debtor had to complete the entire form.
It would make a huge difference if the debtor can complete
only the income portion, 14 lines, less than a page and a half.
If they have to complete the entire form, six pages, 57 lines.
The U.S. Trustee Program from the beginning rejected the
viewpoint of the creditor industry and asserted that the proper
reading allowed only partial completion of the form by low
income debtors.
The second point that I brought out has to do with the
local housing standards, local standards of the IRS. These are
used to determine debtors' deductions in the mean test for
housing and transportation.
There is a number given by the IRS. The statute directs
that the debtor's deduction for housing and transportation
shall be the number set forth in the IRS local standards.
Again, the creditor industry read the statute differently. They
said that the numbers that the IRS published were only half.
Under that view, the debtor would have to list mortgage,
rent, utilities, insurance, all of those items separately on
the form and then compare them to the IRS numbers. Again, the
U.S. Trustee Program took the position that the shorter
version, the IRS number, would be appropriate.
What is the bottom line? In all of these--in most of these
and other instances, the U.S. Trustee Program had the
opportunity, had it chosen, to essentially attack debtors--the
title of this hearing. They declined to--Instead they acted
with integrity, with fairness, and they helped us produce a
workable result.
I was grateful to Mark, grateful to the U.S. Trustee
Program, and, I have to say, heartened to learn in August that
Mark Redmiles was named deputy director of the U.S. Trustee
Program. I think he is taking that position in a very positive
direction.
[The prepared statement of Judge Wedoff follows:]
Prepared Statement of the Honorable Eugene R. Wedoff
Ms. Sanchez. Thank you very much for your testimony.
The bell is ringing to vote. In the absence of anybody
telling me that we have votes shortly, we will proceed to Mr.
Uyehara.
TESTIMONY OF PAUL M. UYEHARA, ESQUIRE, COMMUNITY LEGAL SERVICES
LANGUAGE ACCESS PROJECT, PHILADELPHIA, PA
Mr. Uyehara. Chairman Sanchez, Ranking Member Cannon,
Members of the Subcommittee, thank you for the opportunity to
testify today.
I would like to clarify for the record, as indicated in my
written testimony, that I am also testifying this afternoon as
a member of the National Association of Consumer Bankruptcy
Attorneys, whose members probably represent the bulk of the
attorneys filing consumer bankruptcy cases.
My written testimony details seven problems with U.S.
Trustee policies and practices, but really those problems,
those seven problems, could be summarized by the failure of the
Executive Office for U.S. Trustees UST programs to act in a way
that is fair, rational and reasonable. In fact, it is doing
things in an unfair, irrational and unreasonable manner.
As a component of the justice department, the public has a
right to expect the executive office for U.S. Trustees to be
fair. They are opposed to bankruptcy fraud, no one will argue.
Rather than opposing fraud from debtors and creditors
alike, UST programs focus almost exclusively on looking for
alleged debtor abuse, while making little effort to root out
abuse by creditors and their attorneys.
On a daily basis across the country, attorneys are filing
bogus claims on behalf of creditors. They are filing motions
falsely claiming homeowners are behind a mortgage payment,
backed up, in some cases, by pre-signed affidavits. Debtors are
losing sleep, money for attorney's fees and their homes from
fraud like this, but the EOUST acts as if only debtor fraud is
worth fighting.
We think fraud is fraud and fair is fair. We also think it
unfair for EOUST to have engaged in discrimination based on
debtors' ability to speak English, in violation of Executive
Order 13166 and DOJ policy. They are refusing to provide
interpreters for debtors to participate in mandatory meetings
of creditors, telling debtors to hire their own professional
interpreters or do without, while facing walls covered with FBI
posters, warning of felony prosecutions for misstatements.
EOUST has failed miserably for years in implementing
reform. The case just mentioned by Judge Cristol is one of the
most egregious examples, with EOUST attorneys having been
dispatched from Washington to Miami, vowing to fight for as
long as it took to have a Creole speaking debtor denied
bankruptcy protection because EOUST created and manages a
credit counseling system that is poorly equipped to assist
debtors that don't speak English well.
EOUST practices have made filing bankruptcy more expensive,
more difficult and more traumatic than it already was for
consumers. They have to manage documents from debtors that
exceed requirements set by law and the rules, with no
consideration of the costs and benefits and ignoring the
relevancy of the documents in a particular case.
One example of many in my written testimony, a single
mother, domestic violence survivor, with two kids, two little
kids, no child support, below median income, received a demand
to produce proof within 11 days of all of her credit card
purchases, without any restriction in time for how far back the
documents had to go.
Many routine demands by USTs are nothing more than anti-
debtor harassment. Pay stubs have been demanded of debtors who
filed papers saying that they were unemployed. One UST faulted
a debtor for listing herself as single, rather than divorced,
when asked her marital status and demanded that she amend her
paperwork.
A U.S. Trustee moved to dismiss a case after the debtor
erroneously took a debtor education course instead of a credit
counseling course, even though she later took the credit
counseling course a day later than she was required to.
UST personnel are now being sent to routine meetings of
creditors run by panel trustees, apparently, to protect
creditors' interests, even though the creditors themselves
generally do not waste their time attending these meetings.
A UST attorney in Pennsylvania so harshly questioned an
elderly African-American debtor about her circumstances leading
to bankruptcy that she actually wet herself at the meeting.
Auditors are filing documents alleging material
misstatements, which neither will have no bearing on the case,
other than cause trouble for the debtor.
We brought these issues to the attention of the executive
office of the U.S. Trustees for years, with no results apparent
beyond delay and silence. Today, it is our hope that the U.S.
Trustee Program can be urged to move toward policies that are
fair, reasonable and rational.
Thank you.
[The prepared statement of Mr. Uyehara follows:]
Prepared Statement of Paul M. Uyehara
Ms. Sanchez. Thank you, all of you, for your testimony.
We will now begin our questioning, and I will begin by
recognizing myself for 5 minutes.
Judge Cristol, you cite numerous examples in which the
program focuses on debtor abuses while ignoring creditor
abuses. On the other hand, you note in your written testimony
that neutrality has actually been maintained in North Carolina
and Alabama.
Can you explain the probable causes of that?
Judge Cristol [continuing]. Those that have been excluded
from the U.S. Trustee Program or the Department of Justice,
they are operated by the judiciary, and they seem to operate
very well and impartially, without what I regretfully say
appears to be politicized input from Washington.
Ms. Sanchez. Thank you.
Ms. Powers, you stated in your testimony that during your
time with the program, and I am quoting you here, ``little
focus or training emphasized creditor abuse'' while you were
employed there.
Why do you think the program isn't focused on creditor
abuse?
Ms. Powers. Admittedly, it is a complex law and for the UST
to get up to speed in terms of its oversight and its
enforcement responsibilities, it was all encompassing.
So in fairness to the U.S. Trustee, it would have been
difficult during that particular time to do much else except to
get acquainted with the new law. But even before the new law,
it seemed as though the order of the day was debtor abuse that
the training focused on.
Ms. Sanchez. There is often a phrase that is used--and that
could happen in a whole lot of ways----
I think, to use your own words from your testimony, that
there was micromanaging and bureaucracy going on, but why?
Ms. Powers. I am not really certain. Again, in defense of
the United States Trustee's Office, I think there was a lot of
attempts to get up to speed with the new law and to have some
uniform policies.
So I believe that the application and the mean test and so
forth was an obviously important focus.
Ms. Sanchez. In your opinion, do you think that maybe there
was an overemphasis on that--other things that could have gone
on?
Ms. Powers. Well, realistically, though, that was a major
overhaul of the law. So maybe it would have been nice to focus
on other things, but there really probably wasn't simply enough
time.
What I thought was problematic with the micromanaging
aspect was the fact that I really felt as though the judgment
of the individuals in the field offices, the people that
understood their communities, it didn't seem as though that
really mattered. I felt that that was my biggest problem with
that.
Ms. Sanchez. Mr. Uyehara, you stated in your testimony that
the program used aggressive and wasteful questioning of debtors
at creditors' meetings and brought dismissal of consumer
bankruptcy cases for minor alleged errors or defects.
Let me ask you, why do you think the program is using those
practices?
Mr. Uyehara. Again, Madam Chairwoman, I think this goes
back to the approach that is being taken--the problem that
exists in the bankruptcy system investigating fraud on behalf
of the debtors, when, in fact, that is not really a problem in
the system today.
There are lots of papers that have to be filled out. It is
possible to make mistakes, but it is not mistakes that are only
made on one side of the game. Mistakes are made on both sides
of the game.
I think the point is that the system needs to be policed in
a neutral way for all the parties.
Ms. Sanchez. Do you think that the sort of overzealousness
with which they are scrutinizing paperwork, for minor errors,
single versus divorced--I am divorced. I certainly consider
myself single, because I have been divorced for a number of
years, and if I were asked to check that off on a form, I am
sure that I would put single. Do you think that that is a case
of focusing on very miniscule problems--that should better
focus on, perhaps, creditor abuses?
Mr. Uyehara. Yes. I know it is one of many examples listed
in the written testimony gathered by the national membership.
It does illustrate situations where questions are being asked
that are insignificant. Money is being expended when a trustee
requires a debtor or threatens a debtor that papers have to be
re-filed to correct insignificant information, in some cases,
that is entirely correct to begin with.
That person is either going to stumble through it, if they
are unrepresented, and if they do have an attorney, they are
going to have to pay their attorney money that they can't
afford to pay, for no purpose.
Ms. Sanchez. Thank you. My time has expired.
So I will now recognize the Ranking Member for his
questions.
Mr. Cannon. Thank you, Madam Chair.
I was a little surprised when Judge Cristol started talking
about the dogs, and I realized that I hadn't read the title of
today's hearing, which is whether we have a watch dog or an
attack dog.
I suppose that is a conclusion one has before one comes
into a hearing like this.
I wanted to thank Mr. Wedoff for his work on the rules. I
think that we started with a difficult program. We have
implemented rules. There have been a lot of changes. And the
focus here ought to be have we gotten to the point where this
is working, so that we don't have these anecdotes like little
old ladies wetting themselves because they were interrogated
too aggressively.
This is not about anecdotes. This is about how the whole
system is working. And I will tell you that in the process, I
was Chairman of this Committee for 4 years while we developed
this program and trying to get it passed, and I was terrified
of what it would do, until I found myself on an airplane with a
trustee who was very interesting.
He talked about how these things in the bill. So when I
realized who he was, I asked him, ``How do you think it will
actually work in practice,'' and we spent 4 hours talking about
how it could be implemented.
And I think, Mr. Wedoff, what you have done is the kind of
implementation that he was talking about--and I suspect with as
many trustees----
But my question now is--I think the bill had the ability to
be implemented. We have had 2 years after passage to implement
it. And how are we doing? Not are there people that have
problems or defects or maybe an individual here or there who
overreached and who criticized or who required a re-filing of
the documents because of a distinction between being single and
being divorced.
Those don't seem to me to be very important to this
Committee. What seems to me to be important to this Committee
is how are these things actually working prospectively.
And let me direct a question to Mr. White and Mr. Wedoff.
In your experience, and recognizing I am not talking about
those situations where maybe somebody got up off the wrong side
of the bed, or had too strong a cup of coffee or not enough
coffee and, therefore, was a little rough in his interrogation.
Do we have systems that are implementing the intention of the
act, which is to balance the problem of people who use their
credit cards in anticipation of bankruptcy perhaps,as opposed
to people who have bankruptcy because they have the kinds of
problems that Judge Cristol talked about, who tend to be honest
people who have a problem in their lives?
Is the system--and I expect we are going to see it from a
couple different perspectives, but, Mr. White and Mr. Wedoff,
could you give us an idea of how the system has evolved and is
it actually working?
Mr. White?
Mr. White. Yes, Mr. Cannon. I think that the systems are in
place to implement the statute in an effective way. Now, it is
going to be some period of time before we have enough to data
to know what ultimate impacts are, of course.
But to turn to just a couple of the major areas where we do
have some interim data--I am sorry, sir.
Mr. Cannon. And what you are seeing is that it is an
iterative process. You are going back and looking and looking
and trying to improve it. I take it that is the essence of what
you are saying.
Mr. White. We absolutely are doing that. So for example, in
some data that I tried to reflect in the testimony, when we
look at the means testing system, we look to see not only are
we filing motions, but, also, how are we exercising discretion
in the aggregate.
The proof is in the pudding. I cannot answer anecdotes that
I don't have personal knowledge of that I am hearing about for
the first time and it was a field operation of 1,300 people and
750,000 cases. I can't guarantee you that there was nothing
done that shouldn't have been done better.
But I think we are doing a good job, and one indication is
if you look at the fact that almost one out of every three
cases that, under statutory formula, is presumed abusive, we
stand down and don't file a motion because we find that there
were special circumstances.
So we have tried to take the discretion Congress has given
us so that we bring only meritorious cases.
Credit counseling, which has received some attention, I
recall at the last hearing where I appeared, at a general
oversight for this Subcommittee, there was a lot of concern
with regard to protecting debtors and, in part, because we all
knew that the credit counseling industry was a troubled
industry.
Congress, for example, conducted numerous hearings, finding
abuses. So the last thing we wanted to do was to have the
justice department give an imprimatur, an approval, of credit
counselors who would then scam the very debtors they were
designed to assist.
So what have we found? The Government Accountability Office
gave us a very favorable report last April with regard to the
fact that we had an effective screening mechanism. It also
helped identify a future research agenda so we can continue to
look at outcomes and results.
Also, though, in that report, it looked at limited English
proficient debtors and are we making progress in addressing
those needs and gave the U.S. Trustee Program very high marks.
So virtually every indicator I can see now, we continue to
need to reevaluate what we are doing at all times. We need to
look at the data. We need to conduct oversight of what we are
actually doing in the field on a day-to-day basis.
But when you stand back and you look at the forest through
the trees, you see that there are systems in place, there are
reasonable mechanisms, and the horror stories with regard to
means testing and the terrible effects, we have ameliorated, I
think, those concerns a great deal and also with credit
counseling.
I could go down a number of other areas, as well. And I
would also just mention, not to take up all of your time, but
in chapter 11, we have substantial responsibilities with
business reorganization cases where we have enforced the law
vigorously there, too, sought independent examiners, trustees,
to oust management in cases where there is suspected wrongdoing
and we have been very aggressive in enforcing those provisions,
as well, all of which make demands on our resources.
So I would suggest that the people of the U.S. Trustee
Program deserve a pat on the back for the job that they have
done particularly in the field to make the system work. It was
a Herculean effort and we have had substantial success.
Ms. Sanchez. The time of the gentleman has expired, but I
will allow Judge Wedoff to respond. If you could do so briefly,
I would appreciate it.
Judge Wedoff. I think I can, Madam Chairwoman.
The question really has two parts. One is, are we
implementing effectively the law that is in place right now
and, secondly, is the law that is in place right now the best
we can do in bankruptcy?
I think, as a judge, my responsibility is primarily in the
first area, and I am proud of the work that the rules committee
did. With the help of the U.S. Trustee Program, I think we have
a set of rules and forms to implement that really is true to
the spirit of that legislation and what it was attempting to
do, while still having a workable formula, a workable program.
I think that bankruptcy is still a possibility for people
who genuinely need it. Whether we can have a better system,
Representative Cannon, I have to tell you, I came up, with
Judge Tom Small, with a number of suggestions that might be
able to be more effective----
I still think there are ways it could be more effective,
but, again, my role as a judge is to interpret the law and
apply it as it is written, not as I wish it were.
Mr. Cannon. May I just comment, Madam Chair, that the
ability to create rules in an iterative process is much simpler
than the ability to actually create legislation, with many
different interests.
Thank you and I yield back.
Ms. Sanchez. Thank you.
At this time, I would like to recognize the gentleman from
Georgia, Mr. Johnson, for 5 minutes.
Mr. Johnson. Thank you.
Mr. Cannon. Would the gentleman yield? Because the
gentleman is attacking the process that I was----
Mr. Johnson. I would yield.
Mr. Cannon. I thank the gentleman. There are certainly
credit card companies that have interests, but the purpose of--
this is a bipartisan bill that was an attempt to solve
problems. It was an attempt to create an environment where
people who are poor could have access to credit at the lowest
cost.
Mr. Johnson. Reclaiming my time. It was a very punitive
response to a problem that did not exist. There was no fraud.
And consumers were already being protected by existing laws in
effect at that time.
So to the extent that it was bipartisan, I have to blame
both parties----
But at any rate, I want to ask, Mr. White, according to
your testimony, approximately what percent of consumer cases
are ultimately dismissed for abuse under the new means testing
criteria? Does this mean that, well, less than 1 percent of
chapter 7 cases are dismissed for abuse, even though proponents
of these reforms claim that that percent was going to be ten
times higher?
Please explain the differences.
Mr. White. Well, I don't know that I can give you a
definitive answer at this point, but based on the data that we
do have, we have exercised restraint, as I said, with regard to
declining 30 percent of all cases that are presumed abusive
under the statutory formula, because there are special
circumstances and Congress told us we could exercise that
discretion.
Nonetheless, we are filing motions to dismiss per 1,000
cases at a higher level than pre-BAPCPA, which would seem to
suggest that the objective standard in the new statute does
allow us to identify abusive cases, while, at the same time,
giving us discretion to stand down when bringing a case to
dismiss would not be the appropriate thing to do.
Also, what is done in the statute here is that for the
first time, you have, instead of the old objective standard of
substantial abuse, you have a more objective standard. What we
cannot get measured, Mr. Johnson, is to what extent having an
objective transparent standard, everyone filing bankruptcy
should know whether they will be presumed abusive and potential
consequences of that objective finding, we don't know how many
then decide not to file bankruptcy versus selection of chapter
13 instead of 7.
So there are a whole constellation of factors that are at
play. It is interesting, too, at that the hearing 18 months ago
or so, the question was, ``What draconian results are we going
to have because of mean testing?'' Now, the question I often
receive at seminars or where I go is, ``Does it make a
difference?'' There is not enough of a change. There aren't
enough percentage of debtors being dismissed.
But it is just kind of interesting how the arguments go
full circle. So what we try to do in the program is just look
objectively at what the data suggest.
Very important to us, Congress gave us discretion. We would
respectfully suggest that we are exercising that discretion and
continue to need to exercise the oversight and make sure we are
exercising the proper discretion.
More cases are being identified under the means test than
before, but we are also standing down on one out of every three
cases.
Ms. Sanchez. The time of the gentleman has expired. And I
think there is sufficient interest that we will move to a
second round of questioning.
So I will recognize myself for 5 minutes.
I would just remind Mr. White, in the talk about statistics
and numbers in the aggregate, those are made up of individual
cases. So I would suggest that experiences that real debtors
experience in going through the process do matter, and I just
ask you to keep that in mind.
But the question that I wanted to ask was to Judge Wedoff.
My favorite professor in law school would teach us law through
cases, and at the end of each piece that we would write, he
used to ask us two questions, and I think you have identified
at least one of those questions when you were answering Mr.
Cannon's question.
He used to ask us, ``Is this a good law,'' and, I think, if
I am hearing your testimony correctly, you think this law is
good and that there could perhaps be some room for improvement
prior to the enactment of the amendment.
But the second follow-up question that he used to ask us,
which I think was the more important question oftentimes, was,
``Is this a fair law?''
So the question I want to ask you is, approximately how
many times has the United States Trustee, in the last 6 years,
brought an action in your court for sanctions against an
abusive action by a creditor or a creditor's attorney? And you
can give me ballpark figures.
Judge Wedoff. I can't remember.
Ms. Sanchez. You have no recollection, or you have no
ballpark figure whatsoever?
Judge Wedoff. But I think it is important to keep in mind
that the statute directors the U.S. Trustee Program to
investigate debtors----
Ms. Sanchez. I understand and that is part of the point
that I am trying to make here.
Judge Wedoff. I think that the----
Ms. Sanchez. I was going to say, conversely, approximately
how many times, in the same period of time, has the United
States Trustee brought an action in your court for sanctions
against a debtor or counsel for a debtor?
Judge Wedoff. Not a huge number, but there have been some.
Ms. Sanchez. Okay. And that is precisely--you have helped
me make my point. The point is if we are going to have a law,
whether it is a good law, perhaps not the best law, but a good
law, we need to implement it in a way that is fair and
evenhanded.
And I think what I am hearing in some of the experience
that Judge Cristol is talking about and some of the examples
that Mr. Uyehara gave in his testimony is that perhaps there
has been this huge focus on debtor abuse and the opposite side
of that question is not being asked, which is--or not being
addressed----
Mr. Cannon. Would the Chair yield?
Ms. Sanchez. In a moment, Mr. Cannon. I would like to
finish my thought, which is are creditors being pursued as
aggressively as debtors are.
And I would suggest that one prime example is in the
mortgage lending business and we have seen the meltdown that
has occurred with these subprime loans and debtors trying to
seek relief from having their homes foreclosed, but some of the
changes to the law don't allow families to be able to save
their homes.
And there are instances in which there was very little
information or misleading information when they entered into
these mortgages. And I am not blaming the mortgage crisis on
the bankruptcy crisis. I am simply trying to say that if
bankruptcy is, in theory, this process by which the honest
debtor who has fallen on hard times or perhaps even been taken
advantage by predatory lenders or unscrupulous creditors, are
we building--have we built, with the amendments to bankruptcy,
a system in which these honest debtors are not allowing their
debts to be discharged and they are being put through a process
that, if you will, traumatizes them again and again and perhaps
in ways that don't exactly inure to the public benefit or the
public interest or to the idea of the fundamental principal of
giving these debtors a fresh start.
That was the conclusion of my thought. I do have one more
question that I would like to ask Mr. Uyehara.
Mr. Cannon?
Mr. Cannon. Why don't you go ahead? I will just raise the
issue when I have the time.
Ms. Sanchez. I appreciate that, Mr. Cannon.
Mr. Uyehara, based on your extensive experience in dealing
with language issues in courts, how hard would it be for the
UST to provide translation services at creditor meetings?
Because that seems to be a big problem.
Mr. Uyehara. Not hard at all. I filed a complaint against
the U.S. Trustee in Philadelphia in 2003. I expected the
problem to be resolved not only in Philadelphia, but across the
country within a matter of months.
It is now 2007 and I am hoping that Director White is going
to be giving us some positive developments very soon. But the
process that is involved in providing language services to
debtors at 341 meetings is really very straightforward.
Ms. Sanchez. And do you think it is fundamentally fair that
a debtor who may not have great control of the English language
is forced to attend these meetings when they don't have an idea
of what is happening to them?
Mr. Uyehara. I think it is clearly unfair to the debtor and
also not fair to trustees who are concerned about getting
accurate answers to questions that are posed.
When you are encouraging debtors to proceed to testify
without fully understanding the questions in a way in which
they can't fully answer the questions, or to rely on
interpreters who are unprofessional and lack language skills of
their own and have to be present in the meeting or relative to,
what have you, is just a prescription for trouble.
Ms. Sanchez. Thank you. With that, my time has expired.
I will recognize Mr. Cannon for 5 minutes.
Mr. Cannon. Thank you. I just want to pursue this issue
that Mr. Johnson raised and try and get it clear.
The Bankruptcy Act is about people getting discharged from
their debts in various forms, and yet the question has come up
about how creditors are censored, and there is a way, I think,
to do that in bankruptcy, but it seems to me it is not even a
primary responsibility of the trustee, and I think that is what
Mr. Wedoff was suggesting.
Perhaps you could help me, Madam Chair, in understanding
what it is you would like the trustees to do or what the
responsibility is in the law that they haven't addressed or
what we need to do to the law to give them a context for
addressing----
Ms. Sanchez. If the gentleman would yield.
I didn't mean to suggest that I, for one, have the answer--
the topic of today's hearing, if debtors are being aggressively
pursued, it seems to me that the flipside of that also needs to
be addressed at some point, which is the abuses on the part of
the creditors.
Mr. Cannon. Reclaiming my time.
I think this is a difficult issue with a balance in there.
It is not a Democrat or Republican issue, it is not a
Conservative or a Liberal issue.
Ms. Sanchez. I would agree.
Mr. Cannon. It is an issue where you have to balance and I
think, in this regard, we have actually done a fairly good job,
and I appreciate Mr. Wedoff's response, also Mr. White's
response.
On the other hand, there are issues here that we are
dealing with, as you pointed out, in another environment,
although we can deal with it in the bankruptcy context, where
you have the subprime lending. I think it is fair to say,
scams, people who are clearly not competent to make repayments
on loans that were going to accelerate the way they have done,
and that is an important issue, but I think separate from the
purpose of what we are doing here.
And without prolonging this hearing much, let me just point
out that in a bankruptcy hearing, we have a tool that we make
available to debtors to clean up their lives and get on. That
is different from a criminal environment where a person could
go to jail if he doesn't have the right kind of interpreter.
So while I am sensitive to the need for appropriate
interpretation and, in fact, in the case of Mr. Petit-Louis,
you had a person whose primary language is Creole, who lives in
Florida, where you don't have many Creole translators, is my
guess. That is difficult and a problem, I think Mr. Uyehara has
made it clear that there is something that doesn't work very
well about that.
But the obligation that we have here as Federal legislators
I don't think is to provide interpreters, but to hope that in
the implementation of the act, reason and judgment are used so
that people--so we get the best outcome.
I don't know that we want--in fact, I would suggest that we
don't want to make it a very burdensome responsibility on the
trustees to have a requirement to interpret, when it is, in
fact, as Mr. Uyehara just pointed out, sometimes difficult, if
you have got a relative who is not adequate in language. What,
are we going to require certified interpreters?
And I think the gentlelady----
Ms. Sanchez. While it is true this is not the criminal
context in which somebody's liberty is at stake, somebody's
livelihood or all their earthly possessions or even what little
property or anything that they may possess is at stake.
And so I do think it is compelling when you have Government
action that people who are caught up in the legal system----
Mr. Cannon. Reclaiming my time.
Ms. Sanchez [continuing]. Have an understanding of what is
happening to them.
Mr. Cannon. Is the gentlelady suggesting that we should
have the requirement that the Federal Government pay for
interpreters in all cases of bankruptcy of people who don't
speak primarily English?
Ms. Sanchez. I am not suggesting that. I am suggesting that
it is a problem that Mr. Uyehara has identified and that
clearly is a problem in search of a solution. And I am not
going to be the one to suggest what the best solution is, but
it is certainly a problem that he has raised and is awaiting
some kind of response, because to date that hasn't been
addressed.
Mr. Cannon. I agree with the gentlelady of the problem. I
don't think it is one that we resolve at our level.
But I do have another question, so reclaiming my time.
I wanted to ask this the first time, and I apologize for
not getting to it. But in your opinion, the opinion of those of
you here on the panel, are the trustees being paid enough or do
we need to raise that rate?
Mr. White. Mr. Cannon, if you are referring to the private
trustees, the chapter 7 trustees, they have not received an
increase in what is called the no assets fee of $60 from those
cases in a number of years and, in principal, we concur that it
would be appropriate for them to receive an increase.
The difficulty is how do you achieve that while not
endorsing any specific proposal. But consistent with our
position in the past, in principal, we concur it would be
appropriate to raise their pay.
Mr. Cannon. Thank you. And, Madam Chair, would you indulge
the others of the panel who might have an opinion on that?
Ms. Sanchez. If they can be brief.
Judge Wedoff. I served as a panel trustee when I only got
$15. I enjoyed the work, but it was a charitable contribution.
My partners thought I would maybe give it up. I understand the
trustees are asking for $80 instead of $60, which I think is
very reasonable, but still not enough, and I would highly
endorse the increase.
Ms. Sanchez. Ms. Powers?
Ms. Powers. I would endorse it, as well.
Ms. Sanchez. Thank you.
Judge Cristol. I believe the trustees are very
substantially underpaid for the amount of work that they are
required to do under the law, but I also sympathize with the
need not to increase the filing fees for debtors.
Ms. Sanchez. Mr. Uyehara?
Mr. Uyehara. Madam Chair, unfortunately, I am afraid I am
not prepared to answer that question.
As a career legal services attorney, we could use a pay
raise, too.
Ms. Sanchez. Thank you.
Mr. Cannon. Thank you for indulging me, Madam Chair, and I
yield back.
Ms. Sanchez. At this time, I will recognize the gentleman
from Georgia, Mr. Johnson.
Mr. Johnson [continuing]. And that amount has not been
adjusted for several years, essentially.
Mr. White. That is correct.
Mr. Johnson. And then with the passage of the 2005 act, it
placed additional obligations and responsibilities upon the
trustees for the same amount of compensation. Is that correct?
Mr. White. That is correct.
Mr. Johnson. They have got to monitor the means testing,
got to do all of that additional paperwork, and got to monitor
audits, and got to approve the credit counseling agencies and
oversee all of that. So it is definitely more responsibility on
the trustees now.
Since the 2005 Act--has there been an increased number of
pro se filers or filers who are not paying the filing fee, in
other words? Has it increased or has it decreased?
Mr. White. Most of the responsibilities that you outlined
are carried out by the U.S. Trustees Program, the credit
counseling oversight and so forth, and we are Federal
employees.
Some of the verification of income that goes into the means
test, some of that is done by private trustees, but many of the
core responsibilities under statute depend on the U.S. Trustee.
Mr. Johnson. Most of it is done by those trustees that are
hired by the----
Mr. White. The private trustees do administer the cases,
but if you are talking about the change in workload, BAPCPA,
the new statute, in fact, did provide more responsibilities,
and we have worked with them very closely to----
Mr. Johnson. But they haven't received more money.
Mr. White. I absolutely agree with that point. That point
is correct. I was just trying to clarify with regard to
division of responsibility.
Mr. Johnson. Has the number of pro se debtors that pay
those fees, have those increased or decreased?
Mr. White. For the first time, Mr. Johnson, if your
question is to what we refer to as IFP debtors, for the first
time, what BAPCPA did is it allowed debtors without means to
have the filing fee waived and to pay nothing.
So we don't have comparative data, because before the
bankruptcy reform law, everyone had to pay the filing fee. The
data that I do have show that about 1.8 percent of all of the
filers get IFP status, meaning the filing fee is waived, and
there is a mechanism in the reform law so that if a debtor
seeks to have the fee waived, then they need to establish
certain facts, the inability to pay, before the bankruptcy
judge.
Mr. Johnson. Let me state this, also. In the northern
district of Georgia, in the hearing rooms where they have the
341 meetings with the creditors, posters, prominently--you will
be prosecuted, this, that and the other.
And in light of threats of possible criminal prosecution,
should the U.S. Trustee Program provide translation services at
creditors meetings to debtors who can't speak English? I know
that this has already been answered, but I want it answered
within that context.
Mr. White. We try to address that and continuing to in a
phased way.
Mr. Johnson. Yes or no? My time is running out.
Mr. White. We are addressing, and we are planning to do
more to address it, and I could go into more detail. I am not
willing to make a legal judgment with regard to the extent of
the obligation, but we have a lot of progress we have made that
I would be happy to provide to you.
Mr. Johnson. It sounds like you are saying yes----
Ms. Sanchez. I am sorry, but your time has expired.
If there is no objection, I am going to move on.
Judge Cristol. The U.S. Trustee has made major steps
forward in the area of increasing availability of translators,
interpreters, and I commend them for that and they are getting
better in that area. And of course, in the Little Louis case
and the other cases, my concern is the aggressiveness with
which they pursue these uneven confrontations. And that is
where I think they appeal to compassionate conservatives and
bring some compassion or to apply justice tempered with mercy
in the performance of their duties, because I think that they
are too much caught up in the spirit of the bankruptcy abuse,
which was the presumption before it was passed, and the
misnomer of consumer protection, they meant consumer
persecution.
Ms. Powers. My feeling is that the U.S. Trustee is
attempting to make efforts to make sure that people are
accommodated in that way.
Judge Wedoff. The system will work better. A more accurate
answer, they will be better understood, but the problem is the
one that Mr. Cannon pointed out of somebody paying for it.
I think it would be ideal if you could make translator
services available at every 341 meeting for every debtor who
requested it. I don't know if there is funding available to do
that.
I would be delighted if there were.
Mr. Uyehara. If I could just clarify, and partly in
response to Representative Cannon's comments earlier, the
situation currently is that there is existing Federal policy in
the form of Executive Order 13166, which requires Federal
agencies, including the justice department, to ensure that
people who don't speak English well are able to obtain
meaningful access to Federal Government programs.
The situation of the meeting of creditors and bankruptcy
counseling classes are clearly within the scope of the
executive order and really within the scope of guidance issued
by the justice department.
The EOUST itself, in response to a complaint filed, issued
a plan on what they were going to do to attack this problem 3
years ago, for which they had made a commitment to provide
interpreters nationally at all meetings of creditors to the
extent reasonably possible.
By this time, in other words, by last month, they should
have been reporting on their progress on rolling this out
nationally.
So it is not so much a question of whether it is upheld by
Federal statute, but it is a question that is required by
executive order and in justice department policy, as well as
policy in UST programs.
So the other problem is that in the context of bankruptcy
counseling and what Judge Cristol was referring to, people
would understand there are counseling agencies out there. We
don't have the capacity in particular languages. We are not
going to force you to go to a class that you cannot understand
and cannot participate in.
Instead, what they did is they said, ``We don't dispute
that you cannot take counseling in Creole, but you didn't do
it, the law required it and you are not permitted to come into
bankruptcy court unless you do that first.''
That attitude and that overly aggressive posture violates
their own policy. It is insulting and should be insulting not
only to the debtor bar, but to everyone that is concerned about
the fair administration of the law.
Ms. Sanchez. Thank you. The time of the gentleman has
expired.
I would like to thank the witnesses for their testimony
today. Without objection, Members will have 5 legislative days
to submit any additional written questions, which we will
forward to the witnesses, and we will ask that you complete
them as promptly as possible so that they can be made a part of
the record, as well.
Without objection, the record will remain open for 5
legislative days for the submission of any other material.
Again, I want to thank everybody for their time and their
patience.
This hearing of the Subcommittee on Commercial and
Administrative Law is adjourned.
[Whereupon, at 2:27 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Response to Questions submitted by the Honorable Linda T. Sanchez,
Chairperson, Subcommittee on Commercial and Adminsitrative Law to
Clifford J. White, III, Director, Executive Office for United States
Trustees, United States Department of Justice
EXHIBIT 1
EXHIBIT 2