special issue bankruptcy abuse prevention and · 2014-11-19 · bankruptcy system. • credit...

SPECIAL ISSUE

Bankruptcy AbusePrevention and

Consumer ProtectionAct of 2005

Issue II

Bankruptcy Law Provides New Tools to Combat Fraud and Abuse. . . . . . 1By Clifford J. White III

Criminal Bankruptcy Fraud and the Role of the United States Trustee. . . 2By Richard E. Byrne and Sandra R. Klein

Debtor Audits: Are More Criminal Referrals on the Way?.. . . . . . . . . . . . 10By Mark A. Redmiles and Kevin Epstein

Credit Counseling and Debtor Education Under the Bankruptcy AbusePrevention and Consumer Protection Act of 2005. . . . . . . . . . . . . . . . . . . . 15

By Henry G. Hobbs, Jr. and Patricia J. Stanley

Means Testing Under the New Bankruptcy Law . . . . . . . . . . . . . . . . . . . . . 19By Mark A. Redmiles and Melissa R. Perry

New Bankruptcy Law Helps Ensure Consumer Debtors Receive CompetentBankruptcy Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

By Lisa Tracy and P. Matthew Sutko

Using Information Technology and Data-Enabled Forms to Implement theBankruptcy Abuse Prevention and Consumer Protection Act of 2005. . . . 28

By Monique Klaus Bourque

August 2006

Volume 54Number 5

United StatesDepartment of JusticeExecutive Office for

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Michael A. BattleDirector

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In This Issue

AUGUST 2006 UNITED STATES ATTORNEYS ' BULLETIN 1

Bankruptcy Law Provides New Toolsto Combat Fraud and AbuseClifford J. White IIIActing DirectorExecutive Office for United States Trustees

The United States Trustee Program(USTP or Program) is very pleased tocontribute articles to this issue devoted

to the important statutory changes made by theBankruptcy Abuse Prevention and ConsumerProtection Act of 2005 (BAPCPA), Pub. L. No.109-8, 119 Stat. 23. This law provides new toolsto the United States Trustees and others to combatbankruptcy fraud and abuse. With our partners inlaw enforcement, the USTP will endeavor to moreeffectively identify and take civil action againstwrongdoing, as well as assist United StatesAttorneys in prosecuting appropriate criminalcases.

As the Justice Department component withresponsibility for oversight of the bankruptcysystem, the USTP carries out a wide array oflitigation, regulatory, and administrativeresponsibilities. Although our long-standingmission has been to promote the integrity andefficiency of the bankruptcy system, over the pastfive years our top priority has been to implementour National Civil Enforcement Initiative.Through this Initiative, we have addressed debtorimproprieties and provided greater protection tohonest debtors who were defrauded or takenadvantage of by attorneys, petition preparers,creditors, or others. From FY 2002-2005, theUSTP took about 170,000 civil enforcement andrelated actions (including investigations andactions not culminating in litigation), whichyielded $1.75 billion in quantifiable results, suchas debts not discharged, fees disgorged, fines, andother remedies.

An integral part of our campaign againstbankruptcy fraud and abuse was the establishmentof a new Criminal Enforcement Unit (CREU) in2003. The new unit is staffed largely by formerprosecutors who have trained hundreds of USTPand law enforcement staff and assisted in scoresof prosecutions nationwide since the unit wascreated. The CREU significantly strengthened theProgram's ability to detect, refer, and assist in the

prosecution of criminal violations. In addition toassisting in specific cases, CREU members areavailable to provide training to federal and locallaw enforcement personnel, and to assist indeveloping national and local bankruptcy fraudworking groups for the collaborative investigationand prosecution of criminal conduct. In theseworking groups, CREU members and otherProgram staff serve as a resource for information,education and training on the bankruptcy systemand specific law enforcement initiatives.

Under BAPCPA, there are three majorreforms for which the USTP has specialenforcement responsibility.

• Means Testing. The statute institutes newfinancial reporting requirements for consumerdebtors, and subjects the reported informationto an objective "means test" to help determinewhether a debtor is eligible for chapter 7relief. This new test will allow United StatesTrustees to more expeditiously identify andpursue those who defraud and abuse thebankruptcy system.

• Credit Counseling. Among the consumerprotection provisions is a requirement thatdebtors seek credit counseling before they filefor bankruptcy relief. This will help ensurethat debtors know their options before takingthe drastic step of filing a bankruptcy petition.Through the USTP's civil enforcement efforts,a regrettably large number of cases werediscovered in which attorneys, bankruptcypetition preparers, credit repair services, orothers took advantage of vulnerable debtorsand placed clients in bankruptcy—sometimeseven without the debtors' knowledge–despitethe availability of less drastic options. Underthe reform law, bankruptcy debtors now mustseek counseling through agencies approved bythe USTP. In the past, some credit counselingagencies have been sanctioned by federal andstate authorities for inducing their clients intodebt-management plans that enrich thecounselors without benefitting the clients.With help from the Internal Revenue Serviceand the Federal Trade Commission, theProgram has developed an application

2 UNITED STATES ATTORNEYS ' BULLETIN AUGUST 2006

procedure based on the statutory standards forpre-bankruptcy credit counselors, and isscrutinizing applicants to minimize the risk ofapproving an unscrupulous provider.

• Debtor Audits. BAPCPA mandates that theUSTP arrange for random and targeted auditsof debtors to determine the accuracy of thefinancial information provided in documentsfiled with the court. Not only will this newsystem help identify wrongdoers, who may bereferred for criminal prosecution, but it alsowill help identify "red flags" for the efficientdetection of possible fraud in other cases.

The new bankruptcy law includes many otherprovisions of vital importance to the USTP andlaw enforcement. Section 158 of title 18 calls forthe designation of bankruptcy fraud coordinatorsin United States Attorneys' and FBI field officesin every district. There are new attorneydisciplinary procedures to help clamp down onlawyers who fail to carry out their obligations totheir clients. There are important new chapter 11provisions to expedite a small business' passagethrough bankruptcy. For example, 11 U.S.C.§ 1104(e) puts new obligations on the USTP tooust management in public companies and othercases in which there is accounting or other fraud.

I hope that federal prosecutors and otherreaders will find the articles contributed by USTPofficials in this U.S. Attorneys' Bulletin to be ofassistance in the prosecution of bankruptcycrimes. Everyone in the USTP, from the Directorin the Executive Office to the staff attorneys in thefield, stands ready to assist federal lawenforcement in prosecuting wrongdoers whocompromise the integrity of the bankruptcysystem. Debtors and creditors alike rely upon thebankruptcy system to provide fair, efficient, andeffective relief that is free from fraud or abuse.We look forward to continuing to work inpartnership with the United States Attorneys'offices to identify and prosecute bankruptcyfraud.�

ABOUT THE AUTHOR

�Clifford J. White III is the Deputy Director ofthe Executive Office for United States Trustees,and is currently serving as its Acting Director. Hehas served in the federal government for twenty-six years, including previously as AssistantUnited States Trustee and Deputy AssistantAttorney General within the Department ofJustice, and as Assistant General Counsel at theU.S. Office of Personnel Management. In July2003, Mr. White was recognized with theAttorney General's Award for DistinguishedService.a

Criminal Bankruptcy Fraud and theRole of the United States TrusteeRichard E. ByrneChief, Criminal EnforcementUnited States Trustee Program

Sandra R. KleinBankruptcy Fraud Criminal CoordinatorUnited States Trustee Program

I. Introduction

It has been said that "[b]ehind every greatfortune there is a crime." Ironically, sometimes acrime lies behind apparent debt or misfortune aswell. Purportedly impoverished debtors maycommit fraud by lying on their bankruptcydocuments and concealing assets to avoidrepaying their debts. Criminals may also attemptto forestall the collapse of their illegal schemes byfraudulently filing for bankruptcy to stop


collection efforts and delay the ultimate discoveryand detection of their fraud. The United StatesTrustee Program (USTP or Program) is committedto working with its colleagues in the United StatesAttorneys' and law enforcement communities todetect, investigate, and prosecute these, as well asall other fraudulent abuses of the bankruptcysystem.

II. United States Trustee Program

The Program, a component of the Departmentof Justice (Department), serves as a "watchdog"over the bankruptcy process. H.R. Rep. No. 95-595, at 4 (1977), as reprinted in 1978U.S.C.C.A.N. 5963, 5966. The USTP's mission isto promote the integrity of the bankruptcy system.Dep't. of Justice, United States Trustee ProgramStrategic Plan FY 2005-2010, at 2 (2005),available athttp://www.usdoj.gov/ust/eo/ust_org/StrategicPlanFY2005-2010.pdf. A fundamental means ofachieving that goal is to uncover and detectbankruptcy fraud and abuse, and to refer possiblecriminal conduct to law enforcement and theUnited States Attorneys' offices (USAOs). Byactively identifying and referring fraud and abuse,the Program contributes to the Department'scriminal enforcement efforts and helps to deterindividuals seeking to use the bankruptcy systemto further their criminal endeavors.

A. Department of Justice Strategic Plan

The Department's FY 2003-2008 StrategicPlan recognizes the importance of maintaining theintegrity of the bankruptcy system. One of theDepartment's objectives is to "[p]rotect theintegrity and ensure the effective operation of theNation's bankruptcy system." Dep't. of Justice,Strategic Plan for FY 2003-2008, at 2.71 (2003)(discussing Objective 2.6), available athttp://www.usdoj.gov/jmd/mps/strategic2003-2008/pdf.html. To achieve this goal, the Departmenthas announced it will "[p]ursue violations offederal criminal laws pertaining to bankruptcy byidentifying, evaluating, referring, and providinginvestigative and prosecutorial support of cases."Id. at 2.72. As the Department's Strategic Planstated:

The integrity of the bankruptcy systemdepends upon debtors to report honestly andaccurately all their assets and liabilities whenthey file for bankruptcy protection. Such

disclosure is necessary to resolve disputes andto distribute money and property. The U.S.Trustees have an affirmative duty to referinstances of possible criminal conduct bydebtors and third parties to the U.S. Attorneyand to assist in prosecutions. The bankruptcysystem needs a strong impetus to encouragehonest, lawful behavior. Moreover, criminalreferrals from the Program show thatbankruptcy crimes are often linked to otherwhite collar crimes, such as fraud in obtainingfederally guaranteed mortgage loans, moneylaundering, identity theft, mail fraud, and wirefraud.

Id.

B. United States Trustee Manual

The United States Trustee Manual makesclear that maintaining the integrity of thebankruptcy system through aggressive prosecutionof bankruptcy fraud is "a high priority of theDepartment of Justice." United States TrusteeManual, Section 5-1.1 (quoting an October 10,1995, Memorandum from former AttorneyGeneral Janet Reno). According to the Manual,this can be achieved through a team approach,with a focus on the merits of each case rather than"a blanket declination policy based solely ondollar amounts." Id.

C. Statutory duties to refer cases to USAOs

Congress has recognized the importance ofreferring, investigating, and prosecutingbankruptcy-related crimes by enacting 28 U.S.C.§ 586 (2005) and 18 U.S.C. § 3057 (2005). Thesestatutes require the USTP, as well as judges andtrustees, to refer possible crimes to the USAOs.

Title 28, United States Code, Section586(a)(3)(F) requires each United States Trusteeto notify the United States Attorney of "matterswhich relate to the occurrence of any action whichmay constitute a crime" and, if requested, to assistthe United States Attorney in "carrying outprosecutions based on such action." Pursuant to§ 586, the USTP's duty to refer cases to theUSAOs is not limited to bankruptcy crimes.Further, as the language of the statute makes clear,Congress did not intend the USTP to refer onlycases that it believes will be prosecuted, that meeta certain dollar threshold, or for which there isevidence demonstrating guilt beyond a reasonable


doubt. Instead, Congress has mandated that theProgram refer matters to the USAOs wheneverthere is evidence of any action that may constitutea crime.

In addition to the USTP's duty to referpossible criminal conduct for prosecution,bankruptcy judges and trustees have statutoryduties to refer cases to the USAOs. Pursuant to 18U.S.C. § 3057, bankruptcy judges and trusteeswho have reasonable grounds to believe that acrime has been committed or that an investigation"should be had," must report the facts and thenames of all potential witnesses to the USAO. 18U.S.C. § 3057(a). Section 3057 requires theUSAO, after receiving such a report, to "inquire"into the facts and report to the bankruptcy judge.18 U.S.C. § 3057(b). Further, according to§ 3057, if it appears "probable" that an offense hasbeen committed, the United States Attorney must,"without delay, present the matter to the grandjury." Id. If, however, the United States Attorneydetermines that "the ends of public justice do notrequire investigation or prosecution," theUnited States Attorney "shall report the facts tothe Attorney General for his direction." Id.

According to the United States Attorneys'Manual (USAM), the USAO's duty to reportdeclinations of bankruptcy fraud referrals,pursuant to § 3057, is satisfied by "providing theFraud Section, Criminal Division, with a concisesummary of the facts of the case and the reasonsfor declining it. Concurrence with the decision todecline may be presumed if no disagreement isexpressed by the Fraud Section." USAM § 9-41.010.

D. United States Trustee Program'sCriminal Enforcement Unit

To assist with the USTP's mission and theDepartment's Strategic Plan, in 2003 theExecutive Office for United States Trustees(EOUST) established a Criminal EnforcementUnit (CREU), which consists of experiencedformer federal prosecutors. CREU's missionincludes working with Program staff to identifyand refer possible criminal conduct and to assistfederal law enforcement agencies and USAOswith bankruptcy-related investigations andprosecutions. A list of CREU's members and theircontact information is available at http://ustnet/bankruptcy/criminal_enforcement/index.htm.

E. Violence Against Women Department ofJustice Reauthorization Act of 2005

In January 2006, the President signed into lawthe Violence Against Women and Department ofJustice Reauthorization Act of 2005 (the Act),Pub. L. No. 109-162, 119 Stat. 2960 (2006).Section 1175 of the Act, entitled "BankruptcyCrimes," requires the EOUST Director to preparean annual report for Congress detailing: "(1) thenumber and types of criminal referrals made bythe United States Trustee Program; [and] (2) theoutcomes of each criminal referral." Pub. L. No.109-162, § 1175. Through this mandate, Congresshas indicated the importance of the Program'sreferral of possible bankruptcy-related crimes andthe USAOs' prosecution of such offenses.

The Program recognized the importance oftracking its criminal referrals even before theenactment of § 1175. In Fiscal Year 2004, theUSTP created and implemented the CriminalEnforcement Tracking System (CETS), a databasedesigned specifically to track the Program'scriminal referrals, as well as the status of thosereferrals. Information from the CETS database isused to identify bankruptcy-fraud related trendsand to provide comprehensive information to theProgram regarding its criminal referrals. With theenactment of § 1175, the CETS database will playan even more important role in the referral processby facilitating the collection of informationnecessary to fulfill the new reporting mandate.

III. 18 U.S.C. § 158

Congress stated that the purpose of theBankruptcy Abuse Prevention and ConsumerProtection Act of 2005 (BAPCPA), Pub. L. No.109-8, 119 Stat. 23, which was signed into law onApril 20, 2005, was to restore "personalresponsibility and integrity in the bankruptcysystem." H.R. Rep. No. 109-31(I), at 2 (2005), asreprinted in 2005 U.S.C.C.A.N. 88, 89. As part ofBAPCPA, Congress emphasized the vital role thatthe Federal Bureau of Investigation (FBI) and theUSAOs will play in achieving that goal. BAPCPAadded § 158 to the criminal statutes contained intitle 18. BAPCA § 203(b)(1). Title 18 U.S.C.§ 158 requires the Attorney General to designate apoint of contact within each USAO and FBI fieldoffice to address "violations of section 152 or 157relating to materially fraudulent statements inbankruptcy schedules that are intentionally falseor intentionally misleading" or that are "related to


abusive reaffirmations of debt." 18 U.S.C.§ 158(a)-(b). Section 158 also reiterated that theUSAOs "have primary responsibility for carryingout the duties of a United States Attorney undersection 3057." 18 U.S.C. § 158(c).

A. Points of contact

The USTP has compiled a list of thedesignated points of contact for each USTP,USAO, and FBI office nationwide. The list,entitled "Bankruptcy Fraud Points of Contact," isavailable from the Executive Office for U.S.Attorneys or from the CREU.

B. Working groups

To assist with bankruptcy-relatedinvestigations and prosecutions in each district,the Program recommends implementing andutilizing local bankruptcy fraud working groups.There are currently about fifty such groupsnationwide. These groups meet periodically todiscuss ongoing bankruptcy fraud investigationsand pending criminal referrals. They also provideassistance as requested by agents andinvestigators. A representative of the USTP,USAO, and several federal law enforcementagencies, typically make up a working group. Forfurther information regarding starting or re-invigorating a local bankruptcy fraud workinggroup, please contact any member of theProgram's CREU or your local USTP point ofcontact.

Additionally, there is a National BankruptcyFraud Working Group (NBFWG), which consistsof a representative from the USTP, USAOs, theDepartment's Criminal Division, FBI, InternalRevenue Service-Criminal Investigation, PostalInspection Service, United States Secret Service,Housing and Urban Development Office ofInspector General, Social Security AdministrationOffice of Inspector General, Federal TradeCommission, and Executive Office for U.S.Attorneys, as well as other agencies. TheNBFWG, which meets approximately once a year,helps coordinate a national response to bankruptcyfraud issues.

IV. Common bankruptcy-fraud relatedschemes

There are many different bankruptcy-relatedschemes in which perpetrators fraudulentlyexploit the bankruptcy system to further theircriminal endeavors. Some examples include realestate fraud, identity theft, and bust-outs.

A. Real estate fraud schemes

• Financial counseling fraud. Homeownerswhose properties are in foreclosure arecontacted, usually through the mail, by a"financial consultant." The consultantfraudulently tells the homeowners that he/shewill locate a lender to refinance thehomeowner's delinquent mortgage.Homeowners are instructed to make theirmortgage payments to the consultant. Theperpetrator does not, and never intends to,locate a new lender. Instead, the perpetratorfiles bankruptcy cases in the names of thehomeowners, frequently without thehomeowners' knowledge or consent. Thisallows the perpetrator to forestall foreclosureand to continue receiving mortgage paymentsfrom the victims.

• Property title fraud. This fraud is similar tothe financial counseling fraud describedsupra. The major difference is that theperpetrator convinces the victims to deed theirproperties to him or her for little or noconsideration. After acquiring the title, thevictims are fraudulently told that they will beassisted by negotiating reduced payments orshort sales with the lenders or by locatingother lenders to refinance the loans. Thehomeowners are required to pay rent to thescam artist, who does not pay the existingmortgage or seek new financing. Fractionalinterests of the properties are often deeded toshell companies controlled by the criminal,after he or she acquires the title to theproperties. The perpetrator will then file serialbankruptcy cases in the names of the victimhomeowners and/or in the names of the shellcompanies. This tactic complicates and delaysforeclosure—sometimes for months or evenyears—because the lender must seek relieffrom the automatic stay in each bankruptcycase. The automatic stay requires all creditors,lenders, and lien holders immediately to cease


all foreclosures and collection efforts againstthe person or entity who has filed forbankruptcy.

• Flipping. Perpetrators purchase real estate ator below fair market value and fraudulentlyobtain financing to "sell" the properties tostraw buyers at significantly inflated prices.Virtually all of the information provided onthe mortgage applications, as well as thesupporting documentation, is false. Further,mortgage brokers, lenders, and appraisers maybe part of the scheme. To obtain the benefit ofthe automatic stay and to keep the schemegoing a little longer, the perpetrators or strawbuyers file fraudulent bankruptcy petitions.

B. Identity theft schemes

• Falsely obtaining credit or services. In someidentity theft schemes, defendantsfraudulently use a false name and identifyinginformation or the name and identifyinginformation of someone they know–typically,an ex-spouse, ex-partner, or minor child–toobtain credit or services. When creditorspursue the defendants for failing to pay whatthey owe, the defendants file fraudulentbankruptcy cases in the false names or in thenames of the victims, without the victims'knowledge or consent.

• Serial filings. A debtor who has beenpreviously barred from refiling a bankruptcycase may file a subsequent bankruptcy caseusing a variation of his name and/or SocialSecurity number or the name of anotherperson, to obtain the benefit of the automaticstay.

To reduce identity theft and serial filingschemes, Congress included provisions inBAPCPA that limit the circumstances underwhich persons who file bankruptcy will receivethe benefit of the automatic stay. For example, theautomatic stay will only be in effect for thirtydays if a debtor had a previous bankruptcy casedismissed within one year. 11 U.S.C.§ 362(c)(3)(A) (2005). Additionally, theautomatic stay will not go into effect at all if adebtor had two or more bankruptcy casesdismissed within a year. 11 U.S.C.§ 362(c)(4)(A)(i). Finally, if a bankruptcy filing ispart of a scheme to "delay, hinder, and defraud"creditors, involving "transfer of all or partownership of, or other interest in" real property or

"multiple filings affecting such real property," thebankruptcy courts are authorized, after notice anda hearing, to grant relief from the automatic stay.11 U.S.C. §§ 362(d)(4)(A), (B). C. Bust-out schemes

Bust-outs are financial crimes that exploitcredit lines and credit cards. Often, the final act ina bust-out is the filing of a fraudulent bankruptcycase to delay creditors' collection efforts and todischarge the debts incurred.

• Credit card bust-outs. Individuals incursubstantial consumer credit card debt within arelatively short period of time and then file forbankruptcy protection. Purchases, cashadvances, and transfers from one credit cardto another typically occur within six monthsbefore the bankruptcy filing. Goods purchasedare fungible and easily saleable, such aselectronics, jewelry, motor oil, and babyformula. Frequently, the same individuals filebankruptcy several times using false names,aliases, or false Social Security numbers. Thecredit card applications typically include falseinformation regarding the individuals' incomeand employment. Although the perpetratorslist the credit card debt on their bankruptcydocuments, they do not list the assetspurchased with the fraudulently obtainedcredit.

• Business bust-outs. Bust-out companiesestablish good credit and then order hundredsof thousands of dollars of fungible goods overa short period of time, with no intent to pay.They sell the goods for cash at a significantdiscount and file for bankruptcy protection.Typically, bust-out companies are in businessfor six months or less. Initially, they oftenestablish good credit ratings with largeconsumer goods manufacturers by makingpayments early or on time. After establishinggood credit, the bust-out companies requestsignificant increases in credit, their ordersincrease substantially, and they fail to paybills as they become due. Lulling techniquesare used to stall creditors. Goods are sold forcash at significantly below cost. Theperpetrators typically file bankruptcy to stopcollection proceedings and keep the schemesgoing a little longer.


V. 18 U.S.C. § 1519

In 2002, Congress reiterated the importance ofprotecting the integrity of the bankruptcy systemwhen it enacted 18 U.S.C. § 1519 as part of theSarbanes-Oxley Act of 2002, Pub. L. No. 107,§ 820(a), 166 Stat. 745 (2002), also known as thePublic Company Accounting Reform and InvestorProtection Act. Title 18 U.S.C. § 1519 provides:

Whoever knowingly alters, destroys,mutilates, conceals, covers up, falsifies, ormakes a false entry in any record, document,or tangible object with the intent to impede,obstruct, or influence the investigation orproper administration of any matter within thejurisdiction of any department or agency ofthe United States or any case filed under title11, or in relation to or contemplation of anysuch matter or case, shall be fined under thistitle, imprisoned not more than 20 years, orboth.

Although the legislative history of § 1519 issparse, Congress stated explicitly that the statutewas enacted to target "individuals who destroyevidence with the specific intent to impede orobstruct a pending or future criminalinvestigation, a formal administrative proceeding,or a bankruptcy case." S. Rep. No. 107-146, at 27(2002), available at 2002 WL 863249 (emphasisadded).

VI. Bankruptcy: the last act in a seriesof criminal schemes

Bankruptcy fraud may be the last act in aseries of criminal schemes. Bankruptcy crimeshave been committed at the end of numeroustypes of frauds, including health care,government, and tax fraud, Ponzi schemes, andmoney laundering. Because bankruptcydocuments are signed under penalty of perjuryand because debtors are required to testify underoath, relative to their financial affairs, bankruptcyfilings can provide a wealth of information forother criminal investigations. If a subject or targetof an investigation has filed a bankruptcy case, theUSTP can provide a copy of the relevantbankruptcy documents, as well as the tape of thefirst meeting of creditors during which the debtortestified under oath. The documents and testimonymay be useful in plea negotiations, cross-examination of witnesses, and in providingadditional charging options. For assistance in

obtaining any bankruptcy-related document or thetape of the first meeting of creditors, pleasecontact the USTP office in your area. A list of thelocal USTP offices is available at http://www.usdoj.gov/ust/eo/ust_org/office_locator.htm.

VII. Recent bankruptcy fraudprosecutions

A. Operation SILVER SCREEN

In October 2004, the USTP, in conjunctionwith USAOs and federal law enforcementagencies, announced "Operation SILVERSCREEN," which highlighted the indictment oftwenty-one individuals in seventeen separateprosecutions. Operation SILVER SCREENdemonstrated the breadth of enforcement actionstaken by the Department in combating bankruptcyfraud and protecting the integrity of thebankruptcy system. The cases collectivelyinvolved the concealment of more than $7 millionin assets, illegal conduct by an attorney and acertified public accountant, use of false SocialSecurity numbers and false identities, submissionof forged documents, false statements, and variousfraudulent acts. As of this writing, the coordinatedeffort, dubbed "Operation SILVER SCREEN" inrecognition of the USTP's enhanced screening ofbankruptcy cases to identify fraud and abuse, hasresulted in twelve defendants being convicted of,or pleading guilty to, bankruptcy-related crimes.

The lead case in Operation SILVER SCREENwas the conviction of Marc Edward Thompson fora wire fraud and bankruptcy fraud scheme.Thompson, who was prosecuted by a member ofthe Program's Criminal Enforcement Unit and anAUSA from the Northern District of Illinois, setfire to his residence, killing his ninety-year-oldmother in the basement of the house. Thompsonobtained insurance proceeds as a result of the fire,and then concealed these proceeds in an off-shoreaccount in the name of a shell corporation. Hefiled bankruptcy and concealed the proceeds, aswell as other items that were not lost in the fire.Thompson was convicted of numerous crimes,including making false statements in bankruptcy,in violation of 18 U.S.C. § 152(3), and bankruptcyfraud, in violation of 18 U.S.C. § 157. Thompsonwas sentenced to 190 years in prison and orderedto pay $1.4 million dollars in restitution.United States v. Thompson, 04 CR 944 (N.D. Ill.2004).


B. Additional recent bankruptcy fraudprosecutions

In addition to the cases charged as part ofOperation SILVER SCREEN, there have been anumber of recent bankruptcy fraud prosecutionsacross the country. These cases highlight thediverse types of crimes committed through, or inrelation to, a bankruptcy proceeding. For example,an AUSA in San Diego recently prosecuted a realestate equity skimming case against AntonioSimon, a bankruptcy petition preparer whofraudulently represented to homeowners that hecould save their properties from foreclosure.Simon made numerous false representations andpromises to the victims to induce them to pay a"start-up" fee and a monthly fee for his purportedservices. Simon falsely claimed that he wouldsave the homeowners' properties from foreclosure,contact the lenders to renegotiate the homeowners'mortgages, assist in arranging refinancing of theirhomes, and use a portion of the homeowners'monthly fee to pay their lenders. Instead, Simonkept the homeowners' money and filed fraudulentbankruptcy cases in the names of the victimhomeowners, as well as in the names of personsunknown to the homeowners to whom Simon hadfraudulently transferred a fractional interest in thehomeowners' properties. Simon was convicted ofthe knowing disregard of bankruptcy laws, inviolation of 18 U.S.C. § 156, and bankruptcyfraud, in violation of 18 U.S.C. § 157. He wassentenced to twenty-four months in prison andordered to pay more than $23,000 in restitution. AUSTP attorney testified as a witness in the case.United States v. Simon, 02 CR 2245 (S.D. Cal.2002).

The USAO in the Northern District of Ohioprosecuted a similar foreclosure fraud schemeperpetrated by Albert Thrower. Through hiscompany, American Services, Thrower targetedhomeowners facing foreclosure and promised thathe could save the victims' homes by assistingthem with bankruptcy filings. The bankruptcyfilings failed to disclose that the documents hadbeen prepared for a fee by Thrower and/or thecompany. As part of the scheme, Throwerfraudulently represented to the victims that thebankruptcy clerks would not accept the cases forfiling if the homeowners disclosed his orAmerican Services' involvement in preparing thebankruptcy documents. Among other crimes,Thrower was convicted of violating 18 U.S.C.§ 1519 by falsifying records in bankruptcy cases.

Thrower was sentenced to ninety months in prisonand fined $188,328. A Program attorneydesignated as a Special Assistant United StatesAttorney assisted with the prosecution in this case.United States v. Thrower, 03 CR 341 (N.D. Ohio2003).

The USAO in the Southern District of NewYork obtained convictions against Paul Boghosianand William H. Spencer for their roles in thechapter 11 reorganization case of HawaiianAirlines, Inc. Boghosian and Spencer wereconvicted of conspiracy to commit bankruptcyfraud in violation of 18 U.S.C. § 371, andBoghosian was convicted of two counts ofcommercial bribery in violation of 18 U.S.C.§ 1952(a)(3). Boghosian fraudulently claimed tobe a manager, and Spencer fraudulently claimedto be a trustee of an entity that purportedly wouldprovide approximately $300 million in newcapital to fund the Hawaiian Airlinesreorganization. During the conspiracy, Boghosianbribed an FBI undercover agent, who was posingas a hedge fund manager, by offering a kickbackto the agent in exchange for the hedge fund's loanof approximately $2.5 million to pay expensespurportedly related to obtaining bankruptcy courtapproval for the Hawaiian Airlines reorganization.Boghosian and Spencer also filed falsedeclarations and submitted altered documents tothe bankruptcy court in support of their claims.Boghosian and Spencer were sentenced in May2006. Boghosian was sentenced to twenty-fourmonths in prison and Spencer was sentenced tofifty-one months in prison and a $12,500 fine. AUSTP attorney testified as a witness in this case.United States v. Boghosian, 05 CR 351 (S.D.N.Y.2005).

The USAO in the District of Kansas recentlyprosecuted a number of identity theft/bankruptcyfraud cases involving defendants who, amongother things, used false Social Security numberson their bankruptcy filings. In one case, DerrickRobinson filed a bankruptcy petition in which heused a false Social Security number and failed todisclose two prior bankruptcy cases he filed inanother district using his true Social Securitynumber. Robinson used the same false SocialSecurity number to obtain a car loan from afinancial institution insured by the FederalDeposit Insurance Corporation, and he used adifferent false Social Security number to obtainanother vehicle from a local dealership. Robinsonpleaded guilty to one count of aggravated identity


theft under 18 U.S.C. § 1028A, and was sentencedin January 2006 to the mandatory two-year termof imprisonment. United States v. Robinson, 05CR 10054 (D. Kan. 2005).

In a second case, Vickie and Galen Beachfiled a bankruptcy case pro se in which theyinverted every digit in their Social Securitynumbers. In addition to being charged with use offalse Social Security numbers, the debtors werecharged with submitting a false UCC-1 FinancingStatement to the Kansas Secretary of State's officefraudulently claiming they had a $500,000"summary judgment" against the chapter 7 trustee,and submitting false and fraudulently generated"arbitration awards" of $1,500,535 and $500,720to collect against the trustee's bond. Galen Beach,who was convicted of mail fraud and making falsestatements in bankruptcy in violation of 18 U.S.C.§ 152(3), was sentenced in January 2006 toeighteen months imprisonment. Vickie Beachpleaded guilty to one count of making falsestatements in bankruptcy, in violation of 18U.S.C. § 152(3), and was sentenced in July 2005to three months in prison. United States v. Beach,05 CR 10056 (D. Kan. 2005).

VIII. Conclusion

As is evident from the above examples, theDepartment's efforts to combat bankruptcy fraudremain comprehensive and vibrant. The recentbankruptcy reform legislation has reaffirmed theimportance of detecting and prosecutingbankruptcy fraud. Through cooperative efforts andpartnerships with the USTP, prosecutors and lawenforcement agents can successfully execute theirresponsibilities in fighting bankruptcy fraud andabuse, and deter those inclined to use thebankruptcy process to conceal their fortunes,however great or small.�

ABOUT THE AUTHORS

�Richard E. Byrne is the Chief of CriminalEnforcement, United States Trustee Program. Mr.Byrne, an eighteen-year Department prosecutor,has served previously as the interim United StatesAttorney for the Southern District of Illinois, theChief of Staff at the Executive Office forUnited States Attorneys, an AssistantUnited States Attorney in the Southern District ofFlorida, and a Trial Attorney in the AntitrustDivision.

�Sandra R. Klein is a Bankruptcy FraudCriminal Coordinator, United States TrusteeProgram. For more than six years, she was aSpecial Assistant United States Attorney in LosAngeles, where she focused on prosecutingcomplex bankruptcy fraud and other white collarcrime cases. Before joining the Departmentapproximately eight years ago, she was a litigationassociate at O'Melveny & Myers in Los Angeles.a


Debtor Audits: Are More CriminalReferrals on the Way?Mark A. RedmilesChief of Civil EnforcementExecutive Office for United States Trustees

Kevin EpsteinTrial AttorneyUnited States Trustee ProgramSan Antonio, Texas

I. Introduction

One of the lesser known sections of theBankruptcy Abuse Prevention and ConsumerProtection Act of 2005, Pub. L. No. 109-8, 119Stat 23 (2005) (BAPCPA), may have the greatesteffect on the prosecution of bankruptcy crimes.For the first time, Congress has mandated asystem to audit the information that individualdebtors file in their bankruptcy cases. A debtorwho is chosen for audit will be required to providespecified categories of documents to auditorsunder contract with the United States TrusteeProgram (USTP or Program) to support his or herentries on the petition, schedules, and otherstatements filed in the bankruptcy case. Theauditors will also be able to check onlinedatabases to search for undisclosed assets. Theywill be required to file a report with thebankruptcy court and clearly and conspicuouslyspecify in the report any material misstatement ofincome, expenditures, or assets.

If a material misstatement is discovered, theU.S. Trustee is obligated to report it, ifappropriate, to the United States Attorney. 28U.S.C. § 586(f)(2)(B)(I). The informationprovided to, or uncovered by, the auditor mayprovide a solid foundation for prosecutingbankruptcy crimes, whether it be for concealment,false oath/declaration, or on other grounds. Unlikemost BAPCPA provisions, which went into effecton October 17, 2005, the debtor audit provisionsdo not become effective until October 20, 2006.Thus, while these new provisions have providedno referrals yet, United States Attorneys shouldexpect to see criminal referrals from the U.S.

Trustees based on evidence uncovered by debtoraudits in the near future.

II. The who, what, and how of debtoraudits

A. Who gets audited

Section 603(a)(1) of BAPCPA provides thatthe Attorney General (in judicial districts servedby the United States Trustee) and the JudicialConference of the United States (in Alabama andNorth Carolina) are required to "establishprocedures to determine the accuracy, veracity,and completeness of petitions, schedules, andother information that the debtor is required toprovide under sections 521 and 1322 of title 11,United States Code, and if applicable, section 111of such title, in cases filed under Chapter 7 or 13of such title in which the debtor is an individual."(emphasis added). Thus, only individuals aresubject to audit. The debtor audit requirements arealso limited to chapter 7 and chapter 13 debtors.Individual debtors who file under chapter 11 andchapter 12 are excluded.

In chapter 7, trustees liquidate the debtors'non-exempt assets to pay creditors. Most chapter7 cases are filed by debtors whose assets are eitherexempt under federal or state law or subject tovalid liens. In these "no asset" cases, the trusteehas nothing to liquidate and there is nodistribution to unsecured creditors. Under chapter13, debtors repay some or all of their debts,typically over a three-to-five-year period. Chapter11 is the reorganization chapter that, whiletypically used by businesses, is occasionally usedby individuals. Chapter 12 is available for familyfarmers and family fishermen. More than 99percent of individual cases are filed under chapter7 or chapter 13. See Press Release, AdministrativeOffice of U.S. Courts, Bankruptcy Filings HitNew Records in Run Up to New Bankruptcy LawImplementation (Dec. 1, 2005), available at http://www.uscourts.gov/Press_Releases/bankruptcyfilings120105.html (providing statistics reflectingthat, of the 1,782,520 bankruptcy cases filedbetween September 30, 2004, and September 30,


2005, 1,775,517, or approximately 99.6%, werefiled under chapter 7 or chapter 13).

Although most individuals who seekbankruptcy protection will be subject to audit,only a small percentage of those debtors will beaudited. Section 603(a)(2) of BAPCPA requiresthe Attorney General to:

(B) establish a method of randomlyselecting cases to be audited, except thatnot less than 1 out of every 250 cases ineach Federal judicial district shall beselected for audit;

(C) require audits of schedules of incomeand expenses that reflect greater thanaverage variances from the statisticalnorm of the district in which theschedules were filed if those variancesoccur by reason of higher income orhigher expenses than the statistical normof the district in which the schedules werefiled.

Audits under § 603(a)(2)(B) are referred to bythe USTP as random audits; those under§ 603(a)(2)(C) are referred to by the USTP astargeted audits. Cases will be selected for randomaudit from a pool of all individual chapter 7 andchapter 13 cases, but may represent as little as0.04 percent (1 out of 250) of those cases. Caseswill be selected for targeted audit from those filedby debtors whose income or expenses deviatesignificantly from the statistical norm of thedistrict in which the schedules were filed. Thus,all individual chapter 7 and chapter 13 cases aresubject to random audit, and cases filed by debtorswith high income or expenses are also subject totargeted audit.

B. What documents are audited

The documents audited include the petition,the schedules, and other documents filed by thedebtor in the bankruptcy case. See Pub. L. No.109-8 § 603(a)(1), 19 Stat. 23 (2005).Importantly, before filing any of these documents,debtors sign under penalty of perjury that theinformation contained in the documents is trueand correct.

The petition is the document that commencesthe bankruptcy case. It contains the debtor's nameand address and whether the debtor has filed anycases within the previous eight years. The debtoralso states on the petition whether the case is a

business or consumer case and whether the debtorestimates that any assets will be available forunsecured creditors.

The schedules include lists of the debtor's realand personal property, a list of all debts, and aschedule of income and expenses. See SchedulesA (real property), B (personal property), D(secured debts), E (unsecured priority debts), F(unsecured nonpriority debts), I (current income),and J (current expenditures). These schedules willlikely be the source of most of the materialmisstatements identified by the auditors.

The other documents filed by the debtorinclude the Statement of Financial Affairs. In thestatement, the debtor provides variousinformation, such as how much income he or shehas earned during the current year and in theprevious two years. See Statement of FinancialAffairs Questions No. 1 and 2. The debtor alsoexplains various transfers including gifts, losses(including gambling losses), and other transfersoutside the ordinary course of the debtor'sfinancial affairs. See, e.g., Statement of FinancialAffairs Questions No. 3, 7, 8, and 10.

In chapter 7 cases, debtors with primarilyconsumer debts are also required to file theStatement of Current Monthly Income and MeansTest Calculation (Official Form B22A). On thisdocument, the debtor provides information aboutcurrent monthly income, which is defined as allincome received during the six calendar monthsprior to the filing of the bankruptcy case, exceptSocial Security income and certain other income.11 U.S.C. § 101(10A). In addition, if the debtorhas a non-filing spouse, that individual's income isincluded on the form unless the debtor declaresthat he or she is legally separated or living apartother than for purposes of evading the means test.Debtors (or a debtor and a non-filing spouse, ifapplicable) whose Current Monthly Income(CMI) is greater than the applicable state medianincome must also complete the expense portion ofthe form. Some expense amounts are set by IRSStandards while others represent actual expensesin specified categories. 11 U.S.C.§ 707(b)(2)(A)(ii).

In chapter 13 cases, all debtors must completethe Statement of Current Monthly Income andCalculation of Commitment Period andDisposable Income form (Official Form B22C).Unlike chapter 7, even debtors with primarilybusiness debts must complete the form. In

https://web2.westlaw.com/find/default.wl?DB=1077005&DocName=UU%28I227908A0B2%2D9C11D99EA0B%2DAE35EA7F982%29&FindType=l&AP=&mt=Westlaw&fn=_top&sv=Split&vr=2.0&rs=WLW6.03


addition, all debtors must include their spouse'sincome, even if the they live apart. Like chapter 7debtors, chapter 13 debtors (or a debtor and a non-filing spouse, if applicable) whose CMI is greaterthan the applicable state median income must alsocomplete the expense portion of the forms.

C. How the audit is conducted

Section 603(a)(1) of BAPCPA provides thatthe audits shall be performed by independentcertified public accountants or independentlicensed public accountants. The U.S. Trustee foreach district is authorized to contract withqualified persons to perform the audits. 28 U.S.C.§ 586(f)(1). BAPCPA § 603(a)(1) also providesthat the audits must be conducted in accordancewith "generally accepted auditing standards"unless the Attorney General develops alternativeauditing standards not later than two years afterthe date of enactment of the Act. Becausebankruptcy documents are not prepared usingGenerally Accepted Accounting Principles,alternative auditing standards have beendeveloped and will be issued before the auditscommence.

A debtor must cooperate with the auditor, asnecessary, to enable the auditor to perform hisduties. 11 U.S.C. § 521(a)(3). This includesproviding property of the estate and recordedinformation relating to property of the estate.Further, the debtor has the duty to "surrender tothe trustee all property of the estate and anyrecorded information, including books,documents, records, and papers, relating toproperty of the estate whether or not immunity isgranted under section 344 of this title." Id.521(a)(4). Those documents may include, amongothers, tax returns, bank statements, credit cardstatements, and pay stubs. In addition, the auditorsmay review online databases to determine whetherthe debtor owns or has owned assets not listed onthe schedules or statements filed in the case.

D. The audit report and its impact

The audit report shall "clearly andconspicuously" specify any "materialmisstatement" of income, expenditures, or assets.28 U.S.C. § 586(f)(2)(A). A report of each auditmust be filed with the court and transmitted to theU.S. Trustee. Id. The bankruptcy clerk shall givenotice to creditors in any case in which a materialmisstatement is identified. Id.

In a case in which a material misstatement isidentified, the new statute sets forth tworequirements for the U.S. Trustee. 28 U.S.C.§ 586(f)(2)(B). First, the U.S. Trustee shall "reportthe material misstatement, if appropriate, to theUnited States Attorney" pursuant to 18 U.S.C.§ 3057. 28 U.S.C. § 586(f)(2)(B)(i) (emphasisadded). Second, the U.S. Trustee shall "ifadvisable, take other appropriate action, includingbut not limited to commencing an adversaryproceeding to revoke the debtor's discharge"pursuant to 11 U.S.C. § 727(d). 28 U.S.C.§ 586(f)(2)(B)(ii). In particular, the new lawprovides that a debtor's discharge may be revokedfor failing to explain satisfactorily a materialmisstatement identified in an audit or for failing tomake available necessary papers or propertybelonging to the debtor that are requested for anaudit. 11 U.S.C. § 727(d).

The U.S. Trustee, or other parties in interest,may have other civil remedies in cases where theaudits uncover material misstatements, such asdismissal of the bankruptcy case or denial ofdischarge. 11 U.S.C. §§ 707, 727. U.S. Trusteesor other creditors may find that severalsubsections of 11 U.S.C. § 727 apply to deny adebtor a discharge where an audit uncoversmaterial misstatements. See, e.g., 11 U.S.C.§ 727(a)(2) (concealment of assets with intent tohinder or delay a creditor), and 11 U.S.C.§ 727(a)(4)(A) (false oath or account). In addition,denial of discharge may be appropriate where thedebtors fail to provide information to the auditors.See, e.g.,11 U.S.C. § 727(a)(3) (concealing,destroying, falsifying, or failing to keep books andrecords from which the debtor's financialcondition could be ascertained); 11 U.S.C.§ 727(a)(4)(D) (withholding from an officer of theestate recorded information about the debtor'sproperty or financial affairs).

III. Possible bankruptcy crimes

As the new law provides, the U.S. Trusteemay make criminal referrals of cases that havebeen subject to debtor audits where the auditorsfound material misstatements as to the debtor'sincome, expenses, or assets. Several subsectionsof 18 U.S.C. § 152, the section of theUnited States Code that includes bankruptcycrimes, may be implicated by findings made bythe auditors. Crimes under 18 U.S.C. § 152(1),(2), and (3) regarding concealment, false oaths,and false declarations are most likely to arise.


A. False oath, account, or declaration: 18U.S.C. § 152(2)-(3)

The most common criminal offenses thatdebtor audits may uncover are those of false oathor account or false declaration. 11 U.S.C.§ 152(2), (3). Sections 152(2) and (3) of title 18provide:

A person who –

(2) knowingly and fraudulently makes a falseoath or account in or in relation to any caseunder title 11;

(3) knowingly and fraudulently makes a falsedeclaration, certificate, verification, orstatement under penalty of perjury aspermitted under section 1746 of title 28, in orin relation to any case under title 11;

. . . shall be fined under this title, imprisonednot more than 5 years, or both.

Debtors sign all the documents that they file,and in doing so declare under penalty of perjurythat the documents are true and correct. Thus, ifan auditor identifies a material misstatement inone or more of the filed bankruptcy documents,and assuming the auditor's findings are accurate,the debtor has made a false declaration in abankruptcy case. The issue would be whether thedeclaration was made knowingly and fraudulently.In addition, debtors are required to attend ameeting of creditors and submit to examinationunder oath. 11 U.S.C. §§ 341(a), 343. At themeeting of creditors, the trustee will generally askthe debtor if the information on the bankruptcydocuments is true and correct. The debtor'stestimony at the meeting of creditors may providean additional false oath to prosecute.

B. Concealment of assets: 18 U.S.C.§ 152(1)

Another crime that debtor audits may uncoveris concealment of property of the estate of thedebtor. Section 152(1) of title 18 provides:

A person who –

(1) knowingly and fraudulently conceals froma custodian, trustee, marshal, or other officerof the court charged with the control orcustody of property, or, in connection with acase under title 11, from creditors or theUnited States trustee, any property belongingto the estate of a debtor;

. . . shall be fined under this title, imprisonednot more than 5 years, or both.

If an auditor finds that the debtor did not listproperty of the bankruptcy estate on the debtor'sschedules, the debtor may have committed thecrime of concealment. For example, the auditormay discover that the debtor owns a boat or bankaccounts that were not listed on the debtor'sschedules. For concealment to occur, the debtordoes not have to physically hide the property;failure to list property on schedules is sufficient toconceal it from a trustee. Coghlan v. UnitedStates, 147 F.2d 233, 236-237 (8th Cir. 1945).

C. Fraudulent pre-bankruptcy transfers:18 U.S.C. § 152(7)

In reviewing documents received from thedebtor or information from online databases, anauditor might uncover a pre-bankruptcy transfermade for the sole purpose of keeping an asset outof the estate and out of the reach of creditors.Section 152(7) of title 18 provides that a personcommits a crime who:

in a personal capacity or as an agent orofficer of any person or corporation, incontemplation of a case under title 11 byor against the person or any other personor corporation, or with the intent to defeatthe provisions of title 11, knowingly andfraudulently transfers or conceals any ofhis property or the property of such otherperson or corporation[.]

Thus, if a debtor knowingly and fraudulentlyconceals or transfers an asset in contemplation ofbankruptcy or with the intent to defeat theprovisions of title 11, he or she has committed acrime. For example, a debtor might transfer a boatto a family member for no consideration in theyear prior to filing for bankruptcy, so that thetrustee could not sell it in the bankruptcy case.The debtor should disclose the transfer on theStatement of Financial Affairs, Question No. 10.Even if the transfer is not disclosed and the boat isnot listed as an asset, database searches conductedby the auditor should reveal that the debtorrecently owned a boat, and documents providedby the debtor might show payments made on theboat during the months pre-petition. Thisinformation uncovered by the auditor might leadto a criminal referral pertaining to the debtor.


D. Bankruptcy fraud schemes: 18 U.S.C.§ 157

A debtor audit may reveal a bankruptcy fraudscheme, which typically involves the filing of oneor more bankruptcy cases as part of a largercriminal scheme. Section 157 of title 18 provides:

A person who, having devised or intending todevise a scheme or artifice to defraud and forthe purpose of executing or concealing such ascheme or artifice or attempting to do so –

(1) files a petition under title 11;

(2) files a document in a proceeding undertitle 11; or

(3) makes a false or fraudulent representation,claim, or promise concerning or in relation toa proceeding under title 11, at any time beforeor after the filing of the petition, or in relationto a proceeding falsely asserted to be pendingunder such title,

. . . . shall be fined under this title, imprisonednot more than 5 years, or both.

E. Concealment or destruction of records:18 U.S.C. § 152(8)

Finally, a debtor audit could uncover adebtor's attempts to avoid or thwart the audit,which, in itself, may be a bankruptcy crime. Forexample, 18 U.S.C. § 152(8) provides that aperson commits a crime who:

after the filing of a case under title 11 or incontemplation thereof, knowingly andfraudulently conceals, destroys, mutilates,falsifies, or makes a false entry in anyrecorded information (including books,documents, records, and papers) relating tothe property or financial affairs of a debtor[.]

Thus, a debtor who conceals, falsifies, ordestroys records to avoid the auditor's review ofthose records would be committing a bankruptcycrime.

IV. Conclusion

With the imminent arrival of debtor audits,criminal referrals from the U.S. Trustee are likelyto increase as auditors identify materialmisstatements that may rise to the level ofcriminal conduct. Moreover, the nature of thereferrals may change. Referrals arising fromdebtor audits will not be based on testimony of anunsatisfied creditor or former spouse who mayhave a personal dispute with the debtor. Instead,they will be based on the work of an unbiased,disinterested auditor who will have documents tosupport the identified material misstatements.�

ABOUT THE AUTHORS

�Mark A. Redmiles is the Chief of the CivilEnforcement Unit in the Executive Office forUnited States Trustees in Washington, D.C. Markjoined the U.S. Trustee Program in February 2002after eleven years in private practice, specializingin bankruptcy litigation.

�Kevin Epstein is a Trial Attorney in the U.S.Trustee's San Antonio office. Kevin joined theU.S. Trustee Program in 1999, working in theProgram's office in San Jose, Calif. He is assistingthe EOUST's Chief of Civil Enforcement with theimplementation of debtor audit procedures.a


Credit Counseling and DebtorEducation Under the BankruptcyAbuse Prevention and ConsumerProtection Act of 2005Henry G. Hobbs, Jr.Acting ChiefCredit Counseling and Debtor Education UnitExecutive Office for United States Trustees

Patricia J. StanleyTrial AttorneyUnited States Trustee ProgramLittle Rock, Arkansas

I. Introduction

The Bankruptcy Abuse Prevention andConsumer Protection Act of 2005,(BAPCPA), Pub. L. No. 109-8, 119 Stat.

23, requires each individual filing a petition underchapters 7, 11, 12, or 13 to undergo creditcounseling before filing bankruptcy and to receivepersonal financial management instruction afterfiling. These new requirements for consumerdebtors are found in 11 U.S.C. §§ 109, 111, 727,and 1328. Under BAPCPA, the United StatesTrustee Program (USTP) is responsible forapproving and monitoring the entities providingcounseling and educational services. The USTPhas formed the Credit Counseling and DebtorEducation Unit (CC/DE Unit) within theExecutive Office for U.S. Trustees to review andapprove applications and to establish andcoordinate procedures. The CC/DE Unit'stelephone numbers and e-mail addresses areposted on the Program's Internet site and are asfollows: telephone, 1-202-514-4100; email,[email protected]; and fax, 1-202-305-8536.

II. Background

The credit counseling industry has a longhistory. Credit counseling services weretraditionally offered by nonprofit companies aspart of a charitable mission. With the growth ofconsumer debt and spending in recent years, the

credit counseling industry experienced a similargrowth, including the influx of companies thatwere less traditional in their approach. These newentities focused their efforts on recruitingconsumers into debt management plans. Theseplans are out-of-court repayment arrangementswherein consumers and their creditors agree to apayment schedule without resorting to theformality of the bankruptcy process. Creditcounseling agencies receive fees for setting upand administering such plans. They also receive acertain percentage from the creditors that agreedto the plans, often referred to as "fair share." Somecompanies concentrate their efforts on enrollingclients into debt management plans, sometimeswithout regard to whether the plans are feasible.These companies frequently establish for-profitaffiliates that receive revenues from theseoperations. In recent years, a number of abusiveoperations were investigated and exposed by theInternal Revenue Service (IRS) and the FederalTrade Commission (FTC).

Personal financial management instruction forbankruptcy filers (debtor education) is a relativelynew concept. Some chapter 13 trustees haveoffered post-bankruptcy filing education as part oftheir trustee operations, often as a means torehabilitate a debtor's credit. Previously, there wasno regulation of the debtor education industry.

III. Statutory requirements for creditcounseling and debtor education

BAPCPA's credit counseling and debtoreducation provisions are designed to protectconsumers by ensuring the following two factors.

• They have the basic understanding of theirfinancial situation that is necessary todetermine whether bankruptcy is the mostappropriate option for them.


• They exit bankruptcy knowing the basicprinciples of personal finance that arenecessary to manage their financial affairs.

These new provisions seek to empower consumerswith additional knowledge they might nototherwise gain in the bankruptcy process.

The statutory requirements in 11 U.S.C.§ 109(h)(1) provide that an individual is noteligible to file bankruptcy without receiving creditcounseling from a nonprofit budget and creditcounseling agency approved by the United StatesTrustee. This counseling session must occurwithin 180 days before the individual files abankruptcy petition. Section 521(b) of title 11requires that a certificate of credit counselingcompletion and a copy of a debt repayment plan,if any, must be filed with a debtor's initialbankruptcy petition.

The counseling requirement is subject tocertain limited exceptions. The bankruptcy courtmay defer the credit counseling requirement forthirty days if the debtor files a "satisfactory"certification attesting that exigent circumstancesexist and that the debtor attempted to obtaincounseling, but could not do so within five days.The only time that the court may grant a completewaiver of the requirement is if the debtor cannotcomply due to incapacity, disability, or activemilitary duty in a combat zone. The requirementmay also be waived if the U.S. Trustee determinesthat the approved agencies in the district cannotadequately provide services to debtors. Currently,the only districts excepted under this provision arethe Southern District of Mississippi and threedistricts in Louisiana in the wake of HurricanesKatrina and Rita.

In addition to complying with the pre-filingcredit counseling requirements, a debtor seeking adischarge in a chapter 7 or chapter 13 case mustcomplete an instructional course in personalfinancial management after filing. Title 11 U.S.C.§§ 727(a)(11) and 1328(g)(1) provide thatcompletion of the instructional course is necessaryfor a debtor to receive a discharge. Thisrequirement is also subject to the limitedexceptions noted in the preceding paragraphrelating to lack of adequate services in the judicialdistrict, incapacity, disability, or active duty in amilitary combat zone. While there is no setcurriculum for the instructional course, it mustcontain materials related to budget development,money management, financial record-keeping,

wise use of credit, and consumer resources. Thedebtor education provider must also retain recordsto demonstrate the effectiveness of the financialmanagement course. A debtor cannot complete thecredit counseling session and the financialmanagement course at the same time. Thefinancial management course must be taken afterthe bankruptcy case is filed.

Interim Bankruptcy Rule 1007 requires anindividual debtor to file a statement regarding thecompletion of the financial management coursewith the court prior to receiving a discharge. Thecertificate evidencing completion of theeducational course must be attached to thisstatement. INTERIM FED. R. BANKR. 1007,available at Interim Rules and Official FormsImplementing the Bankruptcy Abuse Preventionand Consumer Protection Act of 2005,http://www.uscourts.gov/rules/interim.html.

IV. Issuance of certificates

Initially, each approved credit counselingagency and debtor education provider created andissued its own certificate. To ensure uniformity inthe certificates and to provide a trackingmechanism in the event of allegations of false orfraudulent certificates, the USTP established aWeb-based certificate issuance system. Allagencies and providers are required to use theWeb-based system to generate certificates as ofJanuary 9, 2006. Only approved agencies andproviders are allowed to furnish certificates; noother entities, including independent contractorsand attorneys, may do so. Each individual debtormust be issued a certificate, even when spousesare jointly filing for bankruptcy. The certificatemay not be filed with the court by the agency orprovider. It must be delivered to the creditcounseling client or, upon request by the client, tothe client's attorney.

The Web-based system allows the USTP totrack a certificate to a particular agency andcounselor. Each certificate is numbered andincludes the name of the agency or provider, thedate of completion of the course, the judicialdistrict, and the counselor's name and signature.The certificate of debtor education also includesthe debtor's bankruptcy case number. Thecertificate must accurately state the name of theagency or provider as set forth in the agency's orprovider's application to the U.S. Trustee. The


agency or provider should not use any alias or"doing business as" name on the certificate.

An agency or provider may download thecertificate as a Portable Document Format (PDF)or print a paper certificate to give to the client. Tocomply with privacy concerns, no other personalidentification information relating to the clientappears on the certificate. Certificates must have acounselor's original ink signature or an electronicsignature (/s/). If the certificate is issued with anelectronic signature, the agency or provider mustkeep an original certificate with an originalsignature on file.

V. Approval process

As previously noted, debtors must receivecredit counseling services and debtor educationfrom agencies and course providers approved bythe U.S. Trustee. BAPCPA outlines the minimumcriteria for approval in 11 U.S.C. § 111. Underthis section, the U.S. Trustee must thoroughlyreview the qualifications of entities seekingapproval to provide services and is authorized torequire an agency or provider to provideinformation to assist in the review. The USTPbegan accepting applications on July 5, 2005. Asof March 10, 2006, 140 credit counseling agenciesand 240 financial education providers have beenapproved out of approximately 650 applicants.

A credit counseling agency seeking approvalmust be a nonprofit organization that: has a boardof directors who do not benefit from the outcomeof the counseling services; charges a reasonablefee; provides adequate safeguards for payment ofclient funds; employs qualified counselors;provides adequate counseling service; and dealsresponsibly with matters relating to quality,effectiveness, and financial security. The USTPhas denied approval to a number of applicants forfailure to meet the statutory requirements. Themost frequent causes for denial have related to theapplicants' failure to operate as a nonprofitagency, maintain an independent board ofdirectors, or demonstrate that adequate counselingwould be provided.

Credit counseling agencies may provideservices by in-person counseling, telephone, andthe Internet. To provide the "adequate counseling"required by § 111, however, Internet-based creditcounseling must be supplemented by some formof person-to-person contact via telephone, e-mail,or instant messaging. The USTP requires proper

verification procedures for telephonic and Internetcounseling to protect the integrity of thecounseling session.

Providers of debtor education courses are notrequired to be registered as nonprofitorganizations, but must meet minimum standardssuch as employing qualified personnel withadequate experience, charging a reasonable fee,providing adequate facilities, and maintainingreasonable records. The preparation and retentionof reasonable records permits evaluation of theeffectiveness of the course. The records must beavailable for inspection and evaluation by theExecutive Office for U.S. Trustees, the U.S.Trustee, and the chief bankruptcy judge for thedistrict in which the course is offered.

Credit counseling agencies and debtoreducation providers are initially approved for upto a six-month probationary period. At the end ofthe probationary period, an agency or providermust reapply and demonstrate that it has met therequired standards and will be able to meet thestandards in the future. Each re-approval is for aone-year period. A publicly available list of U.S.Trustee-approved agencies and providers ismaintained by the bankruptcy clerk for eachdistrict. The USTP also maintains a list ofapproved credit counselors and debtor educationproviders on its Web site athttp://www.usdoj.gov/ust/eo/bapcpa/ccde/index.htm.

The U.S. Trustee may remove an agency orprovider from the approved list at any time.Within thirty days after any final decision on anapplicant's one-year renewal application, aninterested party may seek judicial review in theappropriate United States District Court. Inaddition, under 11 U.S.C. § 111(e), the districtcourt has the independent ability to investigate thequalifications of an approved credit counselingagency, request production of documents toensure the integrity and effectiveness of theagency, and remove the agency from the approvedlist upon finding it does not meet the minimumrequired criteria.

VI. Complaint procedures

The USTP has established an internalcomplaint database to effectively administer andmonitor the quality of approved credit counselingagencies and debtor education providers. When acomplaint is received from an attorney, debtor, or


other interested party, the agency or provider iscontacted for a response and the matter is resolvedas quickly as possible. The database allows theUSTP to track the progress and resolution ofcomplaints, and serves as a resource for reviewingthe performance of an agency or provider duringthe re-application process. If a particular agencyor provider receives a series of complaints, or ifparticularly serious allegations are made, USTPstaff may conduct an on-site audit of the entity.The USTP will soon post a PDF complaint formon its Internet site that can be filed by individualswho have complaints against counseling agenciesor debtor education providers.

The most common complaints to date haverelated to the timely or proper issuance ofcertificates and the waiver of fees for creditcounseling. Agencies and providers may charge areasonable fee for services, but they are obligatedunder BAPCPA to provide services withoutregard to a debtor's ability to pay. Each providerdevelops its own criteria on when to waive orreduce a fee, subject to the following guidance bythe USTP: "Ability to pay must be determined ona case-by-case basis. One factor that must beconsidered is the client's personal financialsituation as reflected in the budget analysis that iscompleted pursuant to the statute." Available athttp://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_faqs.htm#coun_issue 3. The USTP directs agenciesand providers to disclose costs and the possibilityof a waiver prior to providing services, andcautions agencies and providers againstrepresenting that a fee is federally mandated orrequired by law or the Department of Justice(Department).

Additional issues of concern include thefailure to comply with licensing and otherrequirements in a particular state and thedissemination of legal advice during creditcounseling sessions. Statutes defining theunauthorized practice of law vary from state tostate. The issue of whether a credit counselingagency crosses the line into giving legal advice isof concern to both the USTP and the bankruptcybar. The decision to file bankruptcy and adiscussion of the bankruptcy filing's effect on theindividual must be left to the client and his or herattorney. The USTP requires each agency andprovider to attest that it is in compliance with allapplicable laws of each state in which it seeksapproval to provide services, and cautions

agencies that providing legal advice could bedeemed the unauthorized practice of law.

VII. Audit of approved providers

In view of the recent problems in the creditcounseling industry, to ensure compliance withBAPCPA's requirements, the USTP will conductreviews of the activities of approved creditcounseling agencies and debtor educationproviders. The reviews of credit counselingagencies will include not only a financial reviewof how they administer debt management plans,but also an analysis of the quality of servicesprovided. USTP staff will listen to counselingsessions, review records, and interview thirdparties to ensure that adequate counseling is beingprovided by the agencies. The USTP will alsoreview the quality of debtor education courses byattending course sessions.

VIII. Possible fraudulent activity

One area of potential criminal fraud is theissuance of fraudulent credit counseling or debtoreducation certificates. Debtors may attempt toprovide false certificates to their attorneys or, inthe case of pro se debtors, directly to the court.The standards set by the USTP will aid in thediscovery and investigation of this type of fraud.The USTP's guidelines for approved agencies andproviders are very specific regarding theimportance of accurate information relating to theidentity of the debtor and the agency or provider.In addition, the Web-based certificate systemshould ensure uniformity in the certificates and bea valuable asset in tracking false certificates. Todate, there has been only one instance of anallegedly false certificate. The U.S. Trustee andthe U.S. Attorney's office are currentlyinvestigating this matter.

The USTP may also pursue civil remedies if adebtor files a fraudulent certificate or isimproperly granted a discharge before filing acertificate confirming completion of a debtoreducation course. In that instance, the U.S.Trustee may file a motion to reopen the debtor'scase and revoke the debtor's discharge. In general,to establish grounds for revocation of discharge,the U.S. Trustee must allege and prove fraud inreceiving the discharge. In the matter mentionedin the previous paragraph, the fraud consists offiling a false certificate attesting to the completionof a financial management course.


IX. Coordination with othergovernment agencies

The IRS reviews the tax-exempt status ofnonprofit corporations, including creditcounseling agencies. The IRS recently audited anumber of credit counseling agencies, revoked thetax-exempt status of some agencies, andannounced that it will revoke the status of anumber of other agencies. The USTP met with theIRS and received helpful input from experiencedIRS field auditors on the USTP's proposed auditprocedures.

The FTC investigates consumer complaints,including those lodged against credit counselingagencies. The FTC maintains a database of suchcomplaints called "Consumer Sentinel."Approximately 1,500 federal and state lawenforcement agencies subscribe to this database.The subscribers issue an "alert" with respect toinvestigations or actions taken against companies.USTP staff received training on this database anduse it in the application review and audit process.Subject to applicable privacy restrictions, the FTChas also agreed to share information with theUSTP regarding public investigations of creditcounseling agencies and debtor educationproviders.

X. Conclusion

The USTP has embraced the challenge ofimplementing the credit counseling and debtoreducation requirements of BAPCPA. TheProgram is committed to monitoring the quality ofthe provided services and assessing the impact ofthe statutory provisions on debtors and thebankruptcy system.�

ABOUT THE AUTHORS

�Henry G. Hobbs, Jr. has been the AssistantU.S. Trustee in Austin, Texas, for the last thirteenyears. He came to the Department after twelveyears in private practice in Louisiana. He iscurrently detailed to the Executive Office for U.S.Trustees as the Acting Chief of the CreditCounseling/Debtor Education Unit.

�Patti J. Stanley is a Trial Attorney in theUSTP's Little Rock office. She reviews cases forbankruptcy fraud and abuse and oversees businessreorganization filings. Before joining the USTPthrough the Department's Honors Program in2004, she clerked for a District Judge in theNorthern District of Georgia.

Means Testing Under the NewBankruptcy LawMark A. RedmilesChief, Civil Enforcement UnitExecutive Office for United States Trustees

Melissa R. PerryTrial AttorneyCivil Enforcement UnitExecutive Office for United States Trustees

I. Introduction

The Bankruptcy Abuse Prevention andConsumer Protection Act of 2005, (BAPCPA)Pub. L. No. 109-8, 119 Stat. 37, took effect onOctober 17, 2005, and the headlines were hard to

miss. Television news stories, magazines, andnewspapers expressed a full range of opinions,from bleak predictions of the end of chapter 7, toapplause for increased protections that wouldbenefit creditors. The common thread, however,is the means test of 11 U.S.C. § 707(b)(2).Despite all the press the means test has inspired,few people, including some bankruptcypractitioners, really understand what the meanstest is all about. This article provides a briefoverview of the means test in an effort to clarifythis important provision of BAPCPA.

In a nutshell, the means test seeks to answerthe "very fundamental question" posed bySenator Charles Grassley, a sponsor of BAPCPA:"whether [debt] repayment is possible by an


individual." 151 Cong. Rec. S1856 (Mar. 1, 2005)(statement of Sen. Charles Grassley). As Sen.Grassley explained, "[i]t is this simple: ifrepayment is possible, then [a debtor] will bechanneled into chapter 13 of the Bankruptcy Codewhich requires people to repay a portion of theirdebt...." Id. The means test is thus an initial filterfor an ability to pay, designed to identify, at theoutset of the case, those chapter 7 debtors who areabusing the bankruptcy system, and to requirethose debtors to either repay a portion of theirdebts in chapter 13 or face dismissal of their casealtogether.

II. The means test formula at work:changing the presumption

As evidenced by its title, Congress enactedBAPCPA to curb abuses of the bankruptcysystem, including halting those chapter 7 debtorswho seek to have their debts discharged despitehaving the wherewithal to repay their creditors.As part of this effort, Congress amended § 707(b)of the Bankruptcy Code to eliminate thepresumption in favor of the debtor that existedprior to BAPCPA. Under the old § 707(b), courtsapproached a case by presuming that a debtor'schapter 7 filing was not abusive, and dismissedthe case only upon a showing that granting adischarge of debts would be a "substantial abuse"of the provisions of chapter 7.

As amended, § 707(b)(2) replaces the old pro-debtor presumption with a new one: courts are topresume that a case is an "abuse" of chapter 7(and is subject to dismissal) if a detailedmathematical formula set out in the statute yieldsa minimum amount of monthly disposableincome. As a starting point, each chapter 7 debtorwith primarily consumer debt must, as part of hisor her duties under 11 U.S.C. § 521, complete theStatement of Current Monthly Income and MeansTest Calculation, Official Form B22A (SCMI).See § 707(b)(2)(C). The SCMI form, which asksdebtors to outline their income and expenses,provides information to plug into the § 707(b)(2)formula. The amount of "disposable income" thata debtor has after applying the formula determineswhether the case is presumed an abuse.

III. The basic means test formula

Boiled down, the means test formula isrelatively simple (see chart following this article):

the debtor enters his or her current monthlyincome (CMI), as described in more detail below,on the SCMI. If the debtor's CMI is below themedian family income for a family in the debtor'sstate with the same number of individuals as thedebtor's household, then abuse is not presumedand the debtor does not need to fill out theremainder of the means test form. TheUnited States Trustee Program (Program) poststhe median family income data, which ispublished by the Census Bureau, on its Web siteat www.usdoj.gov/ust under "BankruptcyReform"–"Means Testing Information." If thedebtor's income is above the applicable statemedian, however, there is further inquiry.

In above-median income cases, the debtor'sCMI is reduced by specific standardized andactual living expenses, and the difference ismultiplied by sixty. 11 U.S.C. § 707(b)(2)(A)(I).If, after such reduction, the income available forthe debtor's creditors is greater than $10,000, or$167 per month, then abuse is presumed. If theincome available for the debtor's creditors is lessthan $6,000, or $100 per month, then abuse is notpresumed. If the income available for the debtor'screditors is more than $6,000, but less than$10,000, abuse is presumed only if that incomeexceeds 25 percent of the debtor's non-priorityunsecured debt.

If the presumption of abuse arises, the debtormay rebut it and avoid dismissal only bydemonstrating special circumstances that justifyadditional expenses or adjustments to income.§ 707(b)(2)(B). Under the prior § 707(b), the U.S.Trustee typically would argue that certainexpenses were excessive and/or not reasonablynecessary for the support and maintenance of thedebtor and any dependents, in order to show thata case met the old "substantial abuse" standard.Now, however, each expense a debtor maydeduct for purposes of calculating whether thereis sufficient disposable income to presume"abuse" is specifically set forth in§ 707(b)(2)(A)(ii). If an expense is not onespecified in the statute, the debtor cannot claim it.

IV. Income

Under BAPCPA, the CMI that debtors are touse in filling out the SCMI is defined. "Currentmonthly income" means "the average monthlyincome from all sources that the debtor receives(or in a joint case both debtors receive) without


regard to whether such income is taxable income"during the six-month period ending on the last dayof the month immediately preceding the date thecase commences. 11 U.S.C. § 101(10A)(A).Included in the income calculation is any amountpaid by any entity other than the debtor or jointdebtor, on a regular basis, for the householdexpenses of the debtor or the debtor's dependents.Id. § 101(10A)(B). The statute, however,specifically excludes benefits received under theSocial Security Act, payments to victims of warcrimes or crimes against humanity, and paymentsto victims of terrorism, from the calculation ofCMI. Id.

Although the debtor fills out the SCMI underpenalty of perjury, neither the courts nor the U.S.Trustee simply accepts the debtor's calculation ofhis or her income or expenses. For example, 11U.S.C. § 521 requires the debtor to provide paystubs covering the sixty days prior to filing.However, because CMI, for purposes of theSCMI, is defined as the income for the six fullmonths prior to filing, the U.S. Trustee may alsorequire production of six months of pay stubs toverify the accuracy of the income informationused in the SCMI. Other documents, including taxreturns, bank statements, and documentation ofspousal support payments, may also be requiredby the U.S. Trustee.

V. Expenses

As discussed above, once a debtor's CMI isestablished to be over the applicable state medianfamily income, the debtor is required to completethe expense portion of the SCMI form. All of thedebtor's allowed expenses are set forth in§ 707(b)(2)(A)(ii). For the purpose of determiningwhether the presumption arises, the debtor maydeduct only those expenses described under§ 707(b)(2)(A)(ii). For example, while the debtormay list separate expenses for certain unsecureddebts, student loans, pets, or 401(k) loans on otherdocuments, such as the debtor's schedules ofexpenses, those expenses are not allowable indetermining presumed abuse on the SCMI in achapter 7 case.

The expenses allowable on the SCMI fall intotwo general categories: (1) standardized andnecessary expenses promulgated by the InternalRevenue Service; and (2) some actual expensesincurred by the debtor, such as secured debt andtax obligations and expenses incurred in caring for

an elderly or chronically ill member of thedebtor's household.

A. Internal Revenue Service standardexpenses

As set forth in § 707(b)(2)(A)(ii)(I), debtorsmay deduct amounts "specified under theNational Standards and Local Standards, and thedebtor's actual monthly expenses for thecategories specified as Other Necessary Expensesissued by the [IRS] for the area in which thedebtor resides. . . ."

The National Standards published by theInternal Revenue Service (IRS) are posted on theProgram's Web site at www.usdoj.gov/ust under"Bankruptcy Reform"–"Means Testing," andinclude expenses for food, clothing, and otheritems based on the size and income of the debtor'sfamily. Local Standards for housing and utilitiesexpenses, as well as for transportation expenses,are also published by the IRS and are posted onthe Program's Web site at the same location as theIRS National Standards. These expenses arebased upon the debtor's state and county ofresidence and, for the transportation expenses, arealso contingent upon the number of vehicles forwhich the debtor pays operating expenses andloan or lease payments.

Although a debtor's actual expenses may behigher or lower than the IRS Standard expenses,all debtors are entitled only to the Standardexpense amounts and cannot deduct their actualexpenses. There is one exception, however. Tothe extent that a debtor's actual expenses arehigher than the Standard expenses (particularlyfor mortgage and automobile expenses) as aresult of secured debt, the debtor is entitled totake the greater of the secured debt obligation orthe IRS Standard expense, but not both.

B. Other necessary expenses

In addition to the IRS Standard expenses,§ 707(b)(2)(A)(ii)(I) allows debtors to deductspecified categories of actual expenses that theIRS has deemed "other expenses" not captured bythe Standard expenses. Under IRS guidelines setforth in the Internal Revenue Manual's FinancialAnalysis Handbook, these expenses, deducted atLines 25 to 33 of the SCMI, must be "necessary"to the "health and welfare" of the debtor and thedebtor's dependents, or for the production of


income. See Internal Revenue Service, InternalRevenue Manual, Financial Analysis Handbook§ 5.15.1.10 (Mar. 2006), available athttp://www.irs.gov/irm/part5/ch15s01.html#d0e175114.

These expenses may include accounting andlegal fees, charitable contributions, child care,court-ordered payments, dependent care,education, health care, involuntary payrolldeductions (if a requirement for employment,such as union dues), taxes, and secured debtobligations. Debtors claiming these expenses willbe required to provide sufficient documentation.

At Lines 34 through 41 of the SCMI, debtorsare also permitted to take specific "AdditionalDeductions Under §707(b)." These additionaldeductions include expenses for health anddisability insurance; continued care for elderly,chronically ill, or disabled household members;protection against family violence; excess homeenergy costs; additional food and clothing costs;education expenses for minor children; andcontinued charitable contributions. Although theseexpenses are not included in the IRS Standard ornecessary expenses, Congress made the expressdecision in § 707(b)(2) to allow debtors to deductthem from their calculation of CMI.

VI. Debtors' answer to the means test:Rebutting the presumption of abuse

Pursuant to § 707(b)(2)(B), a debtor mayrebut the presumption of abuse by demonstrating"special circumstances," such as a serious medicalcondition or a call or order to active duty in thearmed forces. Under this provision, the debtor isgiven an opportunity to demonstrate that specialcircumstances exist that support adjustments tothe debtor's income and/or expenses, such that thepresumption no longer arises. Even if thepresumption is rebutted under this section,however, the debtor may still face dismissal under§ 707(b)(3) if the case was filed in "bad faith" orthe "totality of the circumstances" of the debtor'sfinancial situation demonstrates abuse.

In cases where the debtor provides sufficientdocumentation to the U.S. Trustee demonstratingthat the debtor could rebut the presumption ofabuse, the U.S. Trustee may decline to file amotion to dismiss the debtor's case. In the monthssince BAPCPA was enacted, the U.S. Trustee hasdeclined to file motions to dismiss in a number ofcases, including, for example, where debtors

became disabled or retired after filing the SCMIor were victims of a natural disaster. Unless thedebtor provides adequate documentation to showthat there are no reasonable alternatives to theadjustments to income or expenses that bring thedebtor below the threshold dollar amounts givingrise to the presumption, however, the U.S.Trustee will generally move to dismiss thedebtor's case.

VII. Conclusion

The means testing provisions of BAPCPAprovide an objective approach for assessing adebtor's eligibility for chapter 7 relief. Althoughthe language of §707(b)(2) can be daunting atfirst blush, when reduced to its component parts,the means test is relatively straightforward.Debtors who earn above-median income and havea specified amount of disposable income afterdeducting allowed expenses must now eitherrepay at least some of their debts before receivinga bankruptcy discharge, or face dismissal of theircases.�

ABOUT THE AUTHORS

�Mark A. Redmiles is the Chief of the CivilEnforcement Unit in the Executive Office forUnited States Trustees (EOUST) in Washington,D.C. Mark joined the EOUST in February 2002after eleven years in private practice, specializingin bankruptcy litigation.

�Melissa R. Perry is a Trial Attorney in theExecutive Office for United States Trustees(EOUST) in Washington, D.C. She came to theEOUST in November 2005 after five years in theLos Angeles, Houston, and Washington offices ofDewey Ballantine LLP.a


New Bankruptcy Law Helps EnsureConsumer Debtors Receive CompetentBankruptcy ServicesLisa TracyTrial AttorneyOffice of General CounselExecutive Office for United States Trustees

P. Matthew SutkoAppellate CoordinatorOffice of General CounselExecutive Office for United States Trustees

I. Introduction

The Bankruptcy Abuse Prevention andConsumer Protection Act of 2005 (BAPCPA),Pub. L. No. 109-8, 119 Stat. 23, includes severalprovisions designed to educate and protect debtorsduring their interaction with the bankruptcysystem and with bankruptcy service providers.This article addresses three categories of changesthat have a material impact on the rights ofconsumer bankruptcy debtors. First, the articlediscusses the creation of a category of serviceprovider called a "debt relief agency," and the newresponsibilities of those providers. Second, thearticle discusses important changes to the lawsgoverning bankruptcy petition preparers. Finally,the article addresses certain enhanced remediesfor violations of Rule 9011 of the Federal Rules ofBankruptcy Procedure that affect attorneys whorepresent debtors in bankruptcy proceedings.

II. "Debt relief agency" provisions

In BAPCPA, Congress created a category ofbankruptcy service provider called a "debt reliefagency." BAPCPA requires entities that qualify asdebt relief agencies to comply with several newaffirmative disclosure obligations, and restrictsthose entities from making certain representationsregarding the bankruptcy process. BAPCPAdefines a debt relief agency as "any person whoprovides any bankruptcy assistance to an assistedperson in return for the payment of money orother valuable consideration, or anyone is a

bankruptcy petition preparer. . . ." 11 U.S.C.§101(12A).

The terms "bankruptcy assistance" and"assisted person" are also newly defined. Ingeneral, bankruptcy petition preparers andattorneys who represent consumer debtors ofmodest means are considered to be debt reliefagencies. Attorneys who provide their servicespro bono and who do not accept any considerationin exchange for their services do not qualify asdebt relief agencies and are not subject to theapplicable restrictions and obligations. Certainother entities are expressly excluded from thedefinition, and thus do not have to comply withthe applicable requirements. Exempt entitiesinclude the following.

• Any person who is an officer, director,employee, or agent of a person who providessuch assistance or of the bankruptcy petitionpreparer.

• A nonprofit organization exempt fromtaxation under § 510(c)(3) of the InternalRevenue Code.

• A creditor of the assisted person, to the extentthe creditor is assisting the debtor torestructure a debt owed to the creditor.

• A depository institution, federal or state creditunion, or subsidiary of such depositoryinstitution or credit union.

• An author, publisher, distributor, or seller ofcopyright-protected materials.

Entities that qualify as debt relief agencies aresubject to new restrictions and affirmativeobligations under three newly created sections ofthe Bankruptcy Code. Section 526 addressesrestrictions placed on debt relief agencies; § 527describes the necessary disclosures that debt reliefagencies are required to make; and § 528 setsforth requirements, including advertisingrequirements, with which debt relief agenciesmust comply.


Most of the requirements under § 526 are notsurprising or new, and competent attorneys arealready routinely complying with them. For thisreason, these requirements have not been thesubject of much litigation. For example, § 526prohibits a debt relief agency from failing toprovide any service it promised in connectionwith an individual's bankruptcy case. In addition,a debt relief agency may not counsel an individualto make untrue or misleading statements in theindividual's filings before a bankruptcy court.

An exception is § 526(a)(4), which prohibitsdebt relief agencies from advising clients to incurdebt in contemplation of bankruptcy. TheDepartment of Justice (Department) has taken theposition that this provision prohibits debt reliefagencies from telling clients to incur debt solely togame the system or to evade the means test. Inaddition, this provision prohibits a debt reliefagency from telling clients to borrow moneysimply to pay the agency's fee. Attorneys havefiled a number of lawsuits around the country toavoid having to comply with the debt reliefagency requirements, particularly with§ 526(a)(4). These attorneys allege either thatattorneys are not debt relief agencies or that§§ 526-528 violate the First, Fifth, or TenthAmendments of the United States Constitution.The Department has evaluated §§ 526-528, andhas concluded that these provisions apply toattorneys and are consistent with the Constitution.

Under §§ 527, 528, a debt relief agency mustprovide an assisted person with four specificdocuments. Further, under § 527(d), a debt reliefagency must retain a copy of the required noticesfor two years after the date on which the noticeswere given to an assisted person, which includecertain notices as well as a written contract forservices between the debt relief agency and theassisted person. These notices are identifiedaccording to the section in the Bankruptcy codewhere the purpose and content of each statementis set forth in detail. The notices include thefollowing.

• The Section 342(b)(1) Statement.

• The Section 527(a)(2) Statement.

• The Section 527(b) Statement.

• The Section 527(c) Statement.

In general, these notices are intended toensure that assisted persons understand thepurpose and benefits of filing cases under chapters

7, 11, 12, and 13 of the Bankruptcy Code, and toput assisted persons on notice that the informationthey provide in any bankruptcy proceeding mustbe truthful and accurate. These disclosures arealso intended to provide assisted persons with anunderstanding of the services they are entitled toreceive from the debt relief agency.

Section 528 also sets forth specificrequirements that govern advertising by a debtrelief agency. Section 528(b)(2) mandates that anadvertisement directed to the general publicindicating that the debt relief agency providesassistance with respect to credit defaults,mortgage foreclosures, eviction proceedings,excessive debt, debt collection pressure, orinability to pay any consumer debt, shall discloseclearly and conspicuously that the assistance mayinvolve bankruptcy relief, and shall include thefollowing statement or a substantially similar one."We are a debt relief agency. We help people filefor bankruptcy relief under the Bankruptcy Code."These requirements have also drawn legalchallenges under the First Amendment. TheDepartment believes these requirements are fullyconsistent with the First Amendment.

Remedies for violations of these provisionsare primarily set forth in § 526, which providesthat waiver of any right under that section is notenforceable against the debtor, but may beenforced against the debt relief agency. Similarly,any contract for bankruptcy assistance that doesnot comply with the debt relief agencyrequirements shall be deemed void andunenforceable by any person other than theassisted person.

Standing to bring actions against debt reliefagencies is not limited to the U.S. Trustee.Congress allows several different parties tocommence enforcement actions against debt reliefagencies when abuses have occurred. In additionto the U.S. Trustee, state law enforcementagencies, the court, and the debtor may act againstviolations, failures, or abuses by debt reliefagencies.

Section 526(c) enumerates the applicableremedies, which include liability on the part of thedebt relief agency for any fees or chargesreceived, actual damages, and reasonableattorneys' fees and costs if the agency

(A) intentionally or negligently failed tocomply with any provision of this section,Section 527, or Section 528 with respect to a


case or proceeding under this title for suchassisted person;

(B) provided bankruptcy assistance to anassisted person in a case or proceeding that isdismissed or converted to a case underanother chapter of [the Bankruptcy Code]because of such agency's intentional ornegligent failure to file any requireddocument; or

(C) intentionally or negligently disregardedthe material requirements of [the BankruptcyCode] or the Federal Rules of BankruptcyProcedure applicable to such agency.

11 U.S.C. §526(c)(2)(A)-(C). In addition, thecourt on its own motion, or on motion of the U.S.Trustee or the debtor, may enjoin the debt reliefagency and impose an appropriate civil penalty ifit finds that a person intentionally violated § 526or engaged in a clear and consistent pattern orpractice of violating this section.

III. Bankruptcy petition providers

In addition to providing restrictions upon debtrelief agencies, BAPCPA sets forth newrequirements for bankruptcy petition preparers.Generally speaking, a bankruptcy petitionpreparer is a person, other than an attorney or anattorney's employee, who receives compensationfor preparing bankruptcy documents. Among themost important changes in BAPCPA's provisionsrelating to bankruptcy petition preparers are thoseaddressing the unauthorized practice of law. Boththe former and current versions of § 110 prohibit abankruptcy petition preparer from executingdocuments on a debtor's behalf, collecting thefiling fee, or using the word "legal" or similarterms in advertising. However, although theformer version of the statute prohibitedmisleading advertising and actions where thebankruptcy petition preparer assumedresponsibilities for the debtor, it did notspecifically prohibit the unauthorized practice oflaw or render such misconduct a violation of§ 110. The Bankruptcy Code ceded thisprohibition to other federal and state laws.

New Section 110(e)(2)(A) specificallyprohibits a bankruptcy petition preparer fromoffering legal advice to a potential debtor. It alsorequires the bankruptcy petition preparer to notifyprospective debtors in writing that the bankruptcypetition preparer is not an attorney and may not

practice law or give legal advice. Section110(e)(2)(B) illustrates the type of conduct that isproscribed, through a non-exhaustive list ofimpermissible advice.

• Whether to file a petition for bankruptcyrelief.

• Whether to file under chapter 7, 11, 12, or 13.

• What assets may be retained after filingbankruptcy.

• The tax consequences or the dischargeabilityof tax claims in a bankruptcy case.

• Whether to reaffirm debts.

• The characterization of debtor's interest inproperty or debts.

• Bankruptcy procedures and rights.

In addition, under BAPCPA, the court maytriple the amount of a fine imposed in any casewhere it finds that a bankruptcy petition preparerdid any of the following.

• Advised the debtor to exclude assets orincome that should have been included onapplicable schedules.

• Advised the debtor to use a false SocialSecurity account number.

• Failed to inform the debtor that the debtor wasfiling for bankruptcy relief.

• Prepared a document for filing in a mannerthat failed to disclose the identity of thebankruptcy petition preparer.

BAPCPA also clarifies a court's authority todisallow or require fee disgorgement where abankruptcy petition preparer is found to haveviolated § 110.

IV. Bankruptcy Rule 11 violations

Finally, BAPCPA also provides someimportant clarifications regarding the applicationof Rule 11 of the Federal Rules of Civil Procedurein bankruptcy proceedings. Rule 11 is madeapplicable in bankruptcy proceedings by Rule9011 of the Federal Rules of BankruptcyProcedure 9011. BAPCPA identifies areas inwhich an attorney may be subject to liabilityunder Rule 9011.

For example, pursuant to § 707(b)(4)(A),debtor's counsel may be required to reimburse the


trustee for all reasonable costs incurred by thetrustee in successfully prosecuting a motionclaiming that the debtor's case is presumptivelyabusive under § 707(b)(2), if the court findsdebtor's counsel violated Rule 9011 of the FederalRules of Bankruptcy Procedure. Pursuant to§ 707(b)(4)(B), debtor's counsel may also besubject to assessment of a civil penalty, payable tothe U.S. Trustee, if the court grants an abusemotion filed by either the U.S. Trustee or a partyin interest and finds that debtor's counsel violatedRule 9011 of the Federal Rules of BankruptcyProcedure. Finally, under § 707(b)(4)(C),

[t]he signature of an attorney on a bankruptcypetition, pleading, or written motion shallconstitute a certification that the attorney has--

performed a reasonable investigation into thecircumstances that gave rise to the petition,pleading, or motion; and

determined that the petition, pleading, ormotion--

is well-grounded in fact; and

is warranted by existing law or by a good faithargument for the extension, modification, orreversal of existing law. . . .

In other words, any petition, pleading, or motionsigned by an attorney is subject to Rule 9011 ofthe Federal Rules of Bankruptcy Procedure.

BAPCPA also includes a provision statingthat the signature of an attorney on the bankruptcypetition constitutes a certification that the attorney"has no knowledge after an inquiry that theinformation in the schedules filed with . . . [the]petition is incorrect." 11 U.S.C. §707(b)(4)(D).Many attorneys have complained that thisprovision, and others, require far too much ofdebtors' counsel. Before the passage of BAPCPA,however, attorneys had a duty to counsel theirclients and make due inquiry with respect to theinformation to be included in a debtor'sbankruptcy petition.

V. Conclusion

These new provisions strengthen and clarifythe rights of bankruptcy consumers by providingfor additional disclosures regarding thebankruptcy process and by establishing additionalremedies for debtors who have been harmed byunscrupulous bankruptcy service providers.Importantly, these provisions also present newenforcement tools that will enable the U.S.Trustee Program to continue in the mission ofprotecting the integrity of the bankruptcy system.

ABOUT THE AUTHORS

�Lisa Tracy is a Trial Attorney in the Office ofGeneral Counsel in the Executive Office for U.S.Trustees in Washington, D.C. She joined the theU.S. Trustee Program through the AttorneyGeneral's Honors Program in 2002,working in theBrooklyn office.

�P. Matthew Sutko acts as the U.S. TrusteeProgram's Appellate Coordinator in the ExecutiveOffice for U.S. Trustees, Office of GeneralCounsel. He joined the Office of General Counselin 1995, after working in the private and publicsectors since 1983. He is currently the Chair of theBankruptcy Committee of the Corporate andSecurities Section of the District of ColumbiaBar.a


Using Information Technology andData-Enabled Forms to Implement theBankruptcy Abuse Prevention andConsumer Protection Act of 2005Monique Klaus BourqueChief Information OfficerExecutive Office for United States Trustees

I. Introduction

The Bankruptcy Abuse Prevention andConsumer Protection Act of 2005(BAPCPA), Pub. L. No. 109-8, 119

Stat. 37, imposed a substantial number of newrequirements on those involved with thebankruptcy system. The U.S. Trustee Program(USTP or Program) looked at ways to applytechnical solutions to streamline or aid in meetingthese requirements. The Program defined a newstandard for filing electronic documents, whichpermits it to gather the new data elementsrequired. "Smart forms" were created that arecompatible with the United States BankruptcyCourts Case Management/Electronic Case FilingSystem (CM/ECF) and provide the ability to"drill down" into the electronically fileddocuments to extract pertinent data.

A smart form is a document that is dataenabled. When it is saved into the industrystandard Portable Document Format (PDF),searchable data, with tags that allow the formdata to be extracted by field, are available. Adata-enabled standard ensures all regions use thesame naming schema for the data tags.

Most of the United States Bankruptcy Courtsaccept electronically filed bankruptcy petitions,statements of financial affairs, and schedulesthrough CM/ECF as PDF files. The informationin these PDF files cannot be electronicallyextracted in this format because they areessentially "images" of the documents. If thesedocuments were filed as smart forms, however,the data could be uniformly extracted and parsedaccordingly.

II. Cooperative effort to develop data-enabled forms

For several years, the USTP has discussed thepossibility of data-enabled forms with theAdministrative Office of the United States Courts(AOUSC). In fiscal year (FY) 2002, the USTPworked closely with the AOUSC to update theUnited States Bankruptcy Court CM/ECF system.As a result, the CM/ECF system provides theUSTP, from each bankruptcy court, a dailydownload of any new cases, new docket events,and case closures, along with the ability todownload the PDFs.

In FY 2003, the USTP worked with theAOUSC to test the concept of a smart form andfound that the United States Bankruptcy CourtsCM/ECF system "as is" could support this newtechnology. The USTP subsequently asked theAOUSC to establish a joint working group topursue a data-enabled form standard. Thebankruptcy legislation raised the priority ofpursuing such a standard. The concept of a data-enabled form was presented to the AdvisoryBankruptcy Rules Committee, which agreed itwould be beneficial to research the conceptfurther. In addition, the Senate AppropriationsCommittee Report of 2005 acknowledged theefforts by the USTP and AOUSC to implementsmart forms, and encouraged the continued use ofinformation technology to leverage resources of allparticipants in the federal judicial system.

The USTP worked with the AOUSC todevelop a draft data-enabled form standard thatwas compatible with the United States BankruptcyCourts CM/ECF system and the National Archivesand Records Administration archive standards, andthat followed the emerging Justice XMLstandards. In the summer of 2005, a draft data-enabled form standard was released to thebankruptcy form software vendor community forcomment, and in September 2005 a final standard


was issued. The final standard applies to thefollowing official United States BankruptcyCourt forms.

• Official Form B1 Voluntary Petition(does not apply toExhibit A or ExhibitC)

• Official Form B6 Summary ofSchedules (does notapply to DeclinationConcerning Debtor'sSchedules)

• Official Form B6A Real Property

• Official Form B6B Personal Property

• Official Form B6C Property Claimed asExempt

• Official Form B6D Creditors HoldingSecured Claims

• Official Form B6E Creditors HoldingUnsecured PriorityClaims

• Official Form B6F Creditors HoldingUnsecuredNonpriority Claims

• Official Form B6G Executory Contractsand UnexpiredLeases

• Official Form B6H Codebtors Form 6I,Current Income ofIndividual Debtors(s)

• Official Form B6I Current Income ofIndividual Debtor(s)

• Official Form B6J Current Expendituresof IndividualDebtor(s)

• Official Form B7 Statement ofFinancial Affairs

• Official Form B22A Statement of CurrentMonthly Income andMeans TestCalculation for usein chapter 7

• Official Form B22B Statement of CurrentMonthly Income foruse in chapter 11

• Official Form B22C Statement of CurrentMonthly Income andDisposable IncomeCalculation for use inchapter 13

Unfortunately, it was subsequently determinedthat use of the final data-enabled forms standardwould not be mandatory. Accordingly, a softwarevendor need not create a "smart form," but if itdoes so, it must use the new data-enabled formstandard. Debtors may file their bankruptcydocuments using either "smart forms" or formsthat are not data enabled.

The new data schema for the data-enabledform standard builds upon the existing AdobePDF/A standard (Version 1.4) currently in placefor CM/ECF. Specifically, the new schemaincorporates the use of the Adobe Acroform fieldand value (F/V) tags within the PDF document.This approach will allow the AOUSC to remaincompatible with the long time archival of digitalrecords. In addition, AOUSC and USTP researchindicates that there are ample open source andcommercial tool sets available to manipulate theAcroform F/V tags within the PDF document. Thecomplete data schema, along with sample formsand frequently asked questions, is available at http://www.usdoj.gov/ust/eo/bapcpa/defs/index.htm#uscourts and http://pacer.psc.uscourts.gov/cmecf/developer/bkforms.html. Please see figure 1for an illustration of a data enabled form.

Figure 1 depicts the underlying data tagsassociated with the Official Bankruptcy CourtForm B1, Voluntary Petition in PDF format. Theuser is allowed to fill in the blanks on thecomputer. The data-enabled standard then appliesa uniform naming convention to the PDF. A PDF,with data tags, can be created as long as the systemuser has a full license of Adobe Acrobat. It is thatsimple.

III. Use of new forms standard

A data-enabled form with data tags that areinvisible to the user allows the computer system toautomatically route the filings into identifiedcategories, such as debtors with income below aspecified level, debtors with special circumstances,and debtors who must undergo the full means testanalysis. These automatic functions willsubstantially reduce the time Program employeesspend reviewing forms.


The following are examples of the potentialuses of data-enabled forms with data tags.

• Means test. Sort cases filed by debtors aboveand below the state median income, bycomparing reported income/expenses underthe new Current Monthly Income Form toreported income/expenses under the Petitionand Schedules, and flag for further review. Inaddition, identify cases that might becandidates for a § 707(b)(3) motion based onbad faith or totality of circumstances. Forexample, data tags would allow the Programto quickly sort cases in which the debtor listshigh unsecured debt, but little personalproperty.

• Study of Internal Revenue Service (IRS)Report Guidelines. Provide a statisticalcomparison of data. For example, a debtor'sactual expenses compared to IRS standards,both nationally and geographically. Withoutdata tags, it would be necessary to completethis process through manual sampling. Theinformation from data tags allows theProgram to make a more accurate assessmentof the impact of the use of IRS ExpenseGuidelines on debtors and the courts.

• Trustee final reports. Collect chapter 13 case-closing data and chapter 7 final report data.The information from data tags allows theUSTP to run national and geographic trendsanalyses of case closure statistics, planpayment dollars/percentages, fundsdistributed by estates/trustees, categories offunds distributed, and so forth. Anomalies areidentified promptly using this data.

• Chapter 11 monthly operating reports.Collect chapter 11 monthly operating data,and run national and geographic trendsanalyses of the status of operating chapter 11businesses, as well as their current incomeand cash flow/profit. The base of knowledgeprovided by data tags allows the Program toassess the characteristics of chapter 11debtors that lead to successful reorganization.

• Small business debtor identification. Identifysmall business debtors through electronicreview, rather than manual review.

• Debtor audits—targeted audits. Identify thetrends/indicators to flag cases for potentialselection for targeted audit, and assist with

the compilation of data for the debtor auditreport.

• Domestic support obligations. Aid the privatetrustees in their identification of casesinvolving domestic support obligations.

• Identify fraud and abuse. Assist the USTP andprivate trustees by permitting more focusedand efficient identification of fraud and abusein the bankruptcy system.

• Trustee operations. Enhance/streamline privatetrustee operations and management of cases.Data tags lead to more efficient and effectiveidentification of assets to be administered.

• Court operations. Enable the courts to meetmost of their new statistical reportingresponsibilities in a more cost-effectivemanner. In the future, data tags will lead to animproved staffing formula for the bankruptcycourts and an improved weighted caseloadformula for determining judgeship needs.

Since the release of the new Data-EnabledForms Standard for Bankruptcy Petitions,Schedules, Statement of Financial Affairs and theCurrent Monthly Income Statement (Means Test)in September 2005, the Program has receivedapproximately eighty data-enabled forms filedthrough CM/ECF. It appears only one vendor,Puritas Springs, incorporated the new standard inits software package. Some of the other vendorsfloated a few "test" forms through the process, butnone appear to be actively integrating the newstandard.

The USTP, in conjunction with the AOUSC,reached out to the software vendor community,where possible, to assist them with implementingthe new standard. A vendor fair was held at theAOUSC in December 2005. About thirtyindividuals attended in person with another twentyconnecting via teleconference. The meetingminutes of the vendor fair are posted at http://www.usdoj.gov/ust/eo/bapcpa/defs/index.htm.

The USTP also established an e-mail group tonotify the software vendor community of newinformation posted on the Program's Web site. TheProgram notified this e-mail group at the end ofJanuary 2006 of the new Census and IRS meanstest data posted, and the vendors updated theirprograms to include that data. The AOUSC andthe USTP held another vendor meeting in March


2006 to continue the dialogue with the softwarevendor community.

The Program anticipates that, onceimplemented, the new automated process usingsmart forms will eliminate thousands of hoursattributed to the manual review of forms byUSTP and court staff. It will also incorporatemore comprehensive case data into the nationalrepository and provide detailed national statisticson topics such as the amounts and categories ofassets and liabilities in bankruptcy cases.

While the USTP made substantial progress ina relatively short period of time, it will not beable to meet all of BAPCPA's data collectionrequirements unless the majority of the softwarevendors implement the new data-enabled formsstandard immediately. Specifically, without smartforms, the USTP cannot programmaticallyidentify the cases for the targeted audits that arescheduled to begin during October 2006, orelectronically access the income and expense datafor the IRS Expense Guidelines Study. As aresult, the USTP is reopening discussions withthe AOUSC regarding implementing a mandatorydata-enabled form standard as soon as possible.

In the meantime, the Program has enhancedits existing information collection systems todownload the relevant PDFs (Petitions,Schedules, Statements of Financial Affairs, andthe Current Monthly Income Statement) andorganize them in a new nationwide applicationthat allows Program staff to manage the meanstest review, view associated PDFs, record reviewfindings, and track filing deadlines. Viewing thePDFs through the new means test reviewapplication does not incur any PACER fees, sincethe PDFs are stored on USTP systems.

Implementing BAPCPA's data collectionrequirements has provided the Program with theimpetus to forge new technical solutions. It hasalso provided an opportunity for the USTP and theAOUSC to work collaboratively, and to form newworking relationships that will have long-lastingbenefits to the Program and the Department ofJustice.�

ABOUT THE AUTHOR

�Monique Klaus Bourque has been the ChiefInformation Officer for the Program since April2002. She is responsible for the informationtechnology systems, and efforts to modernize theautomated systems and establish nationwideinformation technology initiatives. Monique cameto the Program from the Department of Justice'sCivil Division, where she had worked since 1991,first as a Case Manager in the Office of LitigationSupport and later as the Chief of the ComputerSupport Branch. Monique was one of therecipients of the Attorney General's Award forExcellence in Information Technology in 2001.a


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