§ 3.3     Two: Don’t Trust Debtors
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 3.3, at ¶ ____, LundinOnChapter13.com (last visited __________).

This might be called the Larry Friedman Legacy. Larry, you may recall, was the Director of the Executive Office for United States Trustees from March 4, 2002, to April 27, 2005. Before ascending the United States trustee throne, Larry was a Chapter 7 panel trustee in Michigan. Larry will tell you that one of his favorite tricks as a trustee was to show up at a debtor’s home with a video camera to record the inside for comparison with the personal property schedule. Larry says he learned to distrust the Statement and Schedules in Chapter 7 cases.


That distrust was an easy sell in the anti-debtor environment ginned up by the credit coalition in the run up to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).1 As the House Report recites repetitiously, there is abuse in bankruptcy cases, including that debtors don’t tell the truth about their assets, income, etc.2 This perception shouts throughout BAPCPA.


Congress addressed this mistrust of debtors in BAPCPA by piling on new filings, new swearings, new warnings and new duties. Many of these new filings and duties were redundant—requiring consumer debtors to document information already required under penalty of perjury by the Statement and Schedules. Debtors now must provide3 or file 60 days of “payment advices”;4 one, three, four or more years of tax returns;5 and several new certificates;6 and the pile of new documents is subject to random audits by the Justice Department.7 Multiple swearings by the debtor were just not enough—debtor’s counsel also has to certify the Schedules in Chapter 7 cases.8 BAPCPA added new Miranda-like notices and warnings to debtors that inaccuracies in bankruptcy papers are a criminal offense.9


Bankruptcy trustees, especially Chapter 13 trustees, were at first stunned and remain overwhelmed by the mountains of documents BAPCPA heaped on the administrators of the consumer bankruptcy system. BAPCPA simply assumed that panel trustees and standing trustees would absorb and digest all of the new filings and documents required of consumer debtors. BAPCPA did not increase trustees’ fees in Chapter 7 or Chapter 13 cases and did not provide any resources to hire staff or build analytic tools to digest the tsunami of new information.


On the other hand, the U.S. Trustee Program did get more money from increased filing fees in Chapter 7 cases after BAPCPA.10


BAPCPA requires audits by the U.S. Trustee Program of debtor filings. The U.S. Trustee Program’s auditors scour selected debtor cases for “material misstatements.” Each year they find some and each year since the enactment of BAPCPA, the U.S. Trustee Program reports how many material misstatements its auditors have found in each judicial district.11


There is no evidence that creditors have experienced a greater return in bankruptcy cases as a result of the new filings, duties and audits imposed by BAPCPA. In fact, quite the contrary, distributions to creditors—secured, priority and unsecured—have fallen since the enactment of BAPCPA.12 There is no evidence in reported decisions or otherwise that creditors spend money to demand and review tax returns or to compare payment advices to Schedules I and J. The threat of random audits by the U.S. Trustee Program has not increased bankruptcy dividends to creditors.


Two things are certain: the new filings and duties imposed by BAPCPA have burdened every one of the millions of individuals who have filed bankruptcy since October 17, 2005, palpably reducing the efficiency of the consumer bankruptcy system; the new filings and duties imposed by BAPCPA have dramatically increased the cost of filing and maintaining a consumer bankruptcy case.13 It is a good bet that creditors would be better off with a pro rata distribution of the cost of the new computers and filing cabinets that trustees were forced to buy to receive and maintain (securely!) the millions of tax returns and other documents required by BAPCPA. The cost of mistrust of debtors has been huge, and creditors have nothing to show for this misbegotten aspect of BAPCPA.


1  Pub. L. No. 109-8, 119 Stat. 23 (2005). See § 2.2  Brief History, Including “Legislative History,” of BAPCPA.


2  See, e.g., H.R. Rep. No. 109-31, at 2–8, 10, 51–63.


3  See, e.g., 11 U.S.C. § 521(e)(2)(A) (“The debtor shall provide . . . .”) (emphasis added).


4  See 11 U.S.C. § 521(a)(1)(B)(iv), discussed in § 42.3  Payment Advices.


5  See 11 U.S.C. §§ 521(e), 521(f), 521(j), 1307(e), and 1308, discussed in § 42.4  Tax Return Duties—In General, § 42.5  Tax Return Duties Seven Days before First Scheduled Meeting of Creditors, § 42.6  Tax Return Duties One Day before First Scheduled Meeting of Creditors and § 42.7  Tax Return Duties—On Request.


6  See 11 U.S.C. §§ 109(h), 362(l), 521(b), 521(c), and 1328(a), discussed in § 19.3  Certificate from NBCCA: 11 U.S.C. § 521(b), § 36.33  Certificate of § 342(b) Notice after BAPCPA, § 36.35  Certification About Eviction Judgment and Rent Deposit, § 156.4  Domestic Support Obligation Certification and § 156.5  Instructional Course Requirement.


7  See 28 U.S.C. § 586(f).


8  11 U.S.C. § 707(b)(4)(D).


9  11 U.S.C. § 527(a)(2), discussed in § 4.1  WARNING! You Are a Debt Relief Agency.


10  See Emergency Supplemental Appropriations Act for Defense, the Global War on Terror and Tsunami Relief 2005, Pub. L. No. 109-13, 119 Stat. 231 (2005).


11  Executive Office for U.S. Trustees, U.S. Dep’t of Justice, Public Report: Debtor Audits by the United States Trustee Program Fiscal Year 2012 (Feb. 2013).


12  See Lois R. Lupica, Am. Bankr. Inst., The Consumer Bankruptcy Creditor Distribution Study Final Report (2013), discussed in § 3.2  One: Those Who Can Pay Should Pay.


13  See Lois R. Lupica, The Consumer Bankruptcy Fee Study: Final Report, 20 Am. Bankr. Inst. L. Rev. 17 (2012).