Congress Receives First Report Required by 2005 Bankruptcy Law

The first annual report to Congress containing new bankruptcy statistics mandated by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was filed by the Administrative Office in advance of the July 1, 2008 deadline.

The 2005 law requires bankruptcy courts to collect statistics on debtors who meet certain criteria. The Judiciary data systems in place when the law was enacted could not capture all the required information. Consequently, a whole new system and software had to be built, and the Judiciary began collecting the mandated data on October 17, 2006.

The data in this inaugural report represents cases filed or closed during calendar year 2007. Although all cases filed in 2007 are included, the number closed is limited to those commenced after October 17, 2006 and closed during the calendar year. “The primary consequence of this limitation is that data . . . based on cases closed during the reporting period may not be typical for a calendar year period,” the report states. “The results . . . primarily will be based on shorter-duration cases than would typically be included, but will exclude many of the longer-duration cases opened prior to October 17, 2006, that otherwise would have been included had this limitation on the filing date not been necessary.”

For example, a typical chapter 13 case, in which individuals with regular income and debts below a statutory threshold make installment payments to creditors under a court-approved plan, often lasts three to five years.

The report offers statistics about debtors—such as their reported assets and liabilities, and income and expenses—for the nation as a whole, as well as by judicial circuit and district. Those data, however, are provided exclusively by the debtors at the time of filing a bankruptcy petition, or within 15 days of that filing. The courts cannot verify the numbers.

Nationwide, consumer debtors seeking bankruptcy protection reported holding total assets of more than $108 billion and total liabilities of more than $139 billion.

Real property (land and homes) accounted for 77 percent of the reported assets, and personal property the other 23 percent. Of debts owed, 64 percent were categorized as secured claims such as homes and cars, 2 percent as unsecured priority claims, and 34 percent as unsecured non-priority claims. Overall, debtors categorized 96 percent of their reported debts and obligations as dischargeable (that which should be forgiven).

In chapter 13 cases, debtors filing consumer cases reported total assets of $55.5 billion and total liabilities of $54.7 billion. About 13 percent of the consumer cases terminated in 2007 were filed under chapter 13.

Far more cases—86 percent of consumer bankruptcy cases terminated in 2007—were filed under chapter 7, in which a debtor’s assets are sold to raise cash for creditors. Debtors in consumer chapter 7 cases reported total assets of more than $51 billion and total liabilities of $83.1 billion.

In the 798,370 consumer cases filed in 2007, debtors reported a median average monthly income of $2,490, and median average monthly expenses of $2,433. (The “median average” statistic is the middle point of such averages.)

Among the 480,635 consumer bankruptcies filed under chapter 7, the median average monthly income was $2,150, and the median average monthly expenses $2,405. Among the 317,148 consumer bankruptcies filed under chapter 13, the median average monthly income was $3,146, and the median average monthly expenses $2,482.

Bankruptcy courts in 2007 disposed of 391,071 consumer cases that met the criteria for inclusion in the report—337,467 under chapter 7 and 53,465 under chapter 13. Only 139 were disposed of under chapter 11, which like chapter 13 involves a reorganization of a debtor’s financial affairs and most often is used by corporations and other business entities.

The average time interval from filing to disposition was 124 days in chapter 7 cases; 155 days in chapter 13 cases. The average time intervals for chapter 13 cases will surely increase in the future, because of the previously mentioned reporting limitations of this first report.

The 2005 law requires tracking “the number of cases in which creditors are fined for misconduct and any amount of punitive damages awarded by the court for creditor misconduct.” But creditor misconduct is not a specific cause of action under federal bankruptcy law, and at least five violations of the Bankruptcy Code could be considered as creditor misconduct.

“As a consequence,” the report says, “what may be reported as creditor misconduct in one district may not be so reported in another.” In any event, three consumer cases terminated in 2007 are cited in which creditors were ordered to pay punitive damages, for a total of $11,250.

Likewise, the number of cases in which court sanctions were imposed against debtors’ attorneys were very low. The report cites only five such cases.

The 2007 Report of Statistics Required by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is available at