The current Bankruptcy Code is based upon an honor system that expects debtors to report their assets, income and debts fully and accurately. The current bankruptcy reform legislation reverses this presumption: The House bill assumes all filers are trying to evade repayment and cannot be trusted. Refusing to rely on self-reported income and expenses, the means test presumes that future income will be the same as in past years, evidenced by copies of tax returns, and that all debtors have the average expenses for their respective neighborhoods. Burdened with the means test requirements for calculating debtors' hypothetical abilities to repay their debts, trustees will be left with even less time and resources to investigate actual fraud, such as the concealment of assets, secret transfers and undisclosed income. A dramatically different approach is needed: Bankruptcy trustees should be encouraged, empowered and financed to take full advantage of the desktop investigative resources now available to achieve the fundamental bankruptcy goal of assuring that all non-exempt assets or income are used to pay all legitimate claims.

Historically, bankruptcy trustees have had to rely upon schedules, §341(a) examinations and irate creditors for their information about debtors' assets and income. The honor system was more a necessity than a choice. With the rapid development of online databases, however, much of a debtor's financial data can be verified independently without hiring a private investigator or conducting expensive Rule 2004 examinations. Due to the computerization of bankruptcy dockets, calendars and indices, and the increase in electronic case filing, all the basic identification information and financial data about bankruptcy debtors will soon be available in a computer-searchable form. Paralleling this development, the national credit bureaus, Social Security Administration, Internal Revenue Service (IRS) and even county land records are increasingly computerized. If trustees could access such databases and automatically compare the results against the debtor's schedules, discrepancies could be identified for further investigation in a cost-effective manner.

At least three obstacles must be overcome to implement such a screening program. First, legislation is required to authorize access to several of these databases. Currently, the Social Security Administration only responds to individual requests for verification of names and social security numbers for cause shown. It will not allow a routine, computerized search to compare the names of debtors and their stated social security or employer-identification numbers against the its databases. Similarly, computerized comparisons with the IRS database could be authorized, or alternatively, the IRS could be required to report to the trustee whether the debtor's reported income data is consistent with the tax records. Current law also needs to be amended to include bankruptcy trustees among those entitled to ask for full credit reports from credit bureaus. Access to credit reports should enable the trustee to assess the completeness of the schedules, but also to identify any recent credit applications by the debtor, often one of the best sources of information about undisclosed assets. Pre-petition credit applications are among the most useful sources of asset information. Similar statutory changes may be required to open recorder's offices to trustee inquiries about real property ownership and transfers. Essentially, the trustee should be allowed to perform the same kind of background check that borrowers are used to authorizing when they seek a major loan. Any law authorizing bankruptcy access to these databases should require the bankruptcy petition to include a prominent notice that such searches are likely to be conducted, and that the filing of the petition is deemed to constitute consent to release of their financial and tax records and information.

Second, the fees usually associated with such searches need to be waived or financed. Fees among federal agencies are usually waived, but that waiver would either need to be extended to include bankruptcy trustees, or searches of the Social Security or IRS databases would need to be conducted by the trustees. Credit bureaus might be willing to waive their fees in exchange for bankruptcy filing and status information. The credit card lending industry would be another logical source to underwrite costs for trustee access to credit reports. In addition, trustees should be expressly authorized to incur expenses for Internet and other computerized investigations of debtors. Amending U.S. Trustee policies for expense reimbursement to authorize such a line item expense could reassure trustees that such costs will be allowed. Alternatively, the U.S. Trustees' offices could subscribe to online investigative services and permit panel trustees to access such services through the regional offices. Trustees are likely to embrace computerized investigation as a part of their regular estate administration practices only if reasonably assured that their expenses will be covered.

Third, effective software programs would have to be developed to perform the retrieval function and comparison of the various databases. The commercial vendors that regularly market software to trustees would have ample incentive to develop effective programs. The National Association of Bankruptcy Trustees might be able to play a constructive role in the development process.

Fourth, trustees should take the lead in developing standard protocols for the use of computerized and other investigative tools. Training programs are also needed to educate panel trustees as to when and how to use such tools. Some basic verification steps probably should be done in all cases. Ideally, this process will lead to the identification of discrepancies and patterns that warrant further investigation. Most cases probably will not show any indications of hidden assets or income—most debtors come into bankruptcy court in truly desperate financial conditions. The key is to develop ways to distinguish between those debtors who have not accurately disclosed their full financial situation but are unlikely to have any significant assets, from those worth pursuing to recover assets.

This proposed strategy offers a greater promise of assuring the honesty and effectiveness of the bankruptcy system than the approach in the current legislation. Debtors will be far more likely to provide accurate and complete information if they know that trustees can readily check its accuracy. Some will probably choose not to file. Trustees can more effectively target asset recovery efforts if they have evidence beyond their educated intuition. And the public can be reassured of the integrity of the whole system. Computerization has already transformed bankruptcy case processing within the courts. With the rapid approach of the new millennium, it is time for the trustee's case administration process to take full advantage of the database transformation of the financial world.