Identity Theft in the Bankruptcy World

Identity Theft in the Bankruptcy World

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The Federal Trade Commission recently released the results of a survey showing that in the past five years, 27.3 million Americans have been the victims of identity theft. The loss to individuals as well as to businesses affected by the theft has reached billions of dollars. In this context, it became apparent that the easy access of the new Case Management/ Electronic Case Files (CM/ECF) System could contribute to identity theft. As a result, the legislature has revised certain bankruptcy rules, taking effect this December, to protect the personal information of individuals who file for bankruptcy.

Access to Case Files

The bankruptcy rules provide that any "paper filed...and dockets of a bankruptcy court are public records and open to examination by an entity at reasonable times without charge." 11 U.S.C. §107(a). The generally accepted practice has been to make all pleadings available to the public during the business hours of the courts. This availability is open to any person or entity that makes a request. Prior to the creation of CM/ECF, a person would actually have to show up at the courthouse to view the records or make a written request and pay any associated copying costs. It seems that this was too much work for a thief, as known incidents of identity theft from the courthouse were limited.

Today, through CM/ECF, the public has access to search, view, print and/or download any document filed in the system—all at the discounted price of $.07 per page. In 1999 and 2000, this somewhat unlimited access led to the announcement of a number of studies. One was conducted by the Department of Justice, the Department of the Treasury and the Office of Management and Budget in consultation with the Administrative Office of the U.S. Courts (Agency Study). Another study was conducted by the Committee on Court Administration and Case Management at the request of The Judicial Conference of the United States (Committee Study). The Agency Study was conducted specifically to determine how the filing of a bankruptcy affects the privacy of individual consumer information that becomes part of a bankruptcy case. The Agency Study further looked to address the public availability of information in bankruptcy cases, the need for access to this information and how technology affects all of these interests. The Committee Study actually looked at privacy and security concerns regarding public electronic access to all types of cases including civil, criminal and bankruptcy. The results of both of the studies led to similar recommendations.

The new bankruptcy legislation is just a first step in the area of privacy concerns. It does not even begin to address the information generally listed by debtors on the schedules such as loan numbers and/or account numbers, specifically credit card account numbers.

The Agency Study resulted in a number of recommendations, including that the general public should have access to core bankruptcy information. At the same time, the Agency Study recommended that the general public not have access to certain highly sensitive information that poses substantial privacy risks such as social security numbers, credit card numbers, loan accounts, dates of birth and bank account numbers. The committee recommendations were even more specific with respect to bankruptcy filings. The committee recommended that a debtor's full social security number should be collected at the court, but only the last four digits should be displayed on any notice to creditors and any electronic record on the docket, or paper copy stored at the courthouse.

The Legislature Steps In

In response to the studies discussed above, in January 2002 Congress published for comment a preliminary draft of a proposed amendment to Bankruptcy Rule 1005. The proposed amendment restricted the debtor's social security number on the caption of the petition to only the last four digits of the number. Numerous comments on the proposed amendments were submitted by groups representing creditor interests, taxing authorities, credit data collection services, law enforcement, bankruptcy petition preparers and the U.S. Trustee. Most groups were concerned about the potential difficulties in identifying the debtor by only using the last four digits of the social security number. The comments prompted further amendments, specifically to Rules 1007 and 2002, in order to satisfy most of the issues raised in the comments.

Effective December 2003, Amended Bankruptcy Rule 1005 will require a debtor to include only the last four digits of their social security number on the petition. To allow the court to verify the debtor's social security number, Amended Bankruptcy Rule 1007 will require the debtor to submit a verified statement of his/her full social security number. This statement is to be submitted to the clerk's office but is not to be included in any case file, whether as an electronic record or as part of any paper records. Further, Rule 2002 is amended and requires the clerk to include the full social security number on the §341 notice to creditors. The full number is only to be included on the notice that is sent out to creditors. Any copy of the §341 notice that is filed with the court for approval and/or as part of the certificate of service cannot include the full number.

Procedural Nightmare?

The amendments sound simple enough but do nothing to assist the clerks' offices in developing a procedure to handle this correctly. David Bird, the clerk of the court in the District of Delaware, fully supports the idea behind the amendments. "We will do whatever it takes to comply with these amendments," states Mr. Bird. His office is currently working on an electronic solution to the new requirements—they do not want to have to return to any form of paper filings. Delaware is currently developing a process whereby a separate e-mail address will be used to collect the social security statements required by the Amended Rule 1007. This will allow the clerk's office to verify the social security number as well as apply it to the §341 notice as required by Amended Rule 2002. Mr. Bird points out that each office can deal with these issues as they see fit and there have been a few different ideas thrown around. "It is one of the topics scheduled at our next Clerks Conference." He further notes that "as for Delaware, we aren't really worried about this being too large a problem as our consumer filings are relatively small. However, Los Angeles has the largest volume of consumer filings. It may be a procedural nightmare for that office."

Creditors Still Exposed

The new bankruptcy legislation is just a first step in the area of privacy concerns. It does not even begin to address the information generally listed by debtors on the schedules such as loan numbers and/or account numbers, specifically credit card account numbers. It also leaves personal creditor information open to the public. Even corporate debtors often list their employees on the schedules using and printing the employee account number, which can often be their social security number. Employees who file claims in chapter 11 cases usually put their social security number on the claim forms. Proof-of-claim forms are part of the public record and are available for review in the court, and in some jurisdictions they are even available on the Internet.

To proactively address this issue, my employer, The Trumbull Group, does not display any social security numbers on electronic copies that are on file with the court and at our web site, Lorenzo Mendizabal, president of Trumbull, states that "the Trumbull site is intended to provide transparency to the bankruptcy process and to significantly reduce costs of the estate by permitting more cost-effective modes of communication. Trumbull successfully balances the clear benefits of the site with procedures that prevent anyone from stealing highly sensitive personal information of creditors."

Mr. Bird supports the idea of preventing identity theft, but worries "that it still won't stop the determined criminal who is seeking the information. This is just a first step that raises a lot more questions and possibilities where identity theft is concerned."

The legislature has not even begun to address any of the issues concerning creditors' personal information or other information included by a debtor such as account numbers. For now, it seems debtors' social security numbers will be safe—at least at the courthouse and on the electronic filing system. There is still much work to be done to protect all of the parties that are involved in these filings.

Journal Date: 
Saturday, November 1, 2003