USTP Data Shows Enhanced System Integrity
In late 2004, the U.S. Trustee Program (USTP) adopted a strategic plan1 for 2005-10 that encompasses several critical goals: (1) protecting the integrity of the bankruptcy system, (2) promoting the effectiveness and efficiency of the system and (3) maintaining operational excellence that achieves results through continuous improvements. Much of the foundation for this plan is built on the USTP's recent experience implementing the National Civil Enforcement Initiative.2
We have now compiled data on outcomes from Fiscal Year 2004 (October 2003 through September 2004). The data reflects the USTP's continued nationwide commitment to use civil enforcement as a valuable tool in combating fraud and abuse.
Case Dismissals and Discharge Denials Under §§707(b) and 727
Integrity of the bankruptcy system is enhanced through effective enforcement of bankruptcy laws and procedures. During FY 2004, U.S. Trustees filed 4,753 motions to dismiss for substantial abuse under 11 U.S.C. §707(b). Of the 3,211 motions to dismiss resolved by judicial decision or by debtor consent during the year, U.S. Trustees were successful in 3,058, or 95.2 percent, of the motions. U.S. Trustees initiated 28,181 informal inquiries and formal court actions under §707(b) and prevented the immediate discharge in chapter 7 of more than $275 million in general unsecured debt.
In FY 2003, U.S. Trustees filed 3,980 motions to dismiss for substantial abuse. During that period, 2,434 substantial-abuse motions were either granted by bankruptcy courts or resulted in the voluntary conversion of chapter 7 debtors to chapter 13. In the aggregate, in FY 2003 U.S. Trustees pursued more than 26,000 debtors through investigations and formal actions pursuant to §707(b), and prevented the immediate discharge in chapter 7 of more than $192.5 million of general unsecured debt.
With respect to 11 U.S.C. §727, statistics from FY 2004 show that U.S. Trustees filed 1,056 complaints objecting to the entry or seeking revocation of the debtor's discharge. Of the 915 complaints objecting to discharge that were resolved by judicial decision or by debtor consent during FY 2004, the discharge was denied, waived or revoked in 895, or 94.5 percent, of the cases. The U.S. Trustees initiated 3,465 informal inquiries and formal court actions under §727. These efforts prevented 1,387 debtors from discharging more than $192.5 million in general unsecured debt as a result of formal complaints or investigations that resulted in voluntary waivers of discharge, dismissals or conversions to chapter 13.
These efforts prevented 1,387 debtors from discharging more than $192.5 million in general unsecured debt...
During FY 2003, U.S. Trustees filed 877 actions seeking denial or revocation of the debtor's discharge. Of the 644 cases resolved by judicial determination or by voluntary waiver of discharge during FY 2003, discharge was denied in 609, or 94.6 percent, of the cases. As a result of U.S. Trustee actions under §727, debtors were prevented from discharging more than $406 million in unsecured debt in FY 2003. As noted in the Annual Report of Significant Accomplishments for FY 2003, "This total included a number of cases with unusually large amounts of unsecured debt"—nine cases in which more than $10 million was not discharged.
Enforcement Actions Involving Attorneys, Petition Preparers
System integrity is also promoted through enforcement of best practices and high ethical standards among all participants. During FY 2004, U.S. Trustees filed 707 motions seeking disgorgement of attorney fees under 11 U.S.C. §329. Of the 629 motions resolved by judicial decision or consent during the year, U.S. Trustees were successful in 567 motions against debtors' attorneys, or 90.1 percent, of the motions resolved. U.S. Trustees initiated 1,458 informal inquiries and formal court actions against debtors' attorneys that resulted in the disgorgement of fees totaling approximately $4.32 million. In addition, U.S. Trustees reported monetary sanctions against attorneys in excess of $309,000.
In FY 2003, U.S. Trustees pursued almost 900 actions seeking disgorgement of debtors' attorneys' fees in both consumer and business cases, resulting in the disgorgement of more than $4.7 million. During the same period, U.S. Trustees pursued more than 200 other actions for attorney misconduct and referred approximately 37 attorneys to state bar associations or other disciplinary boards.
During FY 2004, bankruptcy petition preparers were the subjects of 894 motions and/or complaints seeking relief filed by U.S. Trustees under 11 U.S.C. §110. Of the 797 matters resolved by judicial decision or consent during the year, U.S. Trustees were successful in 748 actions against petition preparers or 93.9 percent of the matters resolved. U.S. Trustees pursued petition preparers through informal inquiries and formal court actions in 2,254 cases. This activity resulted in the imposition of fines and the recovery of fees in excess of $2.9 million and the issuance of 249 injunctions.
In FY 2003, U.S. Trustees initiated more than 840 formal actions against petition preparers. Bankruptcy courts granted relief in 645 actions that, in the aggregate, resulted in the imposition of more than $440,000 in fines, the return of approximately $195,000 in fines and fee recovery, and the issuance of more than 250 injunctions.
The USTP has maintained a consistently high level of success in its enforcement actions, obtaining a successful outcome in 94.3 percent of the 13,812 matters decided during FY 2004, including chapter 11 matters not discussed here. During FY 2004, U.S. Trustees initiated more than 52,400 informal inquiries and formal civil enforcement and related actions. This resulted in a financial impact of approximately $522 million in debts not discharged—money potentially available to creditors. Nearly 70 percent of this financial impact resulted from formal court actions.
Beyond the immediate financial impact, however, is the likely deterrent effect of the USTP's enforcement effort. As knowledge spreads among participants in the bankruptcy system of the USTP's continuing civil enforcement commitment and successes, system abuses are more likely to be deterred. The USTP plans to continue these efforts aimed at improving the nation's bankruptcy system and its operation.
2 Each year since the initiative was launched in October 2001, the USTP has published data on outcomes in the Annual Report of Significant Accomplishments at http://www.usdoj.gov/ust/press/annualreports.htm. Return to article