Business Regulation and Consumer Protection:
Potential Effect of Bankruptcy Abuse Prevention and Consumer Protection Act on Child Support Payments Cannot Be Determined because Data Needed for Study Are Not Available
GAO-08-148R, Oct 26, 2007
- Accessible Text:
Between 2001 and 2004, an average of more than 1.5 million people annually filed for personal bankruptcy protection. In April 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (Reform Act) was enacted, in part, to address certain factors viewed as contributing to an escalation in bankruptcy filings. Described as representing the most comprehensive set of reforms in more than 25 years, the Reform Act, among other things, requires those filers with the ability to pay some of their debts from future earnings to enter into repayment plans under Chapter 13 of the Bankruptcy Code instead of liquidating their assets under Chapter 7 and granting the debtor a discharge from eligible debts. Individuals usually file for bankruptcy under one of two chapters of the Bankruptcy Code. Under Chapter 13, filers submit a repayment plan to the court agreeing to pay part or all of their debts over time, usually 3 to 5 years. Under Chapter 7, the filer's eligible assets are reduced to cash and distributed to creditors in accordance with distribution priorities and procedures set out in the Bankruptcy Code. A large majority of cases filed under Chapter 7 have no assets available for liquidation, and thus no funds are available to pay creditors. Upon the successful completion of both Chapter 7 and 13 cases, the filer's personal liability for eligible debts is discharged at the end of the bankruptcy process, which means that creditors may take no further action against the individual to collect the debt. Bankruptcy filers may choose to reaffirm a debt, often for those debts secured by collateral, such as a home or a car. A reaffirmation agreement, generally filed under Chapter 7, formalizes this arrangement, whereby a filer with debts secured by collateral retains the collateral and continues to make debt payments to a creditor. Congress has expressed interest in learning whether the Reform Act has had or is likely to have an effect on bankruptcy filers who have a child support obligation and their ability to make these payments. Obligation refers to an amount owed or promised for payment, whereas payment refers to the act of paying or state of being paid. Child support obligations can be for past due child support, current support, or medical support. Past due child support refers to a debt owed by a noncustodial parent to, for example, a custodial parent or guardian for past child support owed but not paid. In contrast, current child support obligations reflect ongoing child support obligations. In the bankruptcy filing documents, a filer is to report past due child support and current child support expenses. Unpaid child support obligations are not discharged through bankruptcy. To request relief from debt, individuals file a petition, financial statements, and schedules (including information about child support obligations), among other things, with the bankruptcy court. In this report, we refer to all documents filed with the court as bankruptcy filing documents. Congressional interest stemmed from concerns that amendments made by the Reform Act that require certain debtors to enter into Chapter 13 repayment plans or potential pressure from creditors to reaffirm debts might affect the ability of bankruptcy filers to pay past due child support or ongoing child support obligations. This report discusses issues related to our inability to assess the potential impact of the Reform Act on child support payments as well as information on bankruptcy filers who have child support obligations. Specifically, this report addresses (1) difficulties in determining the potential effect of the Reform Act on an individual's ability to pay child support and (2) an agency proposal regarding the use of data-enabled forms--documents with embedded, invisible data tags that facilitate the extraction of data for analysis--to alleviate some of these difficulties.
After exploring the data available and the limitations of those data, we found that it was not possible to determine the potential effects of pertinent child support-related provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 on filers' child support obligations and payments for two principal reasons. First, current federal laws do not require this particular universe--- bankruptcy filers who also have child support obligations--to be identified on a recurring basis, and the federal judiciary and the Executive Office for U.S. Trustees do not separately identify filers who have these obligations. The information contained in the data systems used by the federal judiciary and regional U.S. Trustees cannot be searched for bankruptcy cases that contain child support obligations. Therefore, we tested a case study approach to identify these filers. At our request, 33 case trustees who manage individual bankruptcy cases in the Eastern and Northern Districts of Texas identified 495 cases filed between October 2005 and August 2006 in which the bankruptcy filer reported a child support obligation. The case trustees perceived this task as one that required extra effort and added to their case management responsibilities. To do a national study would require making a similar request of the other 20 regional U.S. Trustees and a statistically representative sample of their 1,342 case trustees. Second, in our review of a nongeneralizable sample of 60 cases, we found that the information provided by filers and their attorneys contained in the case files had data limitations--including missing information and data that were inconsistently reported--that limited any analysis that could be done. For example, the bankruptcy documents that filers are required to complete did not show what portion of a payment for a child support obligation is applied to current support versus past due child support. According to Health and Human Services officials, state child support data would be needed to determine the details regarding the amounts of child support payments and the payment status of cases; those data are complex and available only through the individual states. State child support enforcement officials in one state told us that providing child support payment information would involve a time-consuming and resource-intensive process because the data come from several sources within the state's data system. Thus, data limitations, the need to examine individual bankruptcy case files, and the need to work with each state child support enforcement agency combined to make examining the issues of child support and bankruptcy very expensive and time-consuming, and the conclusions that could be drawn from such an examination uncertain.