Personal Bankruptcy:

The Credit Research Center Report on Debtors' Ability To Pay

GGD-98-47: Published: Feb 9, 1998. Publicly Released: Feb 9, 1998.

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Norman J. Rabkin
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Pursuant to a congressional request, GAO reviewed the Credit Research Center report on personal bankruptcies, focusing on the report's research methodology and formula for estimating the income that debtors have available to pay debts.

GAO noted that: (1) overall, the Center report represents a useful first step in analyzing the ability of bankruptcy debtors to pay their debts; (2) because there is little empirical basis on which to assess the accuracy of the data used in the report's analysis, and because the data provided by the authors showed considerable variation among the 13 locations used for analysis, the report's general findings must be interpreted with caution; (3) GAO's review of the Center report suggests that additional research and clarification would be needed to confirm the accuracy of the report's conclusions regarding the proportion of debtors who may have the ability to repay at least a portion of their nonpriority, nonhousing debts; and (4) there were five areas of concern with the Center's report that could affect interpretation of the report's conclusions: (a) the report's assumption's about the information debtors provide at the time of filing bankruptcy regarding their income, expenses, and debts and the stability of their income and expenses over a 5-year period were not validated; (b) the report did not clearly define the universe of debts for which it estimated debtors' ability to pay; (c) payments on nonhousing debts that debtors stated they intended to reaffirm--voluntarily agree to repay--were not included in debtor expenses in determining the net income debtors had available to pay their nonpriority, nonhousing debts; (d) the report presented results based on data from all 13 locations combined and provided little discussion of the considerable variation among the 13 locations used in the analysis; and (e) a scientific, random sampling methodology was not used to select the 13 bankruptcy locations or the bankruptcy petitions used in the analysis.

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