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The U.S. Trustee Program's Efforts to Prevent Bankruptcy Fraud and Abuse

Report No. 03-17
March 2003
Office of the Inspector General


APPENDIX 10

  U.S. Department of Justice

Executive Office for United States Trustees
 

Office of the Director Washington, DC 20530
 
  February 27, 2003
 
MEMORANDUM
TO: Guy K. Zimmerman
Assistant Inspector General for Audit
FROM: Lawrence A. Friedman (original signed)
Director
SUBJECT: Draft OIG Report on "The United States Trustee Program's Efforts to Prevent Bankruptcy Fraud and Abuse"

 

Thank you for the opportunity to review the draft report by the Office of the Inspector General (DIG) on the "United States Trustee Program's Efforts to Prevent Bankruptcy Fraud and Abuse. " This report provides important facts and analyses that support the programmatic and management initiatives commenced by the United States Trustee Program (USTP or Program) in calendar year 2001 and reflected in budget submissions by the Bush Administration and Attorney General Ashcroft for Fiscal Years 2002 and 2003. The report clearly identifies the need for enhanced and comprehensive efforts to identify fraud and abuse in the bankruptcy system, and provides several recommendations that will improve our ongoing activities in this critical area.

This response is organized around the two findings made in the OIG report. For each of the findings, the response includes general commentary and then specific action items based upon the recommendations the OIG made related to the finding. In addition, attached is an appendix of technical corrections that we suggest be made to the report before it is issued in final form by the OIG.

Response to Finding #1: Management Controls

The OIG recognized that the USTP has made civil enforcement to combat bankruptcy fraud and abuse its number one priority. The OIG also correctly notes that the Program requires a more "systematic process" and more "uniform internal controls" to identify debtor and other high risk fraud in the bankruptcy system. In particular, the OIG pointed out that the Program should adopt additional management controls to ensure that it is addressing general fraud indicators, rather than place continued emphasis on private trustee fraud which now accounts for only a small portion of all criminal fraud uncovered by the Program. In making this finding, the OIG discusses several recent important projects launched by the Program to address this pressing need, including the National Civil Enforcement Initiative (NCEI or Initiative), the Debtor Identification Project, bankruptcy petition preparer enforcement activities, and continued leadership in forming district-wide bankruptcy fraud working groups.

The Program largely concurs in the OIG's finding and analysis. It is important to note, however, that despite this Administration's efforts to provide the Program with additional resources, it is not realistic to expect that we ever will enjoy financial and personnel resources sufficient to uncover all civil and criminal fraud and abuse in the bankruptcy system. Insofar as private trustees appointed by the United States Trustees (USTs) administer nearly all of the 1.5 million cases filed each year, it is necessary to rely upon these trustees as a first line in identifying improper conduct. Few, if any, regulatory agencies aim to identify and investigate 100 percent of all potential violations. It is incumbent upon the USTP as the primary bankruptcy enforcement agency, however, to develop, implement, and evaluate rigorous systems to uncover and prosecute fraud and abuse. These systems should ensure severe consequences for wrongdoers and provide a strong deterrent against similar bad conduct by others in the bankruptcy system.

It is important to recognize that the USTP's authority is limited to civil enforcement. When our staff identifies criminal conduct, we refer the matters to United States Attorneys and assist them in prosecuting cases. Weare not authorized to conduct criminal investigations or to prosecute cases without express authority from the United States Attorney. Moreover, resource constraints imposed upon the FBI and United States Attorneys have severely limited bankruptcy enforcement.

The initial results of our National Civil Enforcement Initiative are encouraging. In the first full year of this Initiative (Fiscal Year 2002), field offices reported taking 30,000 formal or infonnal enforcement actions that, together with related activities, resulted in approximately $160 million in potential additional returns to creditors through debts not discharged and other remedies. This Initiative will remain our major priority in the foreseeable future and we are taking numerous steps to strengthen this effort. The Action Items identified below in response to OIG recommendations are among those important steps.

Action Items to Implement Recommendations

Recommendation #1: Establish unifoffil management control procedures within UST offices to prevent and detect the more common and higher-risk types offraud affecting the bankruptcy system, such as concealment of assets and serial filers, and ensure that resources are targeted accordingly.

Action Item #1: Designate civil enforcement coordinators who will oversee the NCEI by, among other things, issuing standard guidance, providing technical assistance and training, and coordinating multi-jurisdictional litigation. Such guidance will include a description of the best methods to identify the most common forms of abuse.

In the Summer 2002 (during the course of the OIG review), the Director designated two senior USTP staff members to serve the functions described above. Their objective is to enhance the quality of our USTP civil enforcement efforts and to ensure greater consistency in the implementation of the Initiative.

Action Item #2: Establish criminal enforcement coordinators to assist USTP staff in identifying and referring for prosecution cases involving criminal conduct, to prosecute cases as Special Assistant United States Attorneys, and perform related duties.

The Director selected two regional coordinators in January 2003. Subject to available appropriations, the Program will expand the national criminal enforcement unit in 2003.

Action Item #3: Create a debtor audit program.

During July and August 2002, six USTP offices conducted a mini-debtor audit pilot to determine the scope of an expanded audit program that could identify specific instances of fraud and abuse, as well as measure the magnitude of fraud and abuse in the bankruptcy system. The Administration and the Attorney General requested funds from Congress to expand the debtor audits in Fiscal Year 2003, but that request was not funded by Congress.

Action Item #4: Develop a Civil Enforcement Manual that will, among other things, identify indicia of fraud and assist staff in the investigation and civil prosecution offraud and abuse. This Manual will build upon guidance already contained in the UST Manual.

Action Item #5: Develop advanced civil and criminal enforcement training for Program staff.

In Fiscal Year 2002, seven civil enforcement training programs were delivered to 395 staff members at the Program's National Bankruptcy Training Institute (NBTI) at the National Advocacy Center (NAC).1 In Fiscal Year 2003, at least three civil enforcement related courses are planned that will reach 150 staff members with the next level of training. These courses will build upon the guidance provided by the NCEI coordinators, including the detection and sanctioning of various forms of fraud and abuse. In addition, a civil enforcement component is built into nearly all of the USTP-sponsored training programs. Although Congress earmarked $750,000 for training in Fiscal Year 2002, the Program expended more than $900,000 for this purpose2. Subject to available appropriations, we plan to maintain this high level of activity.

Action Item #6: Provide national training for private case trustees.

Currently, field offices regularly provide training programs for private trustees they oversee, and such training often includes a component on combating fraud and abuse. The Program will require that such training be conducted on a yearly basis. In addition, the Program will, for the first time, provide national training at the NBTI for recently appointed trustees. This training will include a module on bankruptcy fraud and abuse. Finally, the Program will develop a curriculum on fraud and abuse and deliver it to the field to be used in providing local training to private trustees.

Recommendation #2: Expand the existing data system to allow for detection of multiple bankruptcy filings nationwide.

Action Item #7: Develop an ACMS replication data base.

The ACMS case tracking system does not permit nationwide or cross-regional searches. The Program has obligated $425,000 to provide this capability. Completion will require $800,000 in additional funding and cannot be completed until the end of Fiscal Year 2005. However, the ability to detect multiple bankruptcy filings may be available by the end of Fiscal Year 2004.

Recommendation #3: Ensure uniform and complete reviews of Final Reports and Final Accounts.

Action Item #8: Reissue (and revise, if appropriate) a protocol governing review of final reports and accounts.

The Program has issued extensive guidance to the field on this matter in the past. In conjunction with the Civil Enforcement Initiative, streamlined procedures were developed so that trustee oversight could be accomplished more efficiently, thereby making additional resources available to uncover non-trustee fraud and abuse. In addition, the Program will seek the assistance of the Bureau of Justice Statistics or other federal statistidaI agencies in further streamlining the procedures for reviewing final reports and accounts. Revised peer review procedures now scheduled for development will also include a section addressing the review of final reports and accounts.

Recommendation #4: Ensure that review procedures for cash receipts and disbursements reports are fully implemented.

Action Item #9: Reissue (and revise, if appropriate) guidance governing the review of chapter 11 Monthly Operating Reports (MORs).

Although this step appears appropriate in light of the OIG Finding and Recommendation, we question whether this action is necessary. Contrary to the suggestion in the OIG report, MORs are routinely reviewed and acted upon. For example, in Fiscal Year 2002, field offices reported filing 4,166 motions to convert or dismi~s chapter 11 cases. This represents action in approximately 36 percent of all pending chapter 11 cases. A substantial number of these motions are based upon information gleaned from the standardized MOR review.

Response to Finding #2: Performance Measurement System

The OIG describes the importance of adopting a more reliable "management information system" to track cases in which fraud was identified, to ensure the accuracy of field office reporting, to discern trends, and to measure performance. The DIG also noted in two sections of the report (p. 24 and p. 58) that the Program has not measured the extent of fraud and abuse in the entire bankruptcy system. The DIG focused on the Program's Criminal Referral Data Base which is insufficiently reliable and upon which the Program generally does not rely in making policy and resource allocation decisions. The Data Base is used only as a rudimentary tracking system and not as a management tool. The DIG analysis contained favorable commentary on recent data collection projects undertaken by the Program, including the new "Significant Accomplishments" data base and new performance measures adopted pursuant to the Government Performance and Results Act (GPRA).

Action Items to Implement Recommendations

Recommendation #5:3 Redesign the Criminal Referral Tracking System so that it tracks UST investigations as well as referrals made to law enforcement authorities, and use the system for trend analyses of the types of fraud and caseloads both nationally and regionally.

Action Item #10: Design a study to measure the magnitude of fraud and abuse in the bankruptcy system. The Program will seek technical guidance from the Bureau of Justice Statistics or other federal statistical agencies to design such a study. Implementation of this recommendation may be limited by available appropriations.

Action Item #11: Explore coordination of the USTP criminal referral data base with the Executive Office for United States Attorneys (EOUSA).

The USTP will consult with EOUSA to explore developing a data base that better tracks the disposition of USTP referrals from investigation through disposition, including United States Attorney declination or sentencing.

Action Item #12: Design a new Criminal Referral Tracking System (CRTS).

In 2002, the CRTS and other Program data bases were transferred into the Information Technology (IT) unit of the Executive Office for United States Trustees. In Fiscal Year 2003, the IT unit will survey users of the CRTS system and redesign the system. The new data base will be designed to serve the purposes described in Recommendations #5. The data base design will incorporate a protocol for local and regional office verification. We anticipate that the data base will be delivered to the field in Fiscal Year 2004.

Recommendation #6: Establish data entry protocols for the Criminal Referral Tracking System to ensure that the data is [sic] complete and consistent.

See Action Item #12.

Recommendation #7: Require regional offices to verify criminal fraud referral data for accuracy, completeness, and consistency prior to submitting the appropriate data to the EOUST.

See Action Item #12. The protocol will require appropriate verification by regional offices.

Recommendation #8: Require the EOUST's staff to spot check fraud referral data submitted by the regional offices to help ensure completeness, uniformity, and accuracy.

See Action Item #12. The protocol will provide for periodic spot checks by EOUST staff.

Recommendation #9: Establish a system or modify the existing system to accurately track civil enforcement actions nationally and to compile performance data on the civil enforcement aspect of the UST Program.

Action Item #13: Establish and refine the Significant Accomplishments data base.

In July 2001, the Program issued the first comprehensive request to measure civil enforcement and other litigation-related work performed in the field by the Program. This reporting system, including accompanying guidance, was refined over time and served as the basis for significant changes in the GPRA measurements reported to Congress. In July 2002, the Program began to develop a web-based system for significant accomplishments reporting. After a pilot phase, the new system is now being rolled out nationwide. By the end of January 2003, one-third of the USTP offices were using the automated reporting system. Additional improvements in 2003 will include a protocol for verification of the accuracy of the data contained in the system. To the extent feasible, the Significant Accomplishments data base and the CRTS will be interactive.

I hope that the commentary provided above and technical corrections suggested in the appendix to this response are helpful to you in preparing a final report. The OIG staff did a commendable job in preparing the report, and the findings and recommendations contained in the report will prove to be extremely valuable to the USTP as it moves forward in its criminal and civil enforcement initiatives.

Please let me know if I may provide additional information


APPENDIX

SUGGESTED TECHNICAL CORRECTIONS

Page 2, Footnote 1: "In the event that the private trustee is unable or unwilling to serve, the U.S. Trustee is to assume the private trustee's duties."

    Technical Correction 1: "In the event that the private trustee is unable or unwilling to serve, the U.S. Trustee may assume the private trustee's duties."

    Explanation for Technical Correction 1: Section 322 of the Bankruptcy Code provides that the United States Trustee is eligible to serve as a case trustee in a chapter 7, 12, or 13 case. The Code, however, does not require the United States Trustee to serve as a case trustee. See 11 U.S.C. §§ 701, 1202, and 1302. In addition, the Code prohibits the United States Trustee from serving as a chapter 11 trustee. See 11 U.S.C. § 1104.

Page 14: United States Trustee Organizational Chart.

    Technical Correction 2: Substitute the organizational chart included as Attachment 1 to this Appendix.

    Explanation for Technical Correction 2: The chart depicted on page 14 is not the official organizational chart approved by Attorney General Ashcroft on May 14, 2002. EOUST was not the source of the chart. In addition, the chart on page 14 reflects that private trustees are employees of the United States Trustee Program. Private trustees are not employees of the United States Department of Justice or the United States Trustee Program.

Page 15, Footnote 8: "A creditors' committee generally consists of three to eleven unsecured creditors. The creditors' committee may consult with the Program, trustees, and the bankruptcy courts on matters affecting the administration of the estate."

    Technical Correction 3: "A creditors' committee generally consists of three to eleven unsecured creditors. The creditors' committee may consult with the Program, debtors, and others on matters affecting the administration of the estate."

    Explanation for Technical Correction 3: 11 V.S.C. § 1102 states that, "A committee of creditors ... shall ordinarily consist of the persons willing to serve, that hold the seven largest claims against the debtor ...." The statutory duties of a chapter 11 creditors' committee are set forth in 11 V.S.C. § 1103. The last sentence of the footnote describes the duties of a chapter 7 creditors' committee as set forth in 11 V.S.C. § 705.

Page 15, Footnote 9: "Creditors may elect Chapter 7 trustees."

    Technical Correction 4: "Creditors may elect Chapter 7 and Chapter 11 trustees.

    Explanation for Technical Correction 4: Creditors may elect chapter 7 and chapter 11 trustees. 11 V.S.C. § 11O4(b).

Page 16: "The court appoints a Chapter 11 trustee upon the request of an interested party or the UST."

    Technical Correction 5: "The court may direct the United States Trustee to appoint a Chapter 11 trustee upon the request of an interested party or the UST."

    Explanation for Technical Correction 5: The court orders the appointment of a trustee. The United States Trustee appoints the trustee and the court approves the appointment. 11 V.S.C. § 702 and § 1104(d).

Page 17: "The UST Program is funded by fees assessed against debtors who use the bankruptcy system."

    Technical Correction 6: "The UST Program is entirely funded by fees assessed against debtors who use the bankruptcy system."

    Explanation for Technical Correction 6: Statutory fees assessed against debtors are the Program's sole source of funding.

Page 18: "Chapters 12 and 13 Trustees"

    Technical Correction 7: The following responsibility should be added to the list of responsibilities enumerated on page 18.

    • The disbursement to creditors of funds collected from the debtors pursuant to the terms of the confirmed plan.

    Explanation for Technical Correction 7: The enumerated list is a list of statutory responsibilities and not fiduciary duties. The language change clarifies that standing trustees are responsible for disbursements under the confirmed plan.

Page 19: "The second category, providing $82.4 million or 55 percent of the UST Program's funding, is quarterly fees paid by the Chapter 11 debtors. The other $7.4 million or 5 percent comes from miscellaneous compensation associated with Chapters 12 and 13 debt collection receipts, and refunds."

    Technical Correction 8: "The second category, providing $82.5 million or 54 percent of the UST Program's funding, is quarterly fees paid by the Chapter 11 debtors. The other $7.4 million or 5 percent comes from miscellaneous compensation associated with Chapters 12 and 13 debt collection receipts."

    Explanation for Technical Correction 8: The dollar amount and corresponding funding percentage were corrected for accuracy. Additionally, the source of funding was corrected.

Page 19: "In FYs 1997 to 2002, the UST Program expended or obligated about $740 million in total to manage and provide oversight of the bankruptcy system ...."

    Technical Correction 9: "In FYs 1997 to 2002, the UST Program obligated about $739 million in total to manage and provide oversight of the bankruptcy system ...."

    Explanation for Technical Correction 9: $740 million should be changed to $739 million. "Expended" should be deleted from every place it appears in the paragraph, and the word "obligated " should be substituted. Obligations and expenditures have specific legal definitions in connection with appropriation law. Obligations are the amounts of money federal agencies legally set aside to pay for contracts, grants, services, and other items that require the government to make payments. An expenditure is a payment to liquidate the obligation. Obligations are not necessarily equal to expenditures.

Page 20: Chart -"Funds Expended or Obligated by the UST Program, FY s 1997 to 2002."

    Technical Correction 10: Chart -"Funds Obligated by the UST Program, FY s 1997 to 2002." Changes to the chart should be made as shown below. The changes are in bold.

    Explanation (or Technical Correction 10: The words "Expended or" should be deleted from the chart title (see Explanation for Technical Correction 9), and the highlighted numbers should be substituted for the numbers in the chart.
Funds Obligated by the UST Program
FYs 1997 to 2002
Category Administration of
Cases
Management and
Administration
Total
1997 $99,569,000 $8,202,000 $107,771,000
1998 $108,540,000 $9,001,000 $117,541,000
1999 $110,737,000 $8,872,000 $119,609,000
2000 $110,706,000 $10,843,000 $121,549,000
2001 $117,735,000 $8,750,000 $126,485,000
2002 $145,717,000 $0* $145,717,000
Total $693,004,000 $45,668,000 $738,672,000
Source: Actual obligations for FY s 1997 to 2001 according to UST budget documents, and obligated funding for FY 2002 according to UST Program officials.

* Per JMD guidance, as part of a GPRA initiative, the USTP was directed to merge the Management and Administration decision unit into the Administration of Cases decision unit.

Page 20: "For FY 2002 the UST Program had requested $7.8 million for two fraud and abuse initiatives ...."

    Technical Correction 11: "For FY 2002 the UST Program had requested $7.8 million for a fraud and an abuse initiative ...."

    Explanation for Technical Correction 11: The word "two" should be deleted and the word "a" should be added before fraud and the word "an" should be added before the word abuse. These changes clarify that the request was for one fraud initiative and one abuse initiative.

Page 30: "In cases where money is returned to creditors (asset cases), Chapter 7 trustees receive compensation based on the percentage of the assets collected and reduced to cash ...."

    Technical Correction 12: "In cases where money is returned to creditors (asset cases), Chapter 7 trustees receive compensation based on a percentage of the funds disbursed to creditors ...."

    Explanation for Technical Correction 12: Chapter 7 trustee compensation is based on disbursements to creditors and not on the percentage of the assets collected. 11 V.S.C. § 326.

Page 30: "However, if the trustees elect to perform the review and uncover assets, they would receive additional compensated for administering the case."

    Technical Correction 13: "However, if the trustees elect to perform the review and uncover assets, they would receive additional compensation for administering the case."

    Explanation for Technical Correction 13: The word "compensation" should be substituted for the word "compensated" to make the sentence grammatically correct.

Page 33: "Five referrals were based on judicial proceedings such as adversary proceedings, a rule 2004 meeting ...."

    Technical Correction 14: "Five referrals were based on judicial proceedings such as adversary proceedings, a rule 2004 examination ...."

    Explanation for Technical Correction 14: The word "examination" should be substituted for the word "meeting" in the body of the text and in footnote 19. Fed. R. Bankr. P. 2004.

Page 36, Footnote 21: "Creditors must cease all collection efforts for 90 days ...."

    Technical Correction 15: "Creditors must cease all collection efforts ...."

    Explanation for Technical Correction 15: The phrase "for 90 days" should be deleted because the law does not impose a time limitation on the automatic stay. 11 U.S.C. § 362.

Page 64: FY 2002 and 2003 Performance Indicators Chart.

    Technical Correction 16: Substitute the Performance Resources Table included as Attachment 2 to this Appendix.

    Explanation for Technical Correction 16: The chart depicted is not current.

Page 64, Note "a": "Section 707 of Title 11 addresses dismissal of bankruptcy cases if debtors cause unreasonable delays that are detrimental to creditors, fail to pay bankruptcy filing fees or charges, fail to file required documentation requested by trustees or USTs, or if the debts are primarily consumer debts. Section 707 also includes substantial abuse of the bankruptcy system, e.g. the debtor's ability to pay."

    Technical Correction 17: "Section 707(a) of Title 11 addresses dismissal of bankruptcy cases if debtors cause unreasonable delays that are detrimental to creditors, fail to pay bankruptcy filing fees or charges, or fail to file required documentation requested by trustees or USTs. Section 707(b) includes substantial abuse of the bankruptcy system, e.g. the debtor's debts are primarily consumer debts and the debtor has an ability to repay."

    Explanation for Technical Correction 17: The first three causes for dismissal are set forth in 11 V.S.C. § 707(a). Only Section 707(b) addresses substantial abuse. The phrase "if the debts are primarily consumer debts" should be repositioned because the fact that a case consists primarily of consumer debt is a prerequisite for 707(b) application, but it is not a ground for dismissal pursuanto §§ 707(a) or (b).

Page 65: "OIG Recommendations 7 - 11."

    Technical Correction 18: "OIG Recommendations 5 - 9."

    Explanation for Technical Correction 18: The OIG Recommendations beginning on page 65 are misnumbered.

Page 74: "Woodland, CA"

    Technical Correction 19: "Woodland Hills, CA"

    Explanation for Technical Correction 19: The office is located in Woodland Hills, California.


ATTACHMENT 1 TO APPENDIX
Organizational chart of the Executive Office for United States Trustees.  Click the chart for a text/table version.


ATTACHMENT 2 TO APPENDIX

 

Performance Resources Table
Decision Unit/Program: United States Trustee Program
 
DOJ Strategic Goal/Objective: BANKRUPTCY: Protect the Integrity and ensure the effective operation of the Nation's bankruptcy system
WORKLOAD/RESOURCES Actual Actual Projected Requested Requested
(Total)
TYPE Performance
Measures/Resources
FY 2001 FY 2002 FY 2003 Request Current
Services
Adjustments
FY 2004
Program
Change
FY 2004
Enhanced
Strategic Objective Protect the Integrity and ensure the effective operation of the Nationís bankruptcy system.        
Program Activity 1. Civil Enforcement FTE $000 FTE $000 FTE $000 FTE $000 FTE $000 FTE $000
69 8,861 128 18,139 210 26,433 10 602 ... ... 220 27,035
Performance
Measure
# of motions & complaints & inquiries

% of successful motions & complaints
13,305

90%
27,457

92.1%
23,000

85%
1,000

2%
...

...
24,000

87%
Program Activity 2. Case and Trustee Administration FTE $000 FTE $000 FTE $000 FTE $000 FTE $000 FTE $000
930 117,573 908 127,578 991 141,077 ... 7,060 ... ... 991 148,137
Performance
Measure
Chapter 11
# of cases monitored
10,225 11,380 12,000 ... ... 12,000
# of motions & inquiries to convert or dismiss Chapter 11 cases 6,172 8,198 7,000 ... ... 7,000
% of unconfirmed Chapter 11 cases over 3 years old 4.5% 2.7% <4.5% ... ... <4.5%
Chapter 7
# of cases monitored
982,934 1,047,969 1,153,000 69,000 ... 1,222,000
% of Chapter 7 cases over 3 years old 2.20% 2.10% <3.80% ... ... <3.80%
Chapter 13
# of cases monitored
374,133 410,686 451,000 29,000 ... 480,000
Outcome: Payments to Creditors/%of total payments            
Chapter 7 $886,229,563
58.6%
$787,707,213
52.0%
$786,706,213
54.0%
...
...
...
...
$786,706,213
54.0%
Chapter 12 $30,282,131
88.8%
$25,866,523
75.0%
$25,866,523
75.0%
...
...
...
...
$25,866,523
75.0%
Chapter 13 $3,153,761,306
86.65%
$2,911,254,306
80.0%
$2,911,254,306
80.0%
...
...
...
...
$2,911,254,306
80.0%
Potential Additional Returns to Creditors through Civil Enforcement and Related Efforts Not Available

(Data was not collected in FY 2001)
$159,010,713 $159,000,000 ... ... $159,000,000

Data Definition, Validation, Verification, and Limitations:

Data Definitions:

Chapter 7: A liquidation case. A trustee is appointed to sell the debtorís non-exempt assets and distribute the proceeds to creditors. Generally, absent fraud or abuse, the remaining debts are discharged.

Chapter 11: A reorganization case. The debtor remains in possession of its assets, continues to operate its business, and repays and/or readjusts debts through a plan that must to be approved by creditors and the bankruptcy court. Chapter 11 cases are generally business cases.

Chapter 13: A debt readjustment case by an individual with regular income. The debtor retains property, but repays creditors, in whole or in part, through a court approved chapter 13 plan over a period not to exceed 5 years.

Civil Enforcement:
# of motions & complaints & inquiries: The number of motions and complaints filed with the court by United States Trustees pursuant to Sections 707, 727, and 110 of the Bankruptcy Code. Section 707(a) of the Bankruptcy Code permits a chapter 7 liquidation case to be dismissed for cause, while Section 707 (b) provides that a case may be dismissed for substantial abuse. Under Section 727, a complaint may be filed objecting to the entry of the chapter 7 debtor's discharge. Section 110 places stringent requirements on all non-lawyers who prepare bankruptcy petitions for compensation and establishes penalties for those individuals who negligently or fraudulently prepare bankruptcy petitions. In addition to formal actions filed with the court, this performance measure also includes the number of inquiries made by United States Trustees under the same Code sections. An inquiry is a written or documented verbal communication by the United States Trustee to a debtor about possible violations on any of these sections, either directly or through a third party such as the case trustee, which requires a response. It does not rise to the level of a formal pleading.

% of successful motions & comp1aints: The number of motions and complaints filed by the United States Trustees pursuant to Sections 707, 727 and 110 in which the court granted the relief sought, or the debtor/respondent agreed to the relief sought by the United States Trustees divided by the total number of motions/complaints that were filed and resolved.

Case and Trustee Administration: # of cases monitored: The number of new bankruptcy cases filed. This data is provided by the Administrative Office of the U.S. Courts on a quarterly basis.
# of motions and inquiries to dismiss or convert chapter 11 cases: The number of motions filed by United States Trustees pursuant to Section 1112 (b) of the Bankruptcy Code. In chapter 11 case administration, the United States Trustees act promptly to file a motion either to dismiss or convert a chapter 11 case to one under chapter 7 if the debtor is not complying with the provisions of the Bankruptcy Code or Rules, or is unable to confirm a plan of reorganization. In addition to the formal motions filed with the court, this performance measure also includes the number of inquiries made by United States Trustees. An inquiry is a written or documented verbal communication by the United States Trustee to the debtor about issues that would be grounds for conversion or dismissal that required a response from the debtor. It does not rise to the level of a formal pleading.

% of unconfirmed Chapter 11 cases over 3 years old: The percentage of chapter 11 cases that do not have a confirmed plan and are more than 3 years old.

Outcomes:

Payments to Creditors: Total dollar amount of disbursements made to creditors in chapters 7, 12, and 13 cases. Note: the data for FY 2002 are not actual. The data are collected on an annual or semiannual basis. For Chapter 7 cases, the USTP receives trustee distributions reports as part of the Final Account on each Chapter 7 case closed during the year. The data are aggregated on a nationwide basis and reported twice a year in January and July. Chapter 13 data are gathered from the standing Chapter 13 trusteesí annual reports on a fiscal year basis. Chapter 7 will he available in March and Chapters 12 and 13 data will be available in April.

% of Total Payments: The percentage of total payments to creditors is calculated by dividing the payments to creditors by either the total receipts of the bankruptcy estate (in chapter 7 cases) or the trust fund (in chapter 12 and 13 cases). Funds that are not distributed to creditors may include pri vale trustee compensation, professional fees, and other administrative costs.

Potential Additional Returns to Creditors through Civil Enforcement Efforts: The average amount of scheduled unsecured debt in a chapter 7 case multiplied by the number of chapter 7 cases where no debt was discharged because of dismissal or conversion of the case, plus the actual amount of debt not discharged because the discharge was denied by the court or waived by the debtor, plus all professional fee reductions, professional fee disgorgements and all fines imposed as a result of "civil enforcement" actions.


Footnotes

  1. Since May 2000, 665 staff members have attended at least one civil enforcement training program at the NBTI.
  2. This figure does not include compensation for three full-time staff members who operate the NBTI.
  3. OIG Recommendations are misnumbered on pages 6S and 66 of the draft report. The recommendations are renumbered, as appropriate, in this response.