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News Room

Chapter 11

Working Group Proposal #3: Data Collection


Background

Policy making in the field of bankruptcy is heavily dependent on an accurate understanding of the operation of the bankruptcy system. System-wide information is also essential to creditors who try to evaluate the performance of debtors or of counsel, the projected costs of a bankruptcy case, or the likelihood of receiving a certain percentage of repayment. Currently, debtors are required to disclose substantial information when they file for bankruptcy and throughout the course of a pending case, and trustees collect and report additional significant data about the cases they administer. Most of these data that would greatly benefit policy making and parties' understanding of the bankruptcy system are not regularly collected and publicly reported, so there is little effective access to hard information about how the bankruptcy system actually operates.

The Recommendation

The chapter 11 Working Group recommends that the Commission consider a proposal for independent study:

A task force on data collection and reporting should be established to report to the Commission on the appropriate goals of data collection and to make specific recommendations on the kinds of data that should be collected, the costs of such collection, and how the costs should be allocated.

Reasons for the Change

The Need for Data

Bankruptcy is an important economic and social phenomenon. It generates a number of important debates that test our collective views about the functioning of a free market, the role of failure, and the road to business regeneration. Many of the policy debates about bankruptcy are based on factual premises. If debtors repeatedly file for bankruptcy, if debtors discharge substantial tax obligations, if attorneys' fees consume the bulk of the assets of failing businesses,or if tort creditors are left unpaid in a significant number of cases, Congress might decide to amend the Bankruptcy Code in significant ways. Without accurate and comprehensive information on those issues, however, bankruptcy policy making continues to be based on anecdotes, speculations, and unsupported assertions of fact.

The utility of data collection reaches beyond policy making. Already, the government compiles and generates data related to business, everything from the money supply to the car loan default rates, which are then used by businesses and individuals to increase their own productivity and to explore new business opportunities.

Increased information about the operation of the bankruptcy system could be useful to all of those who use the system. If a business wanted to check whether its collection rates in bankruptcy were consistent with those of competing businesses, it could refer to data on payout rates that are organized by creditor classifications. Such data also would be useful to lenders who wanted to project likely returns from their bankrupt debtors. The more that these data were readily available and reliable, the more that they would be put to productive use.

Collecting better information about the operation of the bankruptcy system also performs a monitoring function. In the past, the bankruptcy system has faced a number of scandals. Judges and trustees have, at times, acted in concert to withhold payments from creditors, and some trustees have misappropriated funds to be distributed to creditors or back to debtors. If there were more accurate payment reports, with data reported by district and by judge, the data could provide an early warning system that would indicate the need for additional investigation in certain areas. By the same token, when regional differences have a positive impact on the system, e.g., if certain practices yield higher repayment of creditors, a reporting system may identify local techniques that are effective and should be studied and implemented nationally.

In addition to the importance of understanding a system that discharges legally incurred debts and reorganizes loan repayment obligations, it would be useful to know what happens to debtors after they emerge from the system and to creditors who repeatedly encounter it. This proposal is fueled by the belief that comprehensive, accurate data on bankruptcy cases and trends could change the course of policy debates and business decisions.

Currently Available Data

When a debtor files a petition for bankruptcy, a number of accompanying schedules include a great deal of information about the debtor, the debtor's assets, debts, past history, current obligations, previous bankruptcies, and other legal entanglements. A very brief synopsis of the key information is replicated on a summary sheet that must accompany the petition. The summary sheets often are compiled in machine-readable form.

Recent empirical studies suggest that the summary sheet is poorly constructed and theaccuracy of the data it contains is ineffectively monitored. Therefore, even the small amount of information that is reported about the bankruptcy system may be of questionable accuracy. [ FN: See Lisa Hill Fenning and Craig A. Hart, "Measuring chapter 11: The Real World of 500 Cases, " 4 Am. Bankr. Inst. L. Rev. 119 (1996).]

Only a small fraction of the data generated are actually collected centrally and reported publicly. The Administrative Office of the U.S. Courts regularly reports certain data (e.g., how many cases are filed in each district, the chapters in which these cases are filed, the designation of these cases as business or non-business, and the number of cases pending at the close of a quarter). Other telling data are reported only episodically.

The Administrative Office of the U.S. Courts is not to blame for the low availability or poor quality of bankruptcy data. The Administrative Office makes the reports required and allocates its resources among many competing projects. Better data collection and reporting would make more information available to the Administrative Office, which may lead to more extensive analysis by the Administrative Office once the data are at its disposal if re-allocation of resources permits such efforts.

Scope of the Recommendation

This recommendation reflects the overlapping jurisdiction of the various working groups. While this proposal comes from the chapter 11 Working Group, the Working Group on Small Business, Partnerships, and Single Asset Real Estate also has had some discussions about the utility of better data, as has the Working Group on Consumer Bankruptcy. The points made in this proposal seem equally applicable in all three contexts.

The chapter 11 Working Group seeks the support of the other two working groups in the development of a task force. It suggests that this task force should look at the use of data collection in the bankruptcy system generally and not just in the chapter 11 system.

The Task Force

A task force formed to consider and recommend procedures for data collection could be composed primarily of government officials, many of whom already have expressed interest in participating in this type of project. This might include those who regularly work with bankruptcy data at the Administrative Office in Washington and in bankruptcy court clerks’ offices around the country, as well as others who could provide additional insight, such as those in the Treasury Department. In addition, the Task Force could include data specialists from various branches of the government, such as the Census Bureau. Others in the bankruptcy system, such as academics, judges, and business people who have worked with the government data might be added to thegroup to expand the expertise of the group and to broaden its perspectives.

The Task Force could meet once or twice in Washington. The cost should be minimal. The members would serve as unpaid volunteers, and the Commission could cover some expenses for some participants, but would offer no consulting fees.

The Task Force should develop recommendations on the following:

What function should data collection serve?

Who are the expected users of these data?

What data should be collected?

How should the data be collected and reported?

How should the accuracy of the data be checked?

What changes to the system would be required to implement any recommendations?

What would be the cost of implementation?

How might implementation be funded?

The Task Force would be asked to submit its recommendations by early next spring, which would provide the Commissioners with ample time to review any resulting proposals.

Competing Considerations

Data collection raises bureaucratic issues far beyond those involved in implementing an effective bankruptcy system.

Moreover, at a time when austerity is the watchword in government, any proposal that involves potential additional costs may be unwelcome.

 

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