US Trustee Inquiries Increase

It's been almost 2 years since the bankruptcy Reform Act of October 17, 2005.  Lately, there has been an increase in activity from the attorneys for the United States’ Trustee’s office.  Specifically, bankruptcy law offices are receiving inquiries from attorneys for the US trustee’s office, pertaining to the particular debtor in question.  The notice can be simply a question that needs clarification, or it can be a request to produce documentation such as paycheck stubs or tax return information. 

What I am noticing, is that this increase is not necessarily bringing any fruit for creditors.  For example, a recent inquiry requested that the debtor provide tax returns and pay advices for a period in excess of what is required under the bankruptcy code for the initial filing.  In this particular case, the debtor's income was extremely low, she was on Social Security, she was retired, and she owned no real estate property.  In my opinion, the powers that be that pushed the bankruptcy reform through Congress, had bought and paid for that legislation.  They did so by way of support, contributions, and a very strong, diligent lobbying effort for years.  What they hoped is that bankruptcy filings would be curbed.  They had hoped that more people would repay their debt and not choose bankruptcy as a remedy to get out of debt. 

As we approach the two-year anniversary of bankruptcy reform, it is clearly evident to all those involved that bankruptcy is needed.  Bankruptcy filings will continue to increase as long as current market factors remain the same.  For example, if lending institutions continue to lend at such a high rate to those who may not qualify, they're going to see a high amount of defaults.  Additionally, if credit card lenders are going to extend credit to those who are not creditworthy, they are going to see a lot of defaults and eventual bankruptcies.  I don't know if the current conduct of US trustee’s office in investigating cases is related to the ineffectiveness of this new law.  But I know this for sure, bankruptcy filings will continue to increase.  Those who pushed for this bankruptcy reform law wrongfully believed that there was rampant fraud taking place under the bankruptcy code.  They believed that individuals would either pay the debt or the person had the ability to repay their debt or portion thereof, under Chapter 13 of the bankruptcy code.  In reality, very few individuals who qualify for Chapter 7 bankruptcy relief actually have the ability to reorganize their debts under Chapter 13.  There simply is not enough income, above and beyond one's expenses, to enter into a reorganization plan in approximately 85% to 90% of the cases that I witness firsthand. 

What I commonly see, is cases where the debt exceeds the income by an excessive rate.  What I mean by that is this, the debtor is not only falling behind each any every month, but they will continue to fall behind due to the late fees, high rates of interest, medical bills and increasing  life expenses.

Unfortunately for the credit current industry, they cannot have their cake and eat it too.  They cannot profit excessively by the ones who continue to pay an excessive debt and recover additional funds from those who would be forced into a Chapter 13.  The credit card industry would be profiting off those who cannot afford to pay.  Life is just not that simple.  It is not easy to get out of debt once you fall behind on high interest loans and credit cards.  A debtor simply doesn't have a chance, an opportunity, or a reprieve where they can actually work out a solution.  With credit card debt, there are many companies out there that are a substitute for bankruptcy, and claim that they can reduce the credit card debt over time.  In reality, you can either take your pills or you can't.  Bankruptcy is that last saving grace for those who need a fresh start.  If they have done nothing fraudulent, they are entitled to a fresh start under the US bankruptcy code.