Because the debtors’ schedules used in the report must be obtained from the case files at each court location, obtaining the data used for the Center report represented a considerable investment of Center time and money. On the basis of the Center report’s assumptions and the formula used to determine income available for repayment of nonpriority, nonhousing debt, the report estimated that about 50 percent of the chapter 13 debtors in the 13 locations combined would have sufficient income, after living expenses, to repay all of their nonpriority, nonhousing debt over a 5-year period; and an additional 19 percent could pay 60 percent or more over the same period. Study’s Fundamental Assumptions Were Not Validated

The Center report’s analysis was based on data from the initial schedules of current estimated monthly income, current estimated average monthly expenditures, and debts that debtors submitted at the time they filed for bankruptcy. Such amendments were not included in the Center’s analysis. Center Report Did Not Clearly Define the Universe of Nonhousing Debts for Which It Estimated Debtors’ Ability to Pay

There is some evidence in the Center report that the intent of the analysis was to estimate debtors’ ability to pay their eligible dischargeable nonhousing debts—secured and unsecured. Because the Center report focused on the results from all 13 locations combined, it included little discussion of the considerable variations among the 13 locations used in the study. The authors discussed each of the report’s five areas of concern that, together, led to our conclusion that additional research and clarification would be needed to confirm the accuracy of the Center’s 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 the amount of debt such debtors could repay. GAO Comments

1. 2. 3. 4. The Center commented that it did not intend to obtain a nationally representative probability sample and agrees that it did not use a scientific random sampling methodology to select the 13 bankruptcy locations or the bankruptcy petitions used in the analysis.
Why GAO Did This Study

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.

What GAO Found

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.