The reaffirmation agreement requirements include, among  other things, disclosures notifying debtors of reaffirmed terms. We also estimate that 67 percent  (in AL-N and WV-S) to 88 percent (in IL-N) of non-credit union agreements  included monthly income, expense, and net income information— conversely, an estimated 12 percent (in IL-N) to 33 percent (in AL-N and  WV-S) were missing this required information (as mentioned previously,  these data are not required of credit union agreements signed by a debtor  attorney). This information helps to inform debtors, debtor attorneys,  creditors, and court officials of the potential inability of the debtor to  make payment on reaffirmed debt. Financial Data, Asset Information, and Debtor Notifications Included in Most Reaffirmation Agreements

The Reform Act requires that reaffirmation agreements include financial  data disclosure statements for the amount reaffirmed and the annual  percentage rate for the amount reaffirmed. This disclosure statement differs for  credit unions. Federal Judiciary Has Proposed a New Form to Evaluate Undue Hardship

In March 2007, the Judicial Conference’s Advisory Committee on  Bankruptcy Rules proposed the use of a reaffirmation agreement  coversheet form that, if approved, would make it mandatory for debtors to  provide financial information on the coversheet, such as amount of debt  reaffirmed, the annual percentage rate for reaffirmed debt, monthly  reaffirmation payment, and monthly income and expense information at  the time of petition and reaffirmation agreement filings, to facilitate the  evaluation of undue hardship. If approved, the coversheet would appear to address the issue  of missing financial information. Reaffirmation agreements were not signed by  debtor attorneys in an estimated 3 percent to 10 percent of agreements for  the five districts. Secured Debts for Autos and Homes Most Frequent Type of Reaffirmed Debt; for Most Agreements, Reaffirmed Debt Burden Less than 25 Percent of Total Debt

		Secured Debts Most Frequently Reaffirmed

An estimated 90 percent (in AL-N) to 98 percent (in TX-N and WV-S) of  reaffirmations in the five districts were for secured debts. Unsecured debt was reaffirmed infrequently—occurring in an estimated 2  percent to 10 percent of all reaffirmation agreements in the five districts. In one of  the five district bankruptcy courts (WV-S), the reaffirmed interest rate was  less than the original interest rate in an estimated 44 percent of  reaffirmation agreements. For the 61 (of 1,164) reaffirmation agreements we reviewed with credit  unions (that disclosed both an original and a reaffirmed interest rate),  in each of the five bankruptcy courts the interest rate on the reaffirmed  debt was equal to or less than the interest rate on the original debt in  all but 2 reaffirmation agreements—10 of 10 agreements in AL-N, 27 of  28 agreements in CA-C, 2 of 2 agreements in IL-N, 16 of 17 agreements  in TX-N, and 4 of 4 agreements in WV-S.
We interviewed four creditors who were among the firms that most  frequently engaged in reaffirmations that we reviewed in the five selected  districts. Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine the following:    To what extent have required Reform Act disclosure statements and  other required information (such as the annual percentage rate for the  reaffirmed debt) been incorporated into reaffirmation agreements? What types of debts were reaffirmed and to what extent did reaffirmed  debt amounts comprise debtors’ overall debt burden when they filed  for bankruptcy? How did the reaffirmed and original interest rates compare? When reviewing reaffirmation agreements, we determined both whether  complete disclosure information was included in the reaffirmation  agreement and whether the language in the disclosure, while complete,  varied at all from what is required by the Bankruptcy Abuse Prevention  and Consumer Protection Act of 2005 (referred to here as the Reform Act). The five districts we selected collectively  represented about 12 percent of those quarterly filings. Estimates from these samples are not generalizable to the population of all  bankruptcy courts; however, they can be generalized to each of the  selected bankruptcy court districts and are intended for illustrative  purposes. Some percentage estimates we present have a margin of  error greater than plus or minus 10 percent.
Why GAO Did This Study

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (referred to hereafter as the Reform Act) included provisions to better inform individuals who file for personal bankruptcy about their options for reaffirming debt--whereby filers may voluntarily agree to pay certain creditors in an effort to retain assets, such as an automobile. Reaffirmation agreements between debtors and creditors are required, by law, to formally disclose to debtors the terms of the agreement, such as the amount of debt reaffirmed. Some requirements differ for credit unions, such as an exemption for reporting debtor financial information when the debtor's attorney signs the agreement. The Reform Act required GAO to study the bankruptcy reaffirmation process. This report discusses (1) the extent to which required Reform Act disclosures and other information have been incorporated into reaffirmation agreements, (2) the types of debts reaffirmed and the percent this debt comprised of debtors' overall debt burden, and (3) how reaffirmed and original interest rates compare. GAO reviewed a representative sample of bankruptcy files with agreements in five bankruptcy courts (in AL, CA, IL, TX, and WV) selected by, among other things, filing volume and geographic dispersion. Estimates from our sample cannot be generalized to all bankruptcy courts, but can be generalized to each of the selected bankruptcy courts.

What GAO Found

Most reaffirmation agreements across the five districts included Reform Act disclosure statements and other required information. For example, for the five districts, the required disclosure statement for the "Annual Percentage Rate" was included in an estimated 86 to 97 percent of agreements and the disclosure statement for the "Amount Reaffirmed" and the amount was included in an estimated 87 to 98 percent of agreements. We also estimate that, for the five districts, 67 to 88 percent of non-credit union agreements included monthly income, expense, and net income information--conversely, 12 to 33 percent were missing this information. This information helps to inform debtors, debtor attorneys, creditors, and court officials of the potential inability of the debtor to make payment on reaffirmed debt. In May 2007, a federal judiciary advisory committee proposed the use of a reaffirmation agreement coversheet that, if approved, would make it mandatory for debtors to provide required financial information to determine an undue hardship. If approved, the coversheet would appear to address the issue of missing financial information. For the five districts, debts secured by assets, such as an automobile, were the most frequently reaffirmed type of debt--comprising an estimated 90 percent or more of all reaffirmations. Unsecured debt--such as credit card debt--was reaffirmed infrequently in reaffirmation agreements, occurring in an estimated 2 percent to 10 percent among all agreements in the five districts. For the five districts, we estimate that in approximately two-thirds of cases the reaffirmed debt burden comprised 25 percent or less of the debtors' total debts. In those cases where an original interest rate was provided, rates on reaffirmed debt were generally less than or equal to the original rate. Specifically, the interest rates were equal to the original rate in an estimated 56 to 84 percent of reaffirmed debts for the five districts, less than the original rate for 10 to 44 percent of debts, and greater in 0 to 8 percent of debts. (The margin of error for these estimates is at most plus or minus 16 percent at the 95 percent confidence level.)