Governments Emerging Role as a Source of Empirical Information in Bankruptcy Cases

<p>One area of agreement that has emerged in the debate over bankruptcy reform over the past four years is the need for,

in the words of the National Bankruptcy Review Commission (NBRC), "accurate, reliable data about the bankruptcy

system." Efforts to change the bankruptcy laws have been hampered by the lack of reliable answers to any number of

empirical questions, including (1) the number of chapter 11 cases that survive confirmation and consummation, (2)

the number of individuals who could repay amounts owed to their creditors, (3) the amounts that professionals

appointed by the court earn in cases and (4) the amount of fraud and abuse in the system. Answers to these questions

are available in much of the information routinely provided in a bankruptcy case.

</p><p>The lament over the lack of data has itself become the object of reform. The proposals of the NBRC^{<small><a href="#2" name="2a">2</a></small>} and

pending legislation^{<small><a href="#3" name="3a">3</a></small>} all contain requirements for new data to be collected from the bankruptcy system. The

Administrative Office of the U.S. Courts and the Executive Office for U.S. Trustees (EOUST) have begun to take

steps to augment their collection of bankruptcy data and to improve the sharing of data between both organizations.

</p><p>These projects all have some distance to go before they are nationally implemented. As these and other projects

develop and progress, there will likely develop for the first time a large national pool of bankruptcy data that can be

electronically aggregated and analyzed. Those researching many empirical questions about the bankruptcy system will

be able to draw on this data.

</p><p>This new resource will raise new issues just as it will provide answers to old ones. These new issues will arise

from at least three sources: (1) the nature of the information that is provided in a bankruptcy case, (2) the electronic

means to aggregate this information and disseminate it widely and (3) the role of government in deciding these

issues.

</p><h3>The Sensitive Nature of Bankruptcy Information</h3>

<p>A bankruptcy case requires a kind of trade by the debtor in exchange for the protection it provides from

creditors—in exchange for this protection, the debtor must disclose details about his or her financial condition that

outside of bankruptcy the debtor would not be required to disclose publicly. The Statement of Financial Affairs,

Schedules of Assets and Liability, and (in chapter 7 and 13 cases) Statement of Income and Expenses require the

debtor to itemize virtually every aspect of his or her financial situation—lists of assets with descriptions of each

item and estimates of their worth; lists of debts, their nature, amount and to whom they are owed; written answers to

probing questions about the debtor's financial past; and details about the amount of money that the debtor earns and

where it is spent.

</p><p>Requests for personal financial information are not limited to bankruptcy; applications for credit and job

applications can be just as probing. In bankruptcy, however, this information is available to the public. There is a

powerful American tradition that the courts are open, and everything that transpires before them is available to public

scrutiny.^{<small><a href="#4" name="4a">4</a></small>} Anyone can walk up to the clerk's office and ask to review the file of any recent case. There, in the court

room or the case file, is a wealth of information that most of us, absent the need to file a bankruptcy case, would be

reluctant to disclose to the public at large.

</p><h3>The Electronic Dissemination of Bankruptcy Data</h3>

<p>It would seem that at some point in the future the Internet and the other new technologies, when they are fully

developed, would spare us trips to the courthouse to gather data about bankruptcy cases. This public information

could be made available and could also be aggregated and analyzed across judicial districts. The technology would

offer a new window on the bankruptcy system and the information within cases.

</p><p>However, the technology that promises to make this information readily available also adds a new element about

the privacy of individuals who provide this information. More than a year ago, at a symposium sponsored by

EOUST and the RAND Corp. on financial information in the bankruptcy system, the issue of privacy became the

subject of a lengthy debate among the participants. There were two positions taken during the debate. One group

emphasized the effect that electronic dissemination of bankruptcy case information would have on the privacy of

debtors. The detailed and sensitive financial information provided in bankruptcy cases would be available to anyone

anywhere in the world with a computer and modem. This information would stay available long after the bankruptcy

case had ended, the discharge had been issued, and the credit records had been purged.

</p><p>The other side argued that these new technologies merely offer more convenient access and more widely available

information that is already public. The technology did not change the nature of the information, only the means of

access. There is no more reason to put restrictions on this means of access than there is to restrict access to the file

at the courthouse.^{<small><a href="#5" name="5a">5</a></small>}

</p><p>This debate during the symposium only reflects a concern in the bankruptcy community and public at large that

needs to be addressed as technology progresses, opportunities for access to bankruptcy information increase, and

concerns about privacy grow. There has recently been considerable press coverage about large bodies of data

maintained on individuals by various entities such as credit reporting agencies and medical records. Individuals

provide this information voluntarily for a particular purpose; however, the concern arises because the information is

shared with entities other than those intended by the individual, or for purposes not intended by the individual.

Although this debate has largely centered on private entities, it looms as an issue to be addressed by the government

as well, and will also have to be addressed as the electronic distribution of bankruptcy case information progresses.

</p><h3>The Government's Role in Resolving Access to Information</h3>

<p>As the government moves forward in the collection of bankruptcy data, it will face two conflicting

responsibilities: to make itself open and accountable to citizens, and to assure that data collection and its

dissemination does not unreasonably intrude upon the legitimate interest in individual privacy.

</p><p>Striking this balance will be a difficult task, and current law is confusing. One of the most glaring examples of

the privacy/accountability conundrum is the Supreme Court decision in <i>U.S. Department of Justice v. Reporters

Committee for Freedom of the Press.</i>^{<small><a href="#6" name="6a">6</a></small>} Although the case is almost a decade old and predates the explosive growth

of the Internet and data dissemination, the issues in the case are analogous to current concerns with the effect of

technology on privacy.

</p><p>In <i>Reporters Committee,</i> a group of reporters filed a request under the Freedom of Information Act^{<small><a href="#7" name="7a">7</a></small>} for records

relating to various members of the Medico family, which had been the target of inquiry by the Pennsylvania Crime

Commission. After the FBI denied the request, the reporters brought suit in a district court seeking information on

one member of the family, Mr. Charles Medico. The issue was narrowed to Medico's "non-financial criminal history

insofar as it is a matter of public record."^{<small><a href="#8" name="8a">8</a></small>} The information sought by the reporters was collected and maintained by

the FBI from various local, state and federal law enforcement agencies, and it contained a mixture of non-public

information and information that was already a matter of public record.^{<small><a href="#9" name="9a">9</a></small>}

</p><p>The court upheld the Justice Department's refusal to turn over the requested information, finding that Mr.

Medico's privacy interest outweighed the public's interest in the information being sought. Of particular relevance to

the dissemination of bankruptcy data is the court's treatment of the publicly available information.

</p><p>Just as much of the bankruptcy information is publicly available through particular bankruptcy courts, the

documents contained information such as arrests, indictments, convictions and other actions documented in court

records. Nevertheless, according to the court, "the issue here is whether the compilation of otherwise hard-to-obtain

information alters the privacy interest implicated by disclosure of that information. Plainly there is a vast difference

between the public records that might be found after a diligent search of courthouse files, county archives and local

police stations throughout the country and a computerized summary located in a single clearinghouse of

information."^{<small><a href="#10" name="10a">10</a></small>} The fact that this information was publicly available did not diminish Mr. Medico's privacy interest

in the information. As the court noted, "the fact that 'an event is not wholly private does not mean that an individual

has no interest in limiting disclosure or dissemination of the information.'"^{<small><a href="#11" name="11a">11</a></small>}

</p><p>There are troubling implications in <i>Reporters Committee</i> for the bankruptcy system's developing ability to

aggregate and disseminate data. The case raises the possibility that the potential of this new storehouse of

information will not be fully available to the public at large because of the privacy interests of individual debtors;

they are important ones, but they too have their costs. Bankruptcy has been an area plagued with concerns about its

lack of openness, and there have been charges that the work it did was in the shadows and for the benefit of

insiders.^{<small><a href="#12" name="12a">12</a></small>} In addition, much of the information contained in bankruptcy case files is already gathered by private

parties for their own purposes, or is available to be bought. Limiting access to bankruptcy data may not protect

privacy so much as create a system where only those who can pay the price can get the information. Nothing in the

law prevents the government from summarizing the data collected in reports. However, unless the underlying data

can be probed, new and more creative ways of looking at the data may go undiscovered. All of these issues must be

weighed as the storehouse of bankruptcy information and data develops.

</p><hr>

<h3>Footnotes</h3>

<p>^{<small><a name="1">1</a></small>} The views presented in this article are those of the author personally and do not necessarily represent the positions of the U.S. Trustees, the Executive Office for U.S. Trustees or the Department of Justice. <a href="#1a">Return to article</a>

</p><p>^{<small><a name="2">2</a></small>} <i>Bankruptcy: The Next Twenty Years,</i> NBRC Final Report, October 20, 1997 at 919. <a href="#2a">Return to article</a>

</p><p>^{<small><a name="3">3</a></small>} H.R. 3150, 105th Cong., 2d Sess. §§441-443 (1998); S.1301, 105th Cong., 2d Sess., §306 (1998). <a href="#3a">Return to article</a>

</p><p>^{<small><a name="4">4</a></small>} <i>See</i> David S. Bralow and James B. Lake, <i>Playing by the Rules Won't Keep Court Files Secret,</i> Litigation, 36-38 (Winter, 1998). <a href="#4a">Return to article</a>

</p><p>^{<small><a name="5">5</a></small>} A similar debate can be found in "Should Bankruptcy Files Be Available on the Internet?" <i>Consumer Bankruptcy News,</i> August 27, 1998, at 1. <a href="#5a">Return to article</a>

</p><p>^{<small><a name="6">6</a></small>} 489 U.S. 749, 109 S.Ct. 1468. <a href="#6a">Return to article</a>

</p><p>^{<small><a name="7">7</a></small>} 5 U.S.C. §552. <a href="#7a">Return to article</a>

</p><p>^{<small><a name="8">8</a></small>} <i>Reporters Committee</i> at 757. <a href="#8a">Return to article</a>

</p><p>^{<small><a name="9">9</a></small>} <i>Id.</i> at 753. <a href="#9a">Return to article</a>

</p><p>^{<small><a name="10">10</a></small>} <i>Id.</i> at 764. <a href="#10a">Return to article</a>

</p><p>^{<small><a name="11">11</a></small>} <i>Id.</i> at 770-71, <i>quoting,</i> Rhenquist, <i>Is an Expanded Right of Privacy Consistent with Fair and Effective Law Enforcement?</i> Timothy Stephens Lectures, University of Kansas Law School, pt. 1, p. 13 (Sept. 26-27, 1974. <a href="#11a">Return to article</a>

</p><p>^{<small><a name="12">12</a></small>} <i>See Commission on the Bankruptcy Laws of the United States,</i> Report, H.R. DOC. No. 93-137, 93d Cong., 1st Sess., pt. I, at 6, 93, 103-17 (1973). <a href="#12a">Return to article</a>