Chapter 7 Asset Cases

Journal Issue

Dec/Jan 2002

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The U.S. Trustee Program (USTP) has collected statistics on the distributions to
creditors, professionals and trustees in chapter 7 asset cases since 1993. In
2000, the USTP and chapter 7 trustees implemented a new data collection format
(Form 4) for the chapter 7 asset cases filed or converted to chapter 7 on or
after July 1, 1999. This change significantly increased the amount of data
collected and has improved the accuracy and usefulness of the data. In this article,
we give a brief overview of the most recent asset case statistics. In June 2001,
the Executive Office for U.S. Trustees issued a detailed report on chapter 7 asset
cases closed between calendar years 1994 and 2000. This report can be found
at <a href="http://www.usdoj.gov/ust/statistics/stats-new/statisticreports.htm" target="window2">

</a><a href="http://www.usdoj.gov/ust/statistics/stats-new/statisticreports.htm" target="window2">During the year ended June 30, 2002, there were 1,026,901 chapter
7 cases closed nationwide.</a><a href="#2" name="2a">2</a> About 96 percent of chapter 7 cases are closed
without any funds collected and distributed to creditors by the assigned trustee.<a href="#3" name="3a">3</a>

However, there were 37,518 "asset" cases closed during the year in which the
assigned trustee collected and distributed funds. Total disbursements in these cases
amounted to $1.45 billion. This is consistent with disbursements in prior years,
which have been between $1.25 billion and $1.74 billion each year since
1994. Total disbursements in chapter 7 cases closed since 1994 have been well
over $12 billion. Chart 1 shows amounts disbursed by category for cases closed
during the year ended June 30, 2002.

Of the more than $1.4 billion disbursed, 57 percent was paid to pre-petition
creditors. The remaining funds were used for paying the case trustees, attorney and
other professional fees and expenses, administrative and prior chapter costs, and
other payments such as surplus funds returned to debtors, non-estate funds paid to
debtors or third parties, and debtor exemptions.

For the year ended June 30, 2002, Form 4 data was collected for 25,950
asset cases. Total disbursements in the Form 4 cases amounted to $391 million. This
is about 69 percent of the cases and 27 percent of the total distributions in all
chapter 7 asset cases closed that year.<a href="#4" name="4a">4</a> Chart 2 shows a more detailed breakdown of
certain categories of disbursements to creditors for the Form 4 cases closed during the
year. (Payments to general unsecured creditors are not shown on this chart because Form
4 does not provide any greater detail on them than the prior reporting form.)

<h3>Size of Cases</h3>

The majority of asset cases are relatively small, with 72.5 percent involving less
than $10,000 in disbursements. At the other extreme were the 466 cases with
more than $500,000 in disbursements (1.2 percent of all asset cases)<a href="#5" name="5a">5</a> that
accounted for more than one half of the total disbursed during the year. About one third
of the largest cases closed during the year had been filed in California (99) and
New York (54), even though these two states accounted for only about 10 percent
of all asset cases closed. Chart 3, which includes both Form 4 and the former
reporting form cases, shows the distribution of asset cases by size.

Of the asset cases closed during the year, 8.8 percent involved payments to
secured creditors, 14.8 percent involved payments to priority creditors, and 85.9
percent included at least some payments to general unsecured creditors. Payments to
pre-petition creditors were in the 50-60 percent range for all cases, regardless
of size. However, as Chart 4 shows, the proportion paid to unsecured creditors
is much higher in the smaller cases, while secured creditors tend to be the primary
beneficiaries in the largest cases. The remaining 40-50 percent is consumed by
various fees and expenses necessary to administer the estate.

<h3>Asset Cases by State</h3>

It is not possible to get a precise measure of the percentage of chapter 7
cases that end up as asset cases because the no-asset cases are usually closed
within four months of filing, while asset cases tend to close about two to four
years after filing—and some are open much longer than that. To get a rough estimate
of the proportion of chapter 7 asset cases by state, we divided asset cases closed
in the most recent year (excluding cases that had originally been filed in another
chapter<a href="#6" name="6a">6</a>) by the annual average of chapter 7 filings from 1998 to 2000
(the period during which most of these asset cases had originally been filed). This
analysis disclosed a wide variation in the percentage of chapter 7 asset cases by
state. For example, in Mississippi, New Mexico and Delaware, less than one
percent of chapter 7 cases end up as asset cases, while in Louisiana, Arizona,
Idaho, Montana, Wyoming, Nevada and Kansas, more than 10 percent of chapter 7
cases are closed as asset cases. These differences reflect the effects of state
exemption laws, debtor circumstances, and other local factors. Nationwide, less than
four percent of chapter 7 cases are closed as asset cases.

<h3>Conclusion</h3>

Although most chapter 7 debtors do not have any assets to be liquidated, every
case is reviewed by a trustee, and non-exempt assets are found in about four percent
of the cases. During the year ended June 30, 2002, this resulted in more
than $825 million being returned to pre-petition creditors. Most asset cases involve
less than $10,000 in disbursements, but the bulk of the money is handled in
the very largest cases. General unsecured creditors are the primary recipients in the
small cases, while secured creditors are the main beneficiaries in the largest cases.

<hr>
<h3>Footnotes</h3>

<a name="1">1</a> All views expressed in this article are those of the authors and do not necessarily represent the views of the Executive Office
for U.S. Trustees or the Department of Justice. <a href="#1a">Return to article</a>

<a name="2">2</a> This article does not include any cases from North Carolina and Alabama, which are served by Bankruptcy Administrators. <a href="#2a">Return to article</a>

<a name="3">3</a> Chapter 7 trustees are private individuals appointed by the U.S. Trustee to represent the interests of the estate. A trustee
is appointed in every chapter 7 case, and there are currently about 1,200 active chapter 7 trustees nationwide. <a href="#3a">Return to article</a>

<a name="4">4</a> The new reporting form was generally used for the more recently filed cases that were closed during the year. These tend to involve
smaller amounts of money than cases that reported via the former reporting form. Commencing July 1, 2002, Form 4 data is being
collected for every chapter 7 asset case. <a href="#4a">Return to article</a>

<a name="5">5</a> The number of large asset cases closed nationwide has been very consistent since 1994. Each year, between 400 and 500
of these larger cases have been closed nationwide, accounting for 50-60 percent of total disbursements in all asset cases. <a href="#5a">Return to article</a>

<a name="6">6</a> Of the asset cases closed during the year, 1,493 had been filed in another chapter. Converted cases closed during the year
accounted for only 4.0 percent of all asset cases, but involved 34.4 percent of total asset case disbursements. <a href="#6a">Return to article</a>

Journal Authors

Edward M. Flynn

Gordon Bermant

Suzanne Hazard

Journal Date

Sunday, December 1, 2002 - 12:00

Bankruptcy Rule

2002