CUNA Comment Letter

Comments on Study of Privacy Issues in Bankruptcy Data

September 22, 2000

Mr. Leander Barnhill
Office of General Counsel
Executive Office for United States Trustees
901 E Street, NW
Suite 780
Washington, DC 20530

RE: Comments on Study of Privacy Issues in Bankruptcy Data

Dear Mr. Barnhill:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on the study by the Department of Justice, Department of Treasury, and the Office of Management and Budget of how the filing of a bankruptcy affects the privacy of consumer information. The study will consider how these privacy interests are affected by the public availability of such information, while considering the need for access to this information and the accountability in the bankruptcy system. We recognize that the interrelationship between privacy and bankruptcy is an important issue and we commend the agencies for undertaking such a study and for inviting public comment from all interested parties.

CUNA is the country's largest credit union advocacy organization, representing approximately 90% of the nation's 10,500 state and federal credit unions. This letter reflects the opinions of those credit unions and the opinions of CUNA's Consumer Protection Subcommittee, chaired by Kris Mecham, CEO of Deseret First Credit Union, Salt Lake City, Utah.

With regard to disclosing bankruptcy information, credit unions recognize that there is a general heightened concern about the privacy of consumer information. CUNA was actively involved during the Congressional debate last year regarding the privacy provisions of the Gramm-Leach-Bliley (Act) and has worked with several federal agencies that were charged with drafting the regulations required under the Act. CUNA has also been actively involved at the state level and, with our affiliated state credit union leagues, has worked with the various legislatures, which have also considered this issue. We have worked hard to ensure that the new privacy laws and regulations adequately balance the privacy needs of consumers while allowing credit unions to continue to provide their members with high quality service and products in an efficient manner.

We realize that most people are devastated when they realize that they have to declare bankruptcy. For them, bankruptcy is a defeat and a declaration that they can no longer survive financially unless they pursue this course of action. They often realize that bankruptcy will cause financial losses for others and a general loss of trust. This realization adds an emotional element to the bankruptcy process.

However, people under such circumstances are fortunate in one sense because the current bankruptcy laws, while not perfect, provide them with protections and an ability to reshape their financial lives in an effort to secure a more prosperous future. Credit unions are willing to work with their members who face such circumstances in order to help them through this difficult process and to help them secure a more promising financial future.

Although credit unions are compassionate towards their members who are forced to declare bankruptcy, credit unions, as creditors, need unfettered access to all information that is submitted by the debtor during the bankruptcy process. These debtors must give full disclosure of their financial information because with this information, creditors can adequately minimize any losses they may suffer through no fault of their own. Creditors are entitled to this information in order to protect their interests, and this access to the information clearly outweighs the debtor's potential loss of privacy.

The possible loss of privacy should come as no surprise to debtors. If debtors are unable or unwilling to fulfill their financial obligations, they should expect to have their financial obligations carefully scrutinized by any creditor that may suffer a financial loss as a result of their inability to pay. The debtors' attorneys should also explain this potential loss of privacy when advising their clients as to whether bankruptcy is the appropriate course of action. Debtors, in consultation with their attorneys, may then factor this possible loss of privacy into their decision to the extent they deem appropriate.

A person who files for bankruptcy must provide detailed financial information, which is incorporated into the schedules that are filed with the bankruptcy courts. These schedules contain a listing of income and debts and credit unions rely on the information for purposes of protecting their interests. Credit unions and other creditors use this, and other information obtained from the debtor's attorney and during the meeting of creditors, to determine what type of bankruptcy was filed and which debts were discharged, reaffirmed, or paid outside of the bankruptcy plan. Creditors also use this and all other available information to ensure that the bankruptcy is properly administered.

In certain situations, these disclosures benefit debtors. Under current law in some jurisdictions, and in legislation currently before Congress, debtors may be permitted to reaffirm their debts in order to continue their creditor relationships. Courts often require significant disclosure of information as part of this reaffirmation process.

Credit unions also review the information in the bankruptcy schedules for possible indications of fraud. If such indications of fraud are present, credit unions may then proceed with adversary proceedings, which may lead to a judgment and relief from the automatic stay. These efforts to legally pursue collection would be hampered if the creditors' access to the information were restricted.

Credit unions would also not support any additional restrictions that could affect the bankruptcy trustees' ability to collect additional information. The trustees should have discretion to determine the information they need to ensure that they can adequately fulfill their duties of accounting for all the debtor's assets and to ensure that creditors receive any payments they may be entitled to. Credit unions have confidence that the trustees are currently collecting the information they need in order to administer the bankruptcy cases.

We believe the entry of commercial firms into the business of aggregation and disseminating information could reduce the cost of bankruptcy and enhance the availability of essential information. However, credit unions recognize the need for proper limitations to ensure the necessary safeguards and could support a general prohibition on the sale or other distribution of a debtor's financial information to those with no legitimate need for it.

The ability to obtain bankruptcy information electronically will be of benefit to many credit unions because it will reduce the costs associated with traveling to the courthouse and the costs of copying the necessary information. Although the evolution of technology and the Internet has greatly facilitated access and enhanced the accuracy of bankruptcy information, we recognize that this has to some extent compromised consumer privacy. For this reason, credit unions could possibly support some modest restrictions to the access of information that is submitted as part of the bankruptcy process. One example is restricting the public availability of information regarding the health of the debtor. Again, we must make it clear that such restrictions would only be acceptable as long as it does not in any way impact a credit union's ability to have unfettered access to all the information they need.

If bankruptcy information is available electronically, it may be acceptable to secure this information by requiring the use of a password. Restricting this information to only those with a legitimate interest should minimize the misuse of such information. Specifically, we recognize that social security and account numbers may be especially sensitive and could be used by others for fraudulent purposes. However, this risk may be minimal because those interested in committing identity theft crimes are generally not interested in assuming the identity of a person in bankruptcy, and financial institutions typically close out the account or change the account numbers of bankrupt persons.

In sum, if restrictions are imposed that would prohibit such information from being publicly available, electronically or otherwise, it is imperative that creditors, including credit unions, have continued access to the information for the reasons stated above. In particular, debtors have often changed names or provided incorrect names on applications. In these situations, social security numbers are the only means to determine which accounts at a credit union are being affected by the bankruptcy.

Thank you for the opportunity to comment on the study of how the filing of a bankruptcy affects the privacy of consumer information. If you or agency staff have questions about our comments, please give me a call at (202) 218-7795. In your solicitation for comment on the study, you also requested addresses, fax numbers, and e-mail addresses. If you need to contact us, you may send information to my attention at 805 15th Street, NW, Washington, DC 20015 or e-mail it to me at Our fax number is (202) 371-8240.


Jeffrey Bloch
Assistant General Counsel