❮ Return to Our Work

Blog Post | April 27, 2021

Biden Must Fire and Replace the Bush-Era Head Bankruptcy Overseer

BankruptcyDepartment of Justice
Biden Must Fire and Replace the Bush-Era Head Bankruptcy Overseer

In its last episode before a short hiatus, the John Oliver-led HBO show, Last Week Tonight, discussed bankruptcy, the process by which those trapped in debt can relieve themselves of certain financial obligations. Contrary to public perception, the majority of consumer debtors who go bankrupt do so not because of financial irresponsibility or impropriety but due to sudden and unforeseen changes in their financial circumstances, such as losing their job, losing a family member, or contracting a serious medical problem. But since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, the bankruptcy process has been more onerous for poor debtors, who now must go through myriad additional hoops to prove their worthiness for financial relief. 

While many of the problems with our current bankruptcy system require legislative fixes, there is one thing that President Biden can do immediately to improve the system: fire and replace the Director of the Executive Office for US Trustees, Clifford J White, III

The Executive Office for US Trustees (EOUST) is the federal office in charge of the US Trustees Program, which is responsible for preventing fraud and abuse in bankruptcy filings. The EOUST, with the assistance of regional trustees, reviews corporate and consumer bankruptcy filings and reports potential cases of fraud to the Attorney General. The Director also appoints and provides guidance to individual US trustees who ensure adherence to bankruptcy laws and regulations.

With the assistance and support of EOUST Director Clifford J. White, III, bankruptcy filings have become more difficult for poor debtors while letting corporate fraudsters off the hook. White has served as the Director of the EOUST since December 2006, when he was appointed by then-President George W. Bush’s Attorney General Alberto Gonzales (who later resigned in disgrace after a congressional investigation led to bipartisan calls for his ouster). As Director, White has enforced the law ruthlessly against struggling individuals but has been notoriously lenient towards corporate debtors. 

The 2005 law made bankruptcy much more difficult for consumer debtors. By adding new conditions for filers, increasing the wait time between multiple bankruptcy filings, and making debts like student loans non-dischargeable rigged the system against the poor. EOUST Director White is a fan of these changes. White praised the 2005 law for enacting a means-test for consumer filers which notably increased the burden on debtors and led to a significant decrease in filings. He has defended the law’s punitive requirement for pre-filing credit counseling despite evidence that such mandatory counseling increases the fees associated with filing for bankruptcy and delays debtors’ financial relief even longer with little to no benefit. And, most egregiously in the context of a global pandemic, White denied that the law exacerbated the effect of medical debt on bankruptcies

Further, White has proposed additional ways to make bankruptcy more difficult for poor consumer debtors. He has on numerous occasions voiced support for raising filing fees for consumer bankruptcies, even though doing so would deter socially-desirable bankruptcy filings and have a disproportionate effect on black debtors, a quarter of whom have only $5 in financial assets. 

But while White has shrugged off reporting of widespread abuse by petition filers, resorted only to ineffective civil penalties for predatory bankruptcy attorneys, blocked legal marijuana businesses from bankruptcy relief, and pursued bankruptcy attorneys who adopt more flexible payment arrangements to assist poor filers, his tenure has been far more lenient for wealthy corporations. Under White’s directorship, numerous large companies have filed for bankruptcy without giving the legally-mandated warning to workers and/or have filed to rid themselves of their legal obligations to pay employee benefits while retaining high executive bonuses. This includes corporations like Purdue Pharma, which filed for bankruptcy in 2019 after settling with thousands of state and local governments for its role in the opioid epidemic while still awarding its CEO, Craig Landau, with a $3 million bonus

The 2005 bankruptcy law was intended to limit such abusive conduct, but under White, it has only punished consumer debtors who need financial relief the most. 

While good fiscal policy during the pandemic has helped keep consumer bankruptcies down, given the lag between the peak of the Great Recession and the following wave of bankruptcies in 2010, we have reason to fear future bankruptcies will emerge once the pandemic relief finally ends. And with elevated corporate bankruptcies, the Director of the EOUST may be more important than ever. 

At this crucial moment, our bankruptcy system must be ready to swiftly help consumer debtors in accessing financial relief while also scrutinizing big corporations for potentially abusive bankruptcy filings. Clifford White has shown himself to be incapable of achieving these equitable goals, but, thankfully, Biden can easily replace him: the law does not specify any limitations on removal of the Director. 

President Biden has repeatedly made clear that addressing the coronavirus pandemic, economic inequality, and racial injustice will be among his administration’s highest priorities. To address these priorities, Biden must ensure that our bankruptcy system is administered justly, with the right person at the helm of the EOUST.

Header image: “Bankruptcy” by cafecredit is licensed under CC BY 2.0

BankruptcyDepartment of Justice

Related Articles

More articles by Sion Bell

❮ Return to Our Work