December 2006

Safeguards in Place on Tax and Personal Information

Recent media coverage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), roughly a year after the Act went into effect, has focused largely on the sharp decline in non-business or personal bankruptcy filings. But provisions of BAPCPA affected not only how bankruptcies are filed, but also the information collected when filing. In some instances, debtors must now file four years of tax returns.

The collection of such highly sensitive personal and financial information concerned Congress when it enacted BAPCPA, in light of the potential for improper use of tax information. Although the federal courts already have in place a policy on privacy and public access to electronic case files (http://www.privacy.uscourts.gov/b4amend.htm), Section 315 of the Act specifically required that the Director of the Administrative Office (AO) establish procedures for safeguarding the confidentiality of the required tax information.

Under the guidance issued by the AO, no tax information filed with the bankruptcy court or otherwise provided by the debtor will be available to the public on the Internet, on the Judiciary’s electronic public access service that allows users to obtain case and docket information from records, or through the courts’ Case Management/Electronic Case Files system. For non-court users of any of these systems or networks, a docket report will indicate only that tax information has been filed.

Under Judiciary guidelines, any individual who wishes to gain access to a debtor’s tax returns must file a motion with the court. The motion must include a description of the individual’s status in the case to allow the court to determine whether the access may properly be given; a description of the specific tax information sought; a statement indicating that the information cannot be obtained from other sources; and a statement showing a demonstrated need for the tax information.

Courts granting a motion for access to tax information should include language advising that the tax information is confidential and should not be distributed inappropriately. At the discretion of the court, sanctions may be imposed for improper use, disclosure or dissemination of the tax information.

In addition to the tax guidance, other protections for personal identifiers continue to apply after BAPCPA. An example is the 2003 amendments to the Federal Rules of Bankruptcy Procedure, designed to protect the privacy of bankruptcy filers and minimize the risk of identify theft. According to these rules, as well as the Judicial Conference’s Policy on Privacy and Public Access to Electronic Case Files, only the last four numbers of a filer’s Social Security number and their financial account numbers may be displayed when the case is viewed electronically. Minor children are identified only by initials. Only the year of any individual’s birth need be included.

Although the full Social Security number must still be provided to the court on a separate form and the full number sent to creditors as part of the notice of the bankruptcy filing, it remains the responsibility of the debtor or the debtor’s attorney to redact personal identifiers in any information filed with the court or provided to trustees.

The public continues to have electronic access to the names, addresses, and last four digits of the Social Security numbers of debtors filing bankruptcy. However, Section 234 of the Act allows the court to restrict public access to information contained in the bankruptcy case files if “the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual or the individual’s property.”