Bankruptcy Filers Have Photos Taken

Federal bankruptcy trustees in Los Angeles and Santa Ana have begun photographing some debtors as part of an experimental program to deter fraud in a system that authorities say is rife with abuse.

The first of its kind in the nation, the pilot program is intended to strike at one of the most rampant bankruptcy schemes--identity theft. Scam artists steal names and Social Security numbers, run up debt and then file the victims into bankruptcy without their knowledge.

With the number of bankruptcies soaring, the instances of fraud have also been on the rise. The concern over such scams prompted U.S. Atty. Gen. Janet Reno to announce a nationwide effort last year to prosecute abuses.

But the problem is particularly acute in Southern California, where one-tenth of the nation’s bankruptcies are filed. The region has become known as the country’s bankruptcy fraud capital, with at least 10% of all filings estimated to be deceptive.

Although identity theft isn’t new in the world of bankruptcy fraud, authorities say it’s a growing problem as people have caught on to the ease of running such schemes. Some estimate that more than one-third of all such cases now involve stolen identities.

“I could file you into bankruptcy tomorrow, and you’d never know it was me who did it,” said Maureen Tighe, an assistant U.S. attorney who supervises a bankruptcy fraud task force in Los Angeles. “That’s kind of a crazy system, isn’t it? We’re sort of forced to stand here and watch this catastrophe happening.”

While photographing debtors raises concerns among civil libertarians, authorities say generous protections given to bankruptcy filers are a part of the problem.

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People are not required to prove their identity when filing for bankruptcy, and federal law prohibits court employees from cross-checking Social Security numbers and tax records.

“It’s easier to file for bankruptcy than it is to get a driver’s license or even a library card,” said U.S. Trustee Marcy J.K. Tiffany.

So Tiffany, whose office oversees trustee operations for the Central District of California--spanning San Luis Obispo to Orange County--quietly began the photography pilot program in Los Angeles last summer. It was expanded to Santa Ana this month. Next month, that office might serve as a test lab for another new idea--videotaping bankruptcy hearings.

The photo program has attracted little attention so far, but Tiffany is hoping that word will spread and that it will discourage those who might file for bankruptcy under someone else’s name or Social Security number. The pictures might also help federal prosecutors, who are often woefully short on evidence in bankruptcy fraud cases, she said.

“I’m sure there are some people who are going to feel a little put off by it,” Tiffany said. “But you also have to recognize that we are dealing with a very difficult situation. We have had investigations compromised for lack of information.”

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As the program now stands, individuals seeking court protection under Chapter 13 of the bankruptcy code are being required for the first time to show identification and have their pictures taken when they arrive for their hearings before a court-appointed trustee. The hearing is the only time someone declaring bankruptcy must appear in person.

Chapter 13 bankruptcies were chosen to test the photo project because they account for fewer than 20% of all filings. Tiffany said she wanted to begin on a small scale before considering whether to broaden the program to Chapter 7 cases.

Under Chapter 13, individuals receive protection from creditors while attempting to reorganize their finances and repay debts. In the more common Chapter 7 bankruptcy, some assets are liquidated and any remaining debts are wiped clean.

There are no plans to start the photo program with Chapter 11 bankruptcies, the vast majority of which are filed by businesses.

Fraudulent filings often are not discovered for years, after the person whose identity was stolen applies for a loan and finds a bankruptcy listed on his or her credit record.

The victims typically have had loans or credit cards taken out in their names or with their Social Security numbers. The credit is quickly maxed out, then a phony bankruptcy is filed so that the scam artist can evade creditors who might track the unpaid bills to his or her address or post office box. When the bankruptcy is filed, credit card companies--lacking the resources to investigate every case--typically just write the debt off without pursuing the debtor.

The person running the scam often will start the process again, using someone else’s identity to obtain another line of credit.

There is little consumers can do to protect themselves from bankruptcy fraud. Authorities say people should be cautious in giving out their Social Security numbers and should check their credit records once a year.

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“We just get so many letters from people who don’t know what to do,” said Mitch Bernay, an assistant U.S. trustee in charge of the fraud and abuse section in Los Angeles. “Their numbers have been used, their credit is ruined, they’re desperate. It’s a nightmare.”

If nothing is done to circumvent fraud, officials fear that the problem will only worsen.

Bankruptcy filings in California’s Central District soared 25% to a record 101,936 last year. The U.S. trustee estimates that the number of filings in the region will skyrocket another 25% this year.

Law enforcement authorities say they have stepped up efforts to catch crooks, who often file one sham bankruptcy petition after another.

With punishments of up to five years in prison for making a false statement on a bankruptcy filing, Tighe said her office won about 30 such fraud convictions last year.

Still, she said, prosecutors’ hands are frequently tied because of the difficulty in tracking down the person who made the false filing.

Yet some observers worry that photographing debtors might trample on the rights of honest bankruptcy filers--with little to show for it.

“What purpose does it serve to corral a bunch of people and have their pictures taken?” asked Ann Bradley, a spokeswoman for the American Civil Liberties Union of Southern California. “If a person was really attempting to carry out a fraud, they might simply change their appearance.”

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“So before we jump on something as a great idea, we really need to put it under the scrutiny of the foundation of our country, which is the Bill of Rights.”

In Santa Ana this month, Chapter 13 bankruptcy petitioners appeared unperturbed by the process.

When their names were called, they filed to the front of the hearing room and showed their identification to the trustee’s assistant. They stepped to the side of the trustee’s desk and their pictures were taken with a digital camera. The images were later stored in a computer.

Danny Lain, one of the bankruptcy filers, said he had no objection to having his photograph taken. “As long as you’ve got nothing to hide, which I don’t, it’s not a problem,” he said. “I was expecting to be fingerprinted and the whole nine yards.”

Lawyer David A. Voet, there with a client, said the photos are “a good idea.” A photo might seem “in its worst view like a mug shot. But it’s just a picture. People are out there committing bankruptcy fraud, and they should be stopped.”

William E. Alsnauer Jr., an attorney who represents the other side--creditors--said the program is “an interesting idea . . . a step in the right direction.” But he doubted it would do much to discourage fraud. “If people are really bent on doing this, they’ll probably just get more creative,” he said.

Officials say it is too soon to tell whether the program is making a difference, though trustees in Los Angeles say there has been an increase in the number of “no-shows” in recent months.

In Santa Ana two weeks ago, one person who arrived for a hearing disappeared after being told that his photo would be taken, according to several people present.

“Generally, people have been very good and helpful in making it work,” said Amrane Cohen, the standing Chapter 13 trustee in Santa Ana. Only a few debtors have complained, he said.

Methods of storing and retrieving photos are still being worked out, she said. Tiffany believes that videotaping might prove the best alternative because the hearings are already audiotaped. But it remains to be seen how that would affect the proceedings and how the tapes would be archived, she said.

The cost of photographing debtors has been minimal, Tiffany said--a few thousand dollars for the camera equipment and additional hard-drive space.

For now, authorities simply hope the photographs will make some people think twice before filing a bogus bankruptcy claim.

“We catch a lot of crooks,” Tighe said. But without more tools in the fight against fraud, “I don’t think we can stop it.”