On May 24, 2011, Senate Judiciary Committee Chairmen Pat Leahy (D-Vermont) introduced the Fighting Fraud in Bankruptcy Act (S. 1054). Among other things, the Act is intended to bolster the ability of the Executive Office of the U.S. Trustee (EOUST) to fight creditor fraud and protect homeowners.

When you file a Chapter 13 bankruptcy case, your creditors must come forward and file a claim with the court in order to receive a portion of the payments that your will be making on your Chapter 13 Plan. The EOUST recently reviewed of proofs of claims filed by mortgage servicers, and found that the error rate was ten times higher than what representatives of the mortgage servicing industry had claimed. The EOUST has sought increased sanctions for defective and fraudulent claims, but the mortgage servicing industry has challenged the EOUST's authority to do so.

The proposed Act clarifies that the U.S. Trustee has a duty to take action to remedy creditor abuse of the bankruptcy process. It also allows the court to correct or sanction creditor misconduct. It empowers the U.S. Trustee to establish procedures for auditing claims, and it requires mortgage lenders to certify under penalty of perjury that foreclosure proceedings against active duty military members comply with the Servicemembers Civil Relief Act.

Introducing the bill, Senator Leahy said: "The Fighting Fraud in Bankruptcy Act is another step forward in the Judiciary Committee's important efforts to protect American citizens from fraud. As Congress looks at ways to mitigate the foreclosure crisis to reduce its impact on homeowners and the economy, I hope all Senators can agree that the foreclosure process for Americans should be a fair one and one in which there is accountability for fraud or other misconduct. And I hope we can all agree that the integrity of our judicial system is something worth protecting."