One Year of “Reform”

The Bankruptcy Abuse Prevention and Consumer Protection Act became effective little more than a year ago. The net of our experiences thus far with the amended Bankruptcy Code is that bankruptcy relief remains widely available. What has been sacrificed is economy and predictability.

Lawyers and judges struggling with applying the statutes amended by BAPCPA find the sloppy draftsmanship of this law painful to encounter. So much of what has been added isn’t compatible with the balance of the code and applying the words as written in one place produces either idiocy or the opposite effect somewhere else in the Code. My favorite judicial comment was by Judge Markell who analogized it to the White Queen who reported she was required to believe six impossible things before breakfast.

I have not yet seen a client who could not get relief in bankruptcy by reason of the changes to the Code. I have been surprised at how seldom the IRS collection standards used in the means test result in trouble for clients. Unfortunately, all of the additional steps in the bankruptcy process have required a substantial increase in the cost of a bankruptcy case. Further, about many of the issues raised by the new amendments, there are no clear answers about how these provisions will be applied in the real world.

Prepetition credit counseling has proven to be a farce. No one who has made the long postponed visit to a bankruptcy lawyer can manage his way out of a financial pit. The counseling requirement has just raised the cost and the number of ways a debtor without a lawyer can screw up.

I have greater hopes for the financial management class required to get out of bankruptcy. Most all of my clients have absorbed some self taught lessons about money; they are usually ripe for an attempt to learn to manage better. Of course, there is a limit in this economy to what good management can do for a family: you can hardly “learn” to avoid illness, unemployment or divorce. These are the three factors that account for more than 90% of bankruptcy filings.

BAPCPA was intended to reduce the number of folks filing bankruptcy. The initial numbers show that filings are down. There is no evidence that is because all the alleged “abusers” aren’t seeking bankruptcy relief. It is because, in part, an enormous pool of people considering bankruptcy last fall, took the plunge before October 05 to beat the harsh changes in the law. Many of those who didn’t file in 05 mistakenly believe that bankruptcy is no longer an option. This misconception is being fed by bill collectors who are telling debtors that “you can’t file bankruptcy on credit card bills”, or medical debt or whatever it is that they are collecting.

The financial precariousness of the American middle class has not been remedied by closing the door to the bankruptcy court. I hope this dawns on our political leaders.

Cathy Moran