The “reformed” Personal Bankruptcy Law of 2005, now broken, must be urgently reformed this time
Is it time, once again, to reform the new reformed bankruptcy laws of 2005 and to reform the new reformed Chapter 7 bankruptcy laws? Or even Chapter 13? On October 17, 2005, amidst the highly charged atmosphere of high drama, strong promises and expectations, the new bankruptcy law, the Bankruptcy Abuse and Consumer Protection Act or BAPCPA, which had been enacted by Congress in largely at the behest of the credit and financial industries. , among other special interests, was quickly put into effect. Often called the “reform” bankruptcy law, the law had been touted as some sort of bankruptcy panacea that would fix a “broken” bankruptcy system in the United States, most especially, reverse or drastically reduce the high volume of bankruptcy filings and the increased use of bankruptcy by American consumers to resolve their debt problem. The prevailing and dominant argument and premise expressed by banking and finance industry proponents and advocates of the reform law, and by its sponsors in Congress, was that the growth in bankruptcy was due to “filings fraudulent bankruptcies” by consumers and the “excessive generosity” of the old bankruptcy system that, it was said, encouraged “abuse” and allowed large numbers of debtors to repudiate debts that they could well repay, at least in part.
A Congressional Research Service (CRS) report on the matter summarizing the “Legislative Objectives of [the] Consumer Reform”, summed it up this way:
“The high volume of consumer bankruptcy filings during the 1990s fuels the argument that current law is too lenient, i.e., a ‘pro-debtor’ bankruptcy. Advocates of consumer bankruptcy reform Consumers cite many reasons in support: The legislation is intended, among other things, to make filing more difficult and thus thwart “convenience bankruptcies;” to revive the social “stigma” of filing for bankruptcy; to prevent bankruptcy is used as a financial planning tool, to determine who can pay your debt and to ensure that they do, to reduce interest rates on consumer credit, and to maximize distribution to secured and unsecured creditors. objectives, the proposals implement a “means test” to determine the eligibility of consumer debtors to file a petition under chapter 7.”
It was in October 2005 that the new law entered into force. However, fast forward to today in March 2009, just less than 4 years after the passage of the new BAPCPA rules of 2005 that tightened the system for filing bankruptcy and made it much more expensive (more than doubled the legal fees charged by attorneys to file for bankruptcy) for debtors to file for bankruptcy. And we find that American debtors are once again rapidly returning to the same bankruptcy filing rate they were at before 2005. And the projections of informed experts are that we will be back to the same old “starting point” very soon in the bankruptcy, back to the “bad” old pre-2005 high bankruptcy levels that the 2005 “reform” law just enacted. by Congress was intended to cure and reverse. For the month of February 2009, for example, there were more than 103,000 bankruptcy filings nationwide. Spread over the 19 business days of February 2009, the filing rate is 5,433 filings per day, an increase of 22.0% over the January 2009 filing rate and a 29.0% year-over-year increase. 9% compared to February 2008. In fact, according to the predictions of some experts, the nation will record a rate of 1.4 million bankruptcy filings for the current calendar year of 2009.
Clearly, the “reformed” BAPCPA has miserably failed in its stated fundamental mission and purpose: to discourage American debtors from using the bankruptcy system to resolve their debt problems by making the process more difficult, expensive, and complicated, and reverse the escalation or high volume trend in bankruptcy filings.
WHY THE 2005 LAW FAILED
The fundamental reason why the 2005 law fell apart so soon can be traced directly to one basic reason: the entire BAPCPA scheme was based on a premise that is sorely flawed, in fact false, and not supported by facts or evidence or research, but largely based on mere raw emotions and ideological thinking. Essentially, Congress, while conspicuously dismissing independent evidence based on research from scholars like Harvard’s Elizabeth Warren and others (see, for example, Sullivan, Teresa A., Elizabeth Warren, and Jay Lawrence Westbrook. As We Forgive Our Debtors. New York, Oxford University Press, 1989), finally bought into the banking and financial industries’ most emotional argument that rampant “fraud and abuse” was to blame for the high volume of consumer requests, and that to stem that tide it was necessary make the law stricter to curb the “bankruptcy of convenience” of debtors.
However, that fundamental premise turned out to be totally false and grossly wrong. At bottom, the notion that most American debtors file for bankruptcy because, while they actually have the means to pay their debts, they just don’t want to pay and simply want to cheat their way out of their debt obligation is directly contradicted. . by so many studies and empirical evidence on the subject. But, even more closely today, it directly contradicts current events. Once again, Americans have turned around and are again flocking to bankruptcy court in record numbers just today at a time of clearly severe national economic recession, unemployment, financial hardship, and depression, for a large portion of they. Because? Because they want or love to cheat? Clearly NOT that! Clearly, the 2005 reform law woefully failed to take into account the central role that the overall health and soundness of “fundamentals,” or, more accurately, the lack thereof, play in the economy and the economy of the nation, as well as as an individual debtor. Financial condition (your employment, general financial obligations, etc.) could often influence whether or not the debtor ultimately pays off the debt.
“After October 2007 [marking the two years anniversary after the new 2005 law]there was very little ‘inventory)’ of consumers ready to file for bankruptcy,” explains Etaoin Shrdlu, a bankruptcy analyst, at Credit Slips, an online bankruptcy forum. “The Code [the bankruptcy law] changed, but the economic factors that lead to bankruptcy have not. If anything, they are getting worse. [That’s why] I believe that in the next two years we will return to the same levels of filing that we had in 2003 and 2004.”
Elizabeth Warren, a professor at Harvard Law School and the author of several books on bankruptcy, probably best sums up the point this way:
“The credit industry went to great lengths to increase the cost of filing [for bankruptcy] but when families are in enough trouble, they will fight for help through the paper ticket and higher attorney fees,” adding that “the word is now leaking [once again] that the bankruptcy courts are open for business.
In short, today, as we now see, the 2005 bankruptcy law is clearly flawed, if broken, from the start. Congress, it is now obvious, urgently needs to completely redo this law in order to truly reform the egregious flaws of the 2005 “reform” law, correctly this time, we hope.
Among many other important considerations that truly “reformed” new law must include, perhaps the most critical of all is this: BANKRUPTCY AFFORDABILITY; find a low cost bankruptcy. While the 2005 law sought to arbitrarily restrict or exclude qualified bankruptcy applicants from filing for bankruptcy largely based on false premises by making it more difficult and costly for them to file, the new law should provide an effective mechanism that allow virtually ALL honest American debtors, once clearly financially unable to meet debt obligations but overburdened with debt and otherwise qualified, to have low-cost bankruptcy filings. Even find an alternative pro se no lawyer to the lawyer. American debtors should never be forced to give up their sacred constitutional right to bankruptcy as Americans, seek relief from the debt burden of bankruptcy, and obtain the fresh start in rehabilitation that bankruptcy offers for life after death. Debt: AFFORDABLE.
