New Law = Costs Up w No Benefit
Posted by Kevin on February 13, 2012 under Bankruptcy Blog | 
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The New Bankruptcy Law (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) was adopted by Congress after a decade of lobbying by banks and the credit card industry. These groups argued that the Bankruptcy Code of 1978 allowed debtors who could afford to pay some of their debt off the hook by making Chapter 7 too available. They wanted more debtors to be required to file under Chapter 13 where they would have to make monthly payments for 36-60 months.
My position, which has been set forth in this blog and in an ezine article, is that the law is a failure, that Chapter 13 filings are down, and that the cost of bankruptcy has practically doubled. All you have to do is look at the yearly statistics compiled by the bankruptcy clerk in NJ. You will see that initially Chapter 13 filings were up, but now, the ratio of Chapter 13 to Chapter 7 filings is about the same as when BAPCPA was enacted. Costs are up because BAPCPA makes the lawyers do significantly more work, requires the debtor to take two dubious courses, and requires the debtor to pay for additional searches and credit reports to demonstrate due diligence.
Well, a recent study bears out my conclusions. A study conducted on over 11,000 bankruptcy cases from 90 judicial districts on cases filed from 2003 to 2009 indicated that costs had increased and distributions in Chapter 13 cases had gone down. Now, 11,000 cases is just a drop in the bucket since about 1,000,000 cases are being filed annually. But, it is a decent sample and goes beyond what is referred to as “anecdotal reporting”. The other thing the study found was that even though fees had increased, the lawyers doing Chapter 7’s and 13’s are being squeezed on fees by the courts and, at the same time, required to do more work. This is leading to more mistakes and more stress to both attorneys and their clients.
What does this all mean to a Bergen County resident who is considering filing bankruptcy. Well, on a philosophical level, it demonstrates that new may not mean better. Second, it should be an indication to the consumer that the process is not going to be particularly quick or cheap. Third, if you are content with getting it done on the cheap, beware, sometimes you do get what you pay for.
