Bankruptcy Filings Down- Better Economy?

Posted by Kevin on May 12, 2012 under Bankruptcy Blog | Be the First to Comment

According to a report issued by the Administrative Office of the US Courts, bankruptcy filings were down 11.5 percent in 2011.  Yippee, the economy must be getting better!  Not so fast.

As I have stated more than once on this blog, one of the purposes of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, also known as BAPCPA, was to get more debtors to file under Chapter 13 so that creditors could get some payments as opposed to a no asset Chapter 7 where there are no payments to creditors.

The stark reality is that under BAPCPA attorneys have to do significantly more work in a consumer Chapter 7 or in a Chapter 13.  Moreover, the attorney has to have a more complete understanding of the the statute and case law, because the reality is that there are fewer and fewer “easy cases”.  More attorney time means higher legal fees.  More complexity means higher legal fees.  In fact, under the old law, the average legal fee for  Chapter 7 in NJ was about $800-1200.  Now, it is $1500-2200.   A run of the mill Chapter 13 ran $1500-1800.   Now, the basic fee is $3500 usually with court approved add on fees of a few hundred.

Moreover, irrespective of whether the debtor files under Chapter 7 or 13, BAPCPA requires more papers to produced by the debtor (which takes time), useless counseling sessions which run about $100-150, credit reports and judgment searches so that the debtor’s attorney can prove to the trustee that he/she engaged in due diligence ($100), comparative market analysis and the like.

So my take is that the main reason that filings are down is because BAPCPA has made the process unnecessarily complex and expensive.  But that was just my take.  Recently, however, Professor Lois Lupica of the University of Maine School of Law conducted a study of some 11,000 consumer cases under BAPCPA and confirmed what most bankruptcy lawyers in NJ know- the process under BAPCPA is expensive.  Prof Lupica found out of pocket costs in no asset Chapter 7’s  are up over 50%, and what she termed Total Direct Access Costs (attorney fees, filing fees, credit counseling fees and the like) are up 37% in Chapter 7 and 24% in Chapter 13’s.  Finally, Lupica found that lawyers are put under increased stress because of the complexity of the law, and the perceived need to keep expenses down for the debtor.

So, is the economy getting better or has Congress made bankruptcy an alternative that is too expensive for many otherwise qualified debtors?