November 25, 2017

BAPCPA at 4 Years – Has It Solved Anything?

paperworkI have been representing debtors in bankruptcy cases filed in the Northern District of Georgia for over 20 years. Until the law changed in 2005, filing bankruptcy was a fairly straightforward process – often I would meet with a client, decide whether to file and select Chapter 7 or Chapter 13, collect information about creditors, develop a budget, then file that day.

Attorney’s fees and filing fees in those days were relatively low and relatively hassle free. Most Chapter 7 cases processed through to discharge, and Chapter 13 cases worked as long as the debtor remained employed and committed to making his case work.

Fast forward to October, 2005 – the time that the BAPCPA amendment to the Bankruptcy Code went into effect. The system became significantly more complicated. Clients were expected to gather page after page of documents, lawyers were charged with performing extensive budget calculations (the median income and means test).

Fees went up because both the attorney’s liability and the amount of work required increased greatly. And what is the end result? Many people with limited income and no hope of paying it back are filing Chapter 7. Others who would have fit into Chapter 7 sometimes do not qualify immediately and end up having to delay their filing for a few months. Folks with some capacity to pay end up in Chapter 13, but trustees are more demanding and Chapter 13 plans that would have worked under the old law do not always work now. [Read more…]

Bankruptcy Filings On Their Way Back Up

My colleague, New York Bankruptcy attorney Jay Fleischman reports on his New York Bankruptcy and Consumer Law blog that bankruptcy filings are beginning to rise.  Jay notes the following factor as reasons for the increase:

  • relaxed credit underwriting standards by lenders in every range of the risk spectrum
  • interest rates with no caps – such as 30% penalty interest rates on credit cards
  • a growing number of uninsured debtors who have to file bankruptcy to resolve unpaid medical expenses
  • increasing gasoline prices

My call rate has been increasing because of these factors and a few more, including

  • the doubling of minimum credit card minimum payments
  • the post-Christmas, post-tax refund effect – many people are still carrying credit card balances from Christmas and they have used up their income tax refunds
  • mortgage delinquencies caused by upward adjustments of adjustable rate or interest only mortgages
  • the end of the October 17 lull – prior to October 17, thousands of debors who otherwise might have waited a few months to file took advantage of the old law.  Now, enough time has passed that people who were not previously in trouble are in trouble

As expected, the new bankruptcy law has not and will not reduce the need for honest, hardworking debtors to file bankruptcy.  The same problems that existed for debtors prior to October 17, 2005 still exist in 2006.

New Bankruptcy Law

Well, October 17 has come and gone and I have now filed four (4) cases under the new law. Business has been extremely slow – I suspect that everyone who had been considering filing did file prior to October 17. My new cases have mainly been homeowners who want to file Chapter 13 to stop foreclosures.

My observations so far:

  1. client interviews now take two to three hours, as opposed to 60 to 90 minutes before. There is a lot more paper we have to see and, frankly, the client’s options are limited.
  2. clients have been less than enthusiastic about the pre-filing credit counseling. The ones who have taken the counseling generally like it, but clients facing emergencies have been less than cooperative.
  3. from my end, the requirement that we gather information is a good thing. I am finding all kinds of judgments and lawsuits that my clients did not know about and never would have known but for my investigation.
  4. this new bankruptcy law is not going to change human nature – people who are financially strapped are going to continue to be desperate and disorganized.
  5. the new Chapter 13 plan in the Northern District of Georgia is a major pain. When the numbers pick up again, I will be very selective and I am afraid that debtors with challenging cases will have a hard time finding experienced lawyers.

New law – should you file before October 17?

October 17, 2005 is the day the new bankruptcy law takes effect.  Over the past few months, ever since this date has been announced, my office has been receiving an ever-increasing flow of new client questionnaires from potential clients. Most everyone assumes that they should file prior to the effective date of the new law. Is this correct thinking?

For the most part, it probably is. After thorough reviewing the new law in preparation for a seminar I am teaching at the end of September, I have the following observations about the new bankruptcy law:

1. the “means test” is very restrictive. If your household income exceeds the average household income for your State (i.e. Georgia), the Bankruptcy Court will presume “abuse” and require you to file a Chapter 13 repayment plan. There are some “special circumstances” exceptions but don’t count on those.

Currently, the Courts ask whether your case has been filed in “good faith.” I predict about 30% to 40% of people who can file a Ch. 7 today will not be able to file after October 17.

2. the tone of the new law reflects an attitude that debtors filing bankruptcy are abusing the system. It also reflects an attitude that debtor’s lawyers are contributing to that abuse.

3. the new law is designed to make filing bankruptcy more intrusive and painful. For example, post-October 17 filers will have to enroll (at your expense) credit counseling and budget counseling courses. Bankruptcy petitions will have to include extensive supplementary documentation such as tax returns and proof of income.

4. the new law appears to have been written without much input from bankruptcy lawyers or bankruptcy judges. There are numerous omissions and unknowns. For example, the means test applies if your income exceeds “the median income” for a like sized family in your State. However, the law does not tell us where to find the necessary statistics. The census bureau statistics describe median income for a family of four, but what if your family is smaller or larger. The census bureau also differentiates between income in rural areas and city areas, although the new bankruptcy law does not make such a differentiation.

My sense is that the bankruptcy judges in our district will help us understand how this new law will be applied. But it may take 6 months to a year before we really know. In the meantime, do you want to be a test case for some provision of the new law?

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