January 20, 2020

Weakening of Consumer Bankruptcy Protections Based on Faulty Assumptions

One of the consequences of the new bankruptcy law (BAPCPA law) has to do with erosion of protections offered by bankruptcy in various situations.  For example, the automatic stay provisions, which previously offered a comprehensive, no-questions-asked protection from any creditor action, no longer provides absolute protection in all circumstances.  Under BAPCPA, the automatic stay terminates in 30 days (unless you go to Court to renew it) in certain repeat filing situations and it does not exist at all in the third case filed within a year.

While the policy considerations that underlie this erosion of the automatic stay may be valid, my concerns are (1) when you create complicated exceptions to core concepts, the system loses predictability and public confidence and (2) the stage is set to undermine the entire bankruptcy system with exceptions that swallow the rules, i.e. the “slippery slope” argument.

I find the reduction in bankruptcy protection that applies to repeat filers especially troublesome.  There seems to be an underlying assumption that a debtor who seeks bankruptcy protection  – usually under Chapter 13 – more than once within a year is acting with less than honorable purposes.  In my experience, at least half of the second filers I see have to file a second case because they did not fully understand the process and their obligations thereunder the first time around.

In most jurisdictions, one or two high volume consumer bankruptcy firms account for a majority of the Chapter 7 and Chapter 13 filings.  These high volume firms are a product of the Bankruptcy Courts’ paternalistic attitude towards debtors and consumer bankruptcy counsel.  In most jurisdictions, the Judges set out “no look fee” provisions for Chapter 13 that essentially set the market rate for legal fees in that jurisdiction.  Although the standing court orders that set out these provisions are careful to state that the judges are not setting a fee, the practical effect is, in fact, to set a fee for services.

Because it is hardly practical for a small firm to spend three or four hours of non-billable time to present a fee application, most consumer bankruptcy attorneys accept the no look fee as a flat fee for services.  In the northern district of Georgia, for example, the no-look fee for Chapter 13 is around $4,500.  If a Chapter 13 lasts five years, that amounts to $500 per year to prepare, file and manage a case. Until just a few years ago, that no look fee was $1,500 for five years’ worth of work (that amounted to $300 for five years’ worth of work).

By contrast, in Chapter 11 cases, where the financial stakes may be in the millions of dollars, bankruptcy attorneys may bill at $500 or $600 per hour without any significant judicial interference.

Is it any wonder, therefore, that high volume consumer bankruptcy firms spend so little time with their clients to walk them through the filing and case management process.  Actually face to face attorney time in a high volume firm may amount to 30 minutes or less.  Further, because the business model dictates that costs must be kept down, the high volume firms have no choice but to rely on inexperienced, young lawyers who stay for a year or two then move on.

In simple consumer cases, a paralegal driven model may be fine and I personally have no issue with operating a law firm according to a profitable business model, especially when that model is driven by judicial control of attorney compensation.  In more complex cases, however, it may take a second or third filing for the debtor to find a lawyer who is equipped to deal with that debtor’s complicated problem.

The automatic stay issue discussed above is but one of the many erosions and exceptions to full relief now contained in the Code.  A 2005 article in the ABA Journal entitled “Debts that Will Follow You to the Grave” by Marc S. Stern and Larry B. Feinstein offers an excellent summary of other exceptions to bankruptcy relief.

The prevalence of high volume, limited service bankruptcy mill firms in every large jurisdiction is clearly the product of judicial control of bankruptcy fee payments in Chapter 13 cases.  Yet BAPCPA incorporates a simplistic formula to punish repeat filers, even those who have to seek repeat protection because they ended up in the wrong attorney’s office for their particular case.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.


  1. Lawrence Friedman says

    Interesting that you find that many repeat filiers are in the situation because they did not fully understand the first filing. How many times have you pursued refunds or malpractice actions against former counsel of your clients?

  2. Lawrence, I think there are several issues with referring clients to malpractice lawyers. First, in general the financial stakes are not high enough for most malpractice lawyers to have any interest. Second, I think that as a matter of proof, it is probably difficult to distinguish between unclear advice + poor comprehension on the part of the client and malpractice. It would therefore need to be a major mistake with significant consequences and clear misrepresentation on the part of the lawyer before I would feel that a lawyer’s poor communication rose to the level of malpractice.

  3. I have a question about my Chapter 7…. Can you help?

    I am currently in the process of a Chapter 7 Bankruptcy. My petition was filed on Feb 22 and my 341 meeting will be next week. I had received a reaffirmation agreement from my auto lender and signed it.. However, I have not received one from my mortgage lender.. Is this normal? When should I receive this? at the 341 meeting? My intentions are to keep the house and car. However, on my mortgage payment stub.. It is indicating that this is for “informational purposes” only and payment is not demanded nor required. My husband was sick with the flu and didn’t receive a full check… Can I skip this payment and still reaffirm this at a latter time? And when does that happen during our 341 meeting or during our discharge? I am current on my mortgage but if I can skip a payment or two and get things caught up, will I be at risk of my mortgage lender to deny a reaffirmation agreement? Or worse, will I be at risk of a forclosure? I don’t want to lose my house, what are my options? Also, at the time of my 341 meeting, can I change or negotiate the terms of my mortgage agreement? Such as monthly payments, term, interest rates?

    Thank you much.
    Hopeful Heather

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