Available at: https://ssrn.com/abstract=4870978 or http://dx.doi.org/10.2139/ssrn.4870978
Summary:
The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act is the most important reform of personal bankruptcy in the United States in recent years. This law left benefits of filing for bankruptcy mostly unchanged, but increased the monetary costs of filing, both for Chapter 7 and Chapter 13 bankruptcy. Using administrative credit bureau data from a nationally representative panel, we quantify the effects of the rise in filing costs exploiting geographical variation in this increase. We show that the increase in filing costs reduced Chapter 7 bankruptcy rates by 15% for newly financially distressed borrowers, but had no statistically significant effect on Chapter 13. We argue that this differential is consistent with binding liquidity constraints driving the response to the reform. Additionally, we find that the missing Chapter 7 bankruptcies lead to an increase in long term financial distress but also a limited rise in the rate consumers return to being current, while there is no evidence of substitution from Chapter 7 bankruptcy to Chapter 13 filing or foreclosure
Commentary:
This article "estimates ... that the average increase in attorney fees reduced... Chapter 7 bankruptcy filing by 15% from the pre-[BAPCPA] ..., whereas there is no statistically significant effect for Chapter 13 filing." And while many, especially in the academic community, have bemoaned that consumers file Chapter 13 cases, often with a substantially reduced likelihood of discharge, instead of Chapter 7, it has become apparent that the increased cost of filing bankruptcy was the true oblique goal of BAPCPA.
This does also call into question the likelihood that bankruptcy reform legislation, most notably Sen. Warren's Consumer Bankruptcy Reform Act, which, while front-loading the discharge like in Chapter 7, expands and adds truly admirable options for dealing with secured debt (almost a "super Chapter 13"), would result in more consumers actually being able to obtain relief. All of these options (smooshed into a single chapter) could end up complicating the choices faced by consumers and their attorneys like some very expensive Ptolemaic orrery:
As grappled with in multiple other forums and venues, including the ABI Consumer Bankruptcy Report, court decisions regarding "bifurcated" fee arrangements and Attorney Fee Only Chapter 13 cases, the suggestion that attorney fees for Chapter 7 be allowed to be paid after the filing of the bankruptcy, is a hollow solution. Merely making the attorney's fees non-dischargeable does not mean those fees will be paid, particularly as consumer bankruptcy attorneys would be loath to risk bar complaints and the even worse negative Google reviews, by taking any action, let alone filing suit and seeking garnishment, for those fees. Nondischargeable does not mean paid.
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