I 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.
Honest, hardworking men and women have to jump through hoops and pay a lot more money. In my career I can count on the fingers of one hand the number of clients or potential clients who I felt were dishonest. Those with the goal of gaming the system are not deterred. If the purpose of the BAPCPA amendments were to ferret out fraudsters, it has been a complete waste of time.
Another unintended consequence of the BAPCPA laws – deserving debtors do not seek the relief to which they are entitled because they get frustrated with all the paperwork required. Many of these folks remain in financial limbo – unable to save or psychologically move forward because of crushing debt. In a macro-economic sense I wonder if the country is better off with these folks living in financial purgatory rather than moving on with a fresh start.
My colleague, South Carolina bankruptcy lawyer Russ DeMott, and I were chatting about this tendency of deserving debtors to give up or delay filing because of the burden that the Bankruptcy Code places on debtors in terms of document production, costly credit counseling that offers marginal benefit and record keeping. Russ calls this syndrome “financial repression” and he has written a compelling and thoughful article about this problem. Russ has given me permission to republish his article on this blog, which will be the next post published here. You should also check out Russ’ video vault.