Thinking of Filing for Bankruptcy? - You're Definitely Not Alone

In 2005, Congress changed the Bankruptcy Code with Orwellian-sounding Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Despite the impressive sounding name, BAPCPA has done little to prevent bankruptcy abuse and has done nothing to protect consumers. It's real purpose was to reduce the number of people filing for bankruptcy by making it more difficult, more costly and by forcing more people into Chapter 13 repayment plans as opposed to Chapter 7. It appeared as if the credit card and banking industries had gotten more than their money's worth from President Bush and the Republican Congress.

Yesterday we "celebrated" the 5-year anniversary of the effective date of BAPCPA. What better way to memorialize the day than to take a look back and see just what effect BAPCPA has had on the number of bankruptcy filings 5 years later.

Every year, an administrative agency known as the Administrative Office of U.S. Courts (AOUSC) is required to issue a report about certain bankruptcy statistics. The statistics for 2009 are available and the numbers are hardly surprising. They reveal the following:

• In 2009, there were 1.4 million consumer bankruptcy cases filed, an increase of 32% over 2008!
• Approximately 71 percent were Chapter 7 cases, and 29 percent were Chapter 13 cases (down from 34% in 2008).
• In 28% of Chapter 13 cases, debtors indicated that they had filed for bankruptcy in the previous eight years
• In 2004 there were 1,597,000 cases filed
• In 2005 there were 2,039,000 cases filed
• In 2006 there were 597,000 cases filed
• In 2007 there were 819,000 cases filed
• In 2008 there were 1,086,000 cases filed
• In 2009 there were 1,400,000 cases filed

So what do these numbers mean? Obviously, there were the most filings in 2005 due to the fact that many people rushed to file their case before the law changed. But if we could chart these numbers on a graph, we would see that the number of cases filed last year is just below the number filed the year BEFORE the law changed. Based on the trend and the continued condition of the economy, it's easy to see that the number of filings for 2010 should surpass the number of filing in 2004. In short, BAPCPA temporarily reduced the number of filings, but five years later, we're already back to the pre-BAPCPA level.

But hasn't BAPCPA reduced the number of people filing for Chapter 7 and pushed them into Chapter 13 plans? After all, that was one of its goals. A closer look at the numbers shows that in 2004, the percentage of consumer bankruptcy cases that were filed under Chapter 7 amounted to (drum roll please) . . . 71%! Exactly the same percentage as in 2009. So five years down the road, BAPCPA has neither reduced the number of people filing for bankruptcy, nor has it changed the percentage filing for Chapter 13.

Is there a lesson to be learned? Essentially, we find ourselves in the same position that we were in before the law changed. Of course, now there are additional burdens, cost and expense for debtors, their attorneys, trustees, creditors and the courts. To what end? A Congress and President who knew little if anything about bankruptcy pushed through a measure that has made the process a hassle for everybody, including the very banks and credit card companies that paid them for it. Based on the results five years later, maybe they should ask for a refund.

Filing bankruptcy can be complicated and confusing. For more information on Chapter 7 and Chapter 13, or for a free consultation, call me at 330-605-3508 or visit my website at http://www.ohiobankruptcyrelief.com/.