A recent study funded by the American Bankruptcy Institute and reported upon by Bloomberg News found that “creditors have done worse since the bankruptcy law was amended in 2005 to enhance recoveries.” University of Maine School of Law Professor Lois R. Lupica performed the study, according to Bloomberg. While the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act was intended to “prevent the discharge of debt consumers could afford to pay,” data reported did not conclusively find that there were any “can-pay debtors lurking in the shadows,” Lupica said in an interview.
The Bankruptcy Abuse Prevention and Consumer Protection Act, according to the U.S. Department of Justice, opened “a new era in the history of bankruptcy law and practice.” Among other intentions, it was meant to:
- Implement a new “means test” to determine if a debtor was eligible
- Supervise random audits to determine if a debtor was accurate regarding Chapter 7 forms
- Certify entitles to provide credit counseling
- Certify entities to provide financial education
- Conduct enhanced oversight in Chapter 11 small business bankruptcies
The law was enacted because of the suspicion that many were taking advantage of the bankruptcy code and filing for bankruptcy as a way to discharge surmountable debs. This new study turns the reason for the law on its head. According to Bloomberg News, “Lupica found that recoveries by unsecured creditors after the 2005 law was enacted fell by ‘statistically significant’ amounts under both Chapters 13 and 7.” This meant that the law, meant to discourage people from undermining the system of bankruptcy, instead undermined the people filing for bankruptcy.
One study that Lupica used for her report found that the cost of a Chapter 7 bankruptcy had increased by nearly $200, adjusting for inflation, between 2005 and 2013. “The average fee for a Chapter 7 filing rose 38 percent after the amendments and 63 percent for Chapter 13,” she told Bloomberg News.
The 2005 Bankruptcy Reform law has negatively affected if you or someone you know, don’t go through it alone. Contact an experienced Arizona bankruptcy attorney today.