A study published in the American Bankruptcy Institute Law Review found that the cost of filing for personal bankruptcy has gone up since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, as discussed in a recent article in the Wall Street Journal.
Here’s a look at some highlights from the study and what they might mean for you, other bankruptcy filers and the nation’s bankruptcy system.
- More expensive to file: One of the changes made by BAPCPA was that the fees required to simply file bankruptcy paperwork increased. This means that, on the most basic level, filing for bankruptcy got more expensive for struggling consumers. But the cost increases don’t stop there.
- More requirements to pay for: In addition to the increased cost of filing, BAPCPA introduced new requirements that filers have to complete in order to obtain a bankruptcy discharge from the court. These requirements include two courses filers must complete (credit counseling and debtor education), and both cost money, bringing the overall cost of bankruptcy up even more.
- More lawyer hours required to file: Because BAPCPA introduced more stringent qualification standards for Chapter 7 bankruptcy, the study reportedly found, bankruptcy lawyers often had to invest more hours in individual cases to determine which type of bankruptcy protection (Chapter 13 or Chapter 7) would work best for their clients. In some cases, this could mean more money spent on attorney fees for clients.
- More trustee hours required in cases: And the increased costs didn’t stop at the attorney level. It seems that bankruptcy trustees (who oversee bankruptcy cases) have also seen their hourly investment rise since the passage of the 2005 law.
So what do all these cost increases come to for the individual consumer? According to the WSJ, the average bankruptcy filer today pays 55 percent more to get financial protection than the average consumer paid in 2003 and 2004. And, perhaps ironically, the increased expenses have had an unanticipated effect: less money going to creditors.
Credit card companies were among the most vocal supporters of BAPCPA in the years before it passed. Because the new law would make Chapter 7 bankruptcy more difficult to qualify for, logic suggested that fewer consumers would be able to discharge their credit card debt in bankruptcy.
But, as data from this study suggest, the increased expenditures mean that bankruptcy filers actually have less money left over to repay their debts, meaning that creditors get less money because there’s less available to distribute.
The study was apparently a preliminary effort and will be expanded in coming months.
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Tags: Bankruptcy, Bankruptcy Costlier
Posted August 31, 2010 by Amelie Hampton under Bankruptcy Articles