Bankruptcy Reform: A Bust?

The National Association of Consumer Bankruptcy Attorneys has recently reported on early statistics, which confirm the concerns espoused by opponents of much of the recent Bankruptcy “Reform.” The report provides the first analysis of the over 60,000 consumers who have filed for bankruptcy protection since the enactment of the “Bankruptcy Abuse Prevention and Consumer Protection Act” (“BAPCA”) (editors note: the use of the term ‘Consumer Protection’ in the title of this statute is nothing short of Orwellian) in October of 2005. The full text of this report, entitled: Bankruptcy Reform's Impact: Where Are All the Deadbeats, may be found by following this link.

In its report, the NACB concludes that the changes put in place by Congress are not working as intended. Among other things, the report finds that of the 61,335 consumers seen so far by credit counseling firms nearly all (97%) are unable to repay any debts, and four out of five would-be filers were forced into dire financial straits by circumstances beyond their control, such as the loss of a job, catastrophic medical expenses or the death of a spouse. It is almost certain that, due to the dramatic increase in administrative expenses and new hurtles to recovery of preferential transfers created in the new legislation, unsecured creditors are likely to be receiving less, not more, in bankruptcy dividends and distributions.

And now, in a recent development, the National Association of Consumer Bankruptcy Attorneys, together with the Connecticut Bar Association has brought suit to have portions of the law, relating to debt counseling, declared unconstitutional. This, alas, is what comes of Congress’s having abdicated its legislative function and having given a drafting pen and a free hand to the credit card industry. Unfortunately for that industry, the legislation it wrought is sloppily drafted, and more importantly, will hurt consumers and not help the issuers of credit cards. Nobody is benefited, and, in the opinion of this author, much of this legislation will ultimately be undone.

One does not ordinarily think of Otto von Bismarck (or any German leader, for that matter) as a wit. But his well-known and pithy quote to the effect of: “If you love laws and sausages, you should never see either one made,” seems particularly apropos. One would hope that our future legislators will, if they want to sell their votes, at least do the drafting themselves.

Warren Graham
Copyright 2006