Chapter 7 Bankruptcy Reform Law Has Cost Plenty, Study Says
The United States Government Accountability Office (GAO) recently conducted a study to determine what the cost of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) actually was to the government and consumers filing bankruptcy.
The study also examined the impact of the bankruptcy reform law on consumers, private trustees and the bankruptcy Trustee Program, and the results have left many people wondering exactly where the benefits of BAPCPA lie.
For the study, GAO reviewed budget information from the Trustee Program and federal judiciary, and conducted many interviews with staff from these government entities, as well as with bankruptcy lawyers, employees of consumer organizations, representatives of creditors, and private trustees.
Bankruptcy lawyer fees were also collected from a random but projectable sample of bankruptcy cases.
Here’s what the study found:
1. The bankruptcy Trustee Program and the federal judiciary are collecting a lot less money and spending much more.
Although BAPCPA increased bankruptcy filing fees, Trustee Program filing fee revenues have declined by $22 million between the fiscal years 2005 and 2007.
During this time period, federal judiciary and miscellaneous fee revenues dropped by $102 million. The dramatic decrease in revenues was due in part to the fact that only 600,000 consumers filed bankruptcy in 2006, the year after BAPCPA was implemented.
Just before BAPCPA went into effect in October 2005, there was a huge number of consumers filing bankruptcy in a hurry out of a fear that it would be much harder to do so after the inception of the new law.
In addition to the loss of revenue, the bankruptcy Trustee Program spent $72.4 million for the fiscal years 2005 through 2007 on taking care of the new responsibilities that BAPCPA laid on it. Most of this money was spent paying staff members for their time spent on issues related to the bankruptcy means test, debtor audits, data collection and reporting, and the new credit counseling and debtor education requirements for filing bankruptcy.
The federal judiciary is unable to determine exactly what all of the costs associated with BAPCPA were, but it has been estimated that $48 million had to be spent on staff training, bankruptcy rule revisions, forms and procedures.
2. Another negative side effect of BAPCPA has been the increase of legal fees.
The GAO study estimated that due to the time and complexity of bankruptcy cases, bankruptcy lawyers have been forced to increase their fees for Chapter 7 bankruptcy cases from an average of $712 in February-March 2005 to an average of $1,078 in February-March 2007.
Bankruptcy lawyer fees for Chapter 13 bankruptcy cases also rose across the board, with more than half of the cases surveyed having an increase of at least 55 percent.
3. Fees for filing bankruptcy have also gone up as a result of BAPCPA.
For consumers who file Chapter 7 bankruptcy, the filing fee is now $299, as opposed to the $209 filing fee pre-BAPCPA.
For Chapter 13 bankruptcy, the filing fee is now $274. Before BAPCPA, the fee was $194.
Additionally, consumers filing bankruptcy must now pay around $100 for mandatory credit counseling and debtor education programs that did not exist before BAPCPA.
4. Private trustees are spending more time and resources administering each bankruptcy case due to new BAPCPA requirements on documentation, verification and reporting.
Given the results of the GAO study, it is difficult to see the benefits of BAPCPA; however the financial impact of this bankruptcy reform law is crystal clear.