host posted on January 12, 2012 10:40
For more than a year, both nationwide and locally the number of bankruptcy filings has fallen. These statistics contradict the reality of high unemployment rates, long-term unemployment, high foreclosure rates and growing numbers of working poor.
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act to put the brakes on rapidly escalating filings. This act was not intended to make bankruptcy unreachable for those who were heavily in debt and needed a fresh start; it was supposed to stop people thought to be abusing the system. It was supported by the banking industry, particularly banks promoting credit cards, under the promise they would recover more dollars with the new law.
A recent study done by the American Bankruptcy Institute, however, found that the law has served only to drive up the costs to the consumer debtor, and changes in creditor returns have been “statistically insignificant.” Nationwide, the institute’s study found the total cost (including all debt counseling, court and attorney fees) of filing Chapter 7 is up an average of 40 percent, depending on the case. In Chapter 13 cases, where debtors repay a portion of the debt they owe, the total cost of filing has increased approximately 25 percent.
When the law was passed, Congress did not have a crystal ball and could not have foreseen the economic crisis this country has been dealing with for the past four years. The high cost of filing bankruptcy and the lack of income caused by unemployment, however, have put bankruptcy out of reach for many debtors. Without the funds to file, Americans who are already under stress because they cannot find work must endure a rising pile of bills, calls from creditors and the knowledge that there is nowhere to turn.
Prior to this law, it was possible for debtors to file without retaining an attorney, but now the process is so complex it is almost impossible for a lay person to handle.
Locally, agencies such as the Volunteer Lawyers Project, Western New York Law Center and Legal Services for the Elderly can help debtors file. However, there are stringent income eligibility regulations.
Robert Lawless, a law professor at the University of Illinois, says bankruptcy was originally designed to be a social safety net to give debtors a second chance, and the new law has taken that away.
Longtime Chapter 13 trustee for the Middle District of Tennessee, Henry Hildebrand, said, “The enormous level of busywork required to file — work that provides absolutely no results other than to drive a segment of the population out of bankruptcy altogether — means that [the law] has failed.”
It is time to rethink our consumer bankruptcy system, to get back to the original intent of the law, and to make bankruptcy work for both debtors and creditors.
Jeffrey Freedman Attorneys at Law has 13 offices in Western New York and Pennsylvania.
http://www.buffalonews.com/editorial-page/from-our-readers/another-voice/article704936.ece
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