The Cost of Bankruptcy Reform: Was BAPCPA a Good Decision?
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The Cost of Bankruptcy Reform

A recent study by the United States Government Accountability Office, entitled "Dollar Costs Associated with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," looked into the cost and impact that BAPCPA has had on the Trustee Program and federal judiciary, consumers, and private trustees, and the results are quite interesting.

During the study, the GAO reviewed budget information for the Trustee Program and federal judiciary, analyzed bankruptcy lawyer fees from a random yet projectable sample of bankruptcy cases, and interviewed government staffers, bankruptcy lawyers, employees of consumer organizations, creditors and private trustees.

The findings concluded that Trustee Program and federal judiciary revenues have dropped and that consumers filing bankruptcy are paying higher legal and filing fees since BAPCPA was enacted. The study also found that private trustees are now spending more time with the administration of bankruptcy cases.

The study found that Trustee Program filing fee revenues plummeted from $74 million to $52 million between the fiscal years of 2005 and 2007. During that same time period, federal judiciary and miscellaneous fee revenues dropped from $237 million to $135 million.

The drop in revenues was partly due to the fact that before BAPCPA was enacted, there was a huge rush of people filing bankruptcy to avoid the more stringent rules and increased fees for filing bankruptcy that took effect under BAPCPA in October 2005. In 2006, the number of people filing bankruptcy temporarily dropped, and there were only 600,000 consumer bankruptcy filings for the entire year.

In order to take care of the burdens imposed on the Trustee Program by BAPCPA, approximately $72.4 million was spent between the fiscal years of 2005 and 2007. Most of this money was spent on staff time used to deal with the new means test, debtor audits, data collection and reporting, and credit counseling and debtor education requirements.

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The study was unable to determine an exact amount for all of the additional costs incurred due to BAPCPA; however, the federal judiciary did estimate that $48 million was incurred in one-time start up costs for training, revising bankruptcy rules, forms and procedures, and meeting similar necessities after BAPCPA was enacted.

For consumers filing bankruptcy, BAPCPA has also been costly. An examination of a random sampling of bankruptcy cases revealed that the average cost of a bankruptcy lawyer for consumers filing Chapter 7 bankruptcy increased by almost $400. From February to March of 2005, the average cost of a lawyer to handle a Chapter 7 consumer bankruptcy was $712.

However, after BAPCPA was enacted in October 2005, the job of bankruptcy lawyers became more complex and time consuming, and by the February to March 2007 time period, the average fee for a bankruptcy lawyer to handle a Chapter 7 consumer bankruptcy had increased to $1,078. Bankruptcy lawyers' fees for Chapter 13 bankruptcy cases also increased in all of the districts and divisions included in the study.

The fees for filing bankruptcy have also gone up under BAPCPA. For consumers filing Chapter 7 bankruptcy, the bankruptcy filing fees have gone up $90 from $209 to $299 to $306. For a Chapter 13 filing, the filing fees have risen $80, from $194 to $274 to $281. Additionally, the credit counseling and debtor education programs that are required under BAPCPA cost consumers filing bankruptcy an average of an additional $100.

The study found that the number of people filing Chapter 7 bankruptcy without a bankruptcy lawyer has declined since BAPCPA was enacted. This may be largely due to the complexity of bankruptcy laws that make it nearly impossible for the average person without a law degree to decipher.

The report also indicates that private trustees, despite the fact that there are less people filing bankruptcy since the enactment of BAPCPA, are spending more of their time and resources administering each bankruptcy case. They report that their time is taxed by the BAPCPA requirements on documentation, verification and reporting.

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