Part IX of XI
Written by Beckett Cantley and Geoffrey C. Dietrich
This article follows the outline contained in Part I, which can be read at www.cantleydietrich.com.
Claims that the BAPCPA would reduce losses to creditors, such the banks and credit card companies, and that those creditors would then pass on the savings to consumers in the form of lower future interest rates, appear to have been patently false. The data suggests that although credit card company losses decreased and credit card company profits soared to record highs, following the BAPCPA taking effect, the cost to consumers of credit card debt actually increased. In other words, the 2005 BAPCPA amendments appear to have profited credit card companies directly at the expense of consumers.
More broadly, the BAPCPA has done little to curtail the predatory practices of credit card companies, such as charging exorbitant interest rates, hidden fees, rising fees, and targeting minors and the recently bankrupt for new cards. These practices were significant contributors to the growth of consumer bankruptcies, for which the BAPCPA was intended to curtail, in and of themselves.
The BAPCPA makes newly discharged bankruptcy debtors even more attractive to credit card companies since the BAPCPA expands credit card exceptions to discharge and extends the waiting period between filings, following a successful discharge. Bankers have defended the practice of soliciting individuals newly discharged from bankruptcy, arguing that the practice allows these individuals a chance to build a new credit history. However, consumer groups argue that the BAPCPA has put millions of Americans at risk of being in cyclical credit card debt. These consumer groups further argue that banks and credit card companies will benefit in the long run since the BAPCPA makes it easier to continually make money on debtors who live paycheck to paycheck off of credit card lines.
Additional fees and paperwork mandated by the BAPCPA disproportionately harm the poor. According to a low-income bankruptcy clinic study, most truly indigent people, who live in jurisdictions that do not offer free student clinics or “no money down” filing fees, are currently prevented from filing bankruptcy altogether due to the high attorney fees and complex disclosure and documentation requirements. These complex disclosure and documentation requirements effectively prevent a large majority of low-income pro se filers from successfully completing the necessary paperwork and taking the other steps necessary to obtain the ultimate goal—a discharge of debt. Furthermore, the presence of complex disclosure and documentation requirements may have a chilling effect on some potential low-income filers who have been forewarned of the difficulties by others. Competent paid assistance is usually beyond the means of low-income individuals unless they can avail themselves of pro-bono services or can secure “no money down” representation. To compound the problem, increased paperwork, administrative burdens, and personal liability for failure to conduct reasonable due diligence have discouraged many attorneys from providing affordable bankruptcy services, such as pro bono and “no money down” representation, and have caused bankruptcy attorneys to selectively choose their cases. As noted above, pro bono bankruptcy representation is slightly down following the BAPCPA taking effect.
The result of a complex system that the poor cannot fully understand, and for which the poor cannot afford competent representation, can be: 1) exclusion of the poor from the system altogether; or 2) an increase in sloppy and non-uniform pro se filings, which would only create more inefficiency in the system, with little benefit to the common good, due to very high dismissal rates prior to receiving a discharge for pro se filers. Increased inefficiency in the system would likely make future bankruptcy filings even more expensive, and thus less accessible to the poor.
As noted above, the BAPCPA has imposed rigorous disclosure and documentation requirements, requiring lots of paperwork, such as pay stubs, utility bills, and other expense statements and invoices. Shortly after Hurricane Katrina ravaged the Gulf of Mexico in one of the largest natural disasters in United States history, questions abounded regarding how debtors who had lost everything, including all paperwork and records, should be treated under the rigorous, new requirements of the BAPCPA. Hurricane Katrina presented a unique situation because employees and employers lost their paperwork on a large-scale basis, meaning that it was common for the records of many debtors to be unavailable in any form and from any source. The Justice Department’s U.S. Trustee program stated that it would not attempt to enforce the means test rules for disaster victims, including those affected by Hurricane Katrina. Despite these assurances, bankruptcy judges are still able to enforce these means test provisions sua sponte.
This is the ninth of eleven installments of this article. The entire article may be found at www.cantleydietrich.com.
