Part VIII 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.
An unprecedented surge in filings occurred just prior to the October 17, 2005 effective date of BAPCPA. Roughly 550,000 Chapter 7 petitions were filed in the two weeks prior to BAPCPA’s October 17, 2005 effective date. To put this figure in perspective, under pre-BAPCPA filing levels, it took an average of six months to see 550,000 new Chapter 7 petition filings. The filing surge just prior to the BAPCPA’s effective date was followed by a dramatic drop in filings, with only roughly 20,000 new Chapter 7 petitions filed in the 10 weeks following BAPCPA’s October 17, 2005 effective date. A substantial surge in new Chapter 7 petition filings was predicted to occur just prior to the BAPCPA taking effect. A substantial drop in new Chapter 7 petition filings was equally predicted following the BAPCPA’s effective date. However, the surge and subsequent drop-off were significantly more pronounced than analysts predicted. Despite the procedural and substantive hurdles imposed under the BAPCPA, debtors are continuing to file for bankruptcy, albeit at lower but upward-trending rates.
The preference for Chapter 13 repayment plans over Chapter 7 liquidations, under the new BAPCPA means test, has clearly altered the relative distribution of Chapter 7 and Chapter 13 filings. New Chapter 7 petition filings represented about 71% of all bankruptcy filings prior to the BAPCPA taking effect. In comparison, new Chapter 7 petition filings represented only 57% of all new bankruptcy filings in the first 12 months after the BAPCPA’s effective date. In the same post-BAPCPA 12-month period, new Chapter 13 petition filings increased from 29% to 42% of all new bankruptcy filings. The redistribution trend of new bankruptcy filings from Chapter 7 to Chapter 13 appeared to subside towards pre-BAPCPA levels for the next couple of years, with new Chapter 7 petition filings increasing to roughly 63% of all new bankruptcy filings in 2008 and nearly 70% of all new bankruptcy filing in 2011. However, 2008 new Chapter 7 filings were still only 55% of pre-BAPCPA Chapter 7 filing levels. New Chapter 13 petition filings in 2008 were a substantially more robust 75% of pre-BAPCPA Chapter 13 filing levels. New petition bankruptcy filings (irrespective of chapter) had merely risen to 61% of pre-BAPCPA filing levels by 2008. Part of this post-BAPCPA decline in overall filing levels could be due to a reduction after the pre-BAPCPA surge to the courthouse; however, sustained lower filing levels suggest a significant effect of the BAPCPA provisions of filing levels. This data generally shows that overall filing levels are down, and that this general filing decline has come at the expense of new Chapter 7 filings more so than new Chapter 12 filings. However, this data cannot specifically tell us whether this decline is due to fewer Chapter 7 filings, more conversion from Chapter 7 to Chapter 13, or a combination of the two.
Studies of the Consumer Bankruptcy Project have shown that, even after accounting for various financial, demographic, and legal factors that might influence chapter choice, African Americans are much more likely to file Chapter 13 relative to other races. The same study reported on an experimental survey sent to a random sample of consumer bankruptcy attorneys. The results of this survey showed that attorneys were much more likely to recommend a Chapter 13 filing when the hypothetical debtors had traditionally African American names and characteristics. On the other hand, the survey showed that attorneys were more likely to suggest a Chapter 7 filing to hypothetical debtors with traditionally white, Anglo-Saxon names and characteristics.. These results can only lead to the conclusion that some bankruptcy attorneys view white debtors as having more pure intentions when filing bankruptcy and being more competent to make the choice of filing Chapter 7. Attorneys oftentimes play a central role in determining whether a debtor files under Chapter 7 or Chapter 13. These views may permeate into the attorneys’ decision of whether the attorney would be willing to represent the client in Chapter 7. These views, as well as the difficulty of filing pro se, could explain the disproportionate rate of Chapter 13 filings by African Americans, particularly in jurisdictions with few and non-diverse choices as to representation.
A study of randomly assigned bankruptcy judges also showed that the race of the debtor may play some factor in judges’ decisions of whether to grant a discharge of debt in Chapter 13 bankruptcy proceedings. The study reported that, even after controlling for debtors’ demographics and financial situation, white judges are 21% more likely to dismiss an African American debtor’s Chapter 13 petition without discharge than a similarly situated white debtor. It should be noted that this study likely has a large margin of error because the surveyors had to make educated guesses as to the race of debtors, using name and zip code information, since race is not directly reported on bankruptcy court documents.
This is the eighth of eleven installments of this article. The entire article may be found at www.cantleydietrich.com.
