Part X 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.
The BAPCPA means test requires that the debtor’s petition include a calculation of income received in the six calendar months prior to filing. This provision of the BAPCPA imposes an effective filing deadline of the last day of the month on filing a petition in its current form without having to re-calculate the six month average to take into consideration the most recent month’s income. While the Chapter 7 means test has not directly prevented most low-income people from filing bankruptcy, the means test has generally increased the expense of filing a petition, due to extra costs for “rush jobs” and fees to re-calculate financial figures. Obviously, this provision incentivizes debtors and debtors’ counsels to file before the end of the month. For instance, in 2008, the last filing day of the month had an average new petition filing rate of nearly double the average filing rate of any other day. However, the historic end of the month filing surge was much more pronounced in Chapter 7 cases than in Chapter 13 cases. This data makes sense considering the fact that Chapter 7 debtors are typically in much more dire financial situations and may be disproportionately affected by the increase in fees. For instance, a Chapter 7 debtor may be in such dire financial circumstances that they cannot afford the additional time and expense of having the average reported income re-calculated and the petition amended.
A polled Tennessee attorney, who practiced Chapter 13 cases prior to the BAPCPA, reported that the Tennessee bankruptcy court’s practice of only paying fees of the debtor’s attorney, from assets of the debtor’s bankruptcy estate, following dismissal of the case. Under BAPCPA, Chapter 13 cases are generally only subject to discharge after either completion of a repayment schedule of up to 60 months or payment of the debtor’s unsecured creditors in full. Therefore, if a Chapter 13 attorney cannot acquire a retainer for the attorney fee prior to filing (as is the industry custom in many states with prevalent no money down practitioners), the attorney may be unable to recover any compensation for services rendered for up to 5 years in states such as Tennessee. In states such as Tennessee, contingent and deferred compensation from a bankruptcy debtor’s estate may prevent many practitioners from continuing widespread practice in the area of Chapter 13 cases. The supply and demand theory of economics dictates that a decrease in the supply of Chapter 13 practitioners will increase the average cost of such services. It appears that Chapter 13 practice in certain jurisdictions may be consolidating within fewer firms, charging a significantly higher fee than pre-BAPCPA and potentially only able to sustain Chapter 13 practice through utilizing economies of scale by taking on a very large volume of cases.
Even if the poor are able to access the bankruptcy system through free clinics or “no money down” representation, the poor may still be denied a truly “fresh start” in bankruptcy, due to several substantive BAPCPA amendments, including the means test, extended repayment plans, prolonged waiting periods between filings, and expanded exceptions to discharge.
Some poor post-BAPCPA debtors actually receive a discharge of liabilities—the ultimate “fresh start.” However, a much greater percentage of debtors fail to obtain discharge post-BAPCPA, due to the strict means test and/or failure to complete stricter and oftentimes longer repayment plans. Chapter 13 debtors, who fail to receive a discharge after making payment under Chapter 13 repayment plans, are particularly harmed by a lack of discharge. Some proponents of the BAPCPA claim that, even though many debtors fail to obtain the ultimate goal of bankruptcy, the bankruptcy system remains functional and still operates in one of its most important roles—a “financial timeout.” These proponents emphasize that many debtors just need and want a little time, provided by the automatic stay that goes into effect upon filing bankruptcy, to get their financial affairs in order. However, the BAPCPA also imposes automatic stay limitations which may have the effect of denying some cyclically impoverished debtors the ability to even garner a “financial timeout” to prevent eviction.
This is the tenth of eleven installments of this article. The entire article may be found at www.cantleydietrich.com.
