Bankruptcy More Expensive and Cumbersome Than Ever

A new study finds the bankruptcy system is more cumbersome and expensive than ever, thanks to the 2005 Congressional "reform" of bankruptcy laws.

The study found that since the new law took effect, debtors’ attorneys’ fees plus filing fees and the debtor education fee have increased the total direct access costs for both consumer chapter 7 and 13 cases.

The study was funded by the American Bankruptcy Institute Anthony H.N. Schnelling Endowment Fund and National Conference of Bankruptcy Judges Endowment for Education.  It found that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) made the bankruptcy system cumbersome and costlier to use for both debtors and bankruptcy professionals.

According to the study, additional debtor paperwork requirements have added time and monetary burdens throughout the consumer bankruptcy system. The new law also imposed new duties and obligations on attorneys, trustees and court personnel.

Increased complexity

The increased complexity of the consumer bankruptcy system calls for professionals to have a “nuanced understanding of the dissonance between how the system is designed to work in theory, and how it works in practice, said Lois R. Lupica, Maine Law Foundation Professor of Law at the University of Maine School of Law, the study's principal investigator.

"There is a disconnect between the skill, time and commitment it takes for attorneys to provide debtors with first-rate representation, and compensation that does not always reflect such excellence,” Lupica said. The “tension inherent in the indispensability of highly skilled consumer bankruptcy attorneys, and the resources reasonably available to sustain a quality bar,” means the system is fighting “best practices.”

Lupica examined a national random sample of 11,221 chapter 7 and chapter 13 consumer cases (approximately 0.12 percent of the consumer bankruptcy cases filed) in 90 judicial districts filed between 2003 and 2009. 

A full copy of the study is available online.