Tuesday, October 17, 2006

One Year Since BAPCPA Took Effect

One year ago today the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect. This followed what can only be described as a period of insanity as potential debtors raced to file under the old law. One year later, consumer bankruptcy filings are a mere shadow of their former self. Congress has certainly succeeded in limiting the number of debtors seeking a quick discharge under chapter 7, but has dramatically decreased chapter 13 filings as well.

A Tale of Three Times

To make sense of the numbers, it is important to look at three periods of time. The year from April 17, 2004 to April 16, 2005 is the last record we have of what "normal" bankruptcy filings used to look like. (Technically this period should run through April 19, 2005, the day before BAPCPA was signed. However, for ease of comparison, I have used used months running from the 17th through the 16th to reflect the fact that BAPCPA took effect on October 17, 2005). The period from April 17, 2005 through October 16, 2005 reflects the "rush" period as debtors flocked to the bankruptcy courts in record numbers. Finally, the period since October 17, 2005 is the BAPCPA period.

During the "normal" period, there were 92,872 consumer bankruptcy cases filed in the State of Texas. Of these, 52,985 were chapter 7 liquidations, while 39,887 were chapter 13 liquidations. This reflects the trend prior to the new law for more people to choose liquidation over reorganization.

During the "rush" period, an astonishing 65,797 chapter 7 cases were filed. Thus, the cases filed in just six months represented 124% of the total for the entire previous year. Chapter 13 filings during the "rush" period numbered 22,118 representing only a slightly elevated level of filings.

Filings Anemic Under BAPCPA

Since BAPCPA, filings have been relatively anemic. For the past 12 months, there have been just 29,163 consumer bankruptcy cases filed statewide. This compares to 42,420 cases filed in just one month from September 17, 2005 to October 16, 2005. Under the new world of BAPCPA, chapter 13 cases predominate with 17,419 filings under chapter 13 and just 11,744 under chapter 7. Thus, chapter 13 is now the dominant form of consumer bankruptcy relief as opposed to practice under the old law. However, the newly dominant chapter 13 filings are themselves a mere shadow of filings under the old law.

The new chapter 13 filings of 17,419 represent a mere 44% of the filings during the "normal" period, while the 11,744 chapter 7 cases are just 22% of the "normal" period filings.

The trend shows a gradually increasing number of Texas consumer cases. In the first month after the effective date, there were a puny 743 cases filed statewide. After that, there were a series of ever increasing plateaus.

Month 1: 743
Months 2-3: 1,575 (avg.)
Months 4-5: 2,289 (avg.)
Months 6-9: 2,680 (avg.)
Months 10-12: 3,323 (avg.)

By comparison, the average filings during the "normal" year were 7,739 per month. The past seven months show an average increase of 92 cases per month. Rounding up, if filings increase by an average of 100 cases per month on a steady basis, it would take about 44 months for filings to return to their old levels.

Thus, the recap after one year is that chapter 13s are down, chapter 7s are way down, but the overall volume is slowly increasing.

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