BAPCPA Increases Cost of Consumer Bankruptcy Cases

Most practitioners intuitively know that BAPCPA made consumer bankruptcy more expensive. Now, the American Bankruptcy Institute has provided some empirical support for this proposition. The ABI Endowment Fund has sponsored a research project by Prof. Lois Lupica of the University of Maine School of Law. The results of the Pilot Study were presented by Prof. Lupica at the ABI Winter Leadership Conference.

The Pilot Study examined bankruptcy filings in six representative districts both pre and post-BAPCPA. The researchers examined the fees charged in 50 chapter 7 cases and 50 chapter 13 cases during the 2003-04 period and 2007-08 period, so that over 1,000 individual cases were examined.

The biggest change was in fees charged in chapter 13 cases. During the pre-BAPCPA period, the median fee charged across the districts was $2,000.00. That fee has now increased to $3,000.00. However, when increased filing fees, trustee fees and credit counseling fees are factored in, the total administrative cost for a median chapter 13 case has increased from $2,930.00 prior to BAPCPA to $4,077.00 afterward. Meanwhile, the study found that distributions to unsecured creditors went down after BAPCPA.

The results in chapter 7 cases were comparable. The median cost of a chapter 7 proceeding prior to BAPCPA was $650.00. That cost has grown to $1,000.00 after BAPCPA. This is a 53% increase. (I didn’t catch the total administrative cost for chapter 7s, so I don’t have an apples to apples comparison for total cost between chapter 7 and chapter 13). The ratio of the cost of a chapter 13 to a chapter 7 remains constant at 3:1.

What does all this mean?

As a disclaimer, these are my thoughts, rather than those of the study authors. It certainly looks as though BAPCPA has made bankruptcy more expensive all around. This cost has been borne by unsecured creditors, at least in chapter 13 cases. It may also have resulted in a new class of debtors who are too broke to be bankrupt. One trend reported by one of the judges in the audience was below median debtors filing chapter 13, not to pay their unsecured creditors, but to finance the payment of their attorney’s fees. If this is the case, it is a disturbing trend.