Experts Question BAPCPAs Effectiveness as the Law Reaches Its Eighth Anniversary

Experts Question BAPCPAs Effectiveness as the Law Reaches Its Eighth Anniversary

ABI Bankruptcy Brief | October 3, 2013
 
  

October 8, 2013

 
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  NEWS AND ANALYSIS   

EXPERTS QUESTION BAPCPA'S EFFECTIVENESS AS THE LAW REACHES ITS EIGHTH ANNIVERSARY

Next week marks eight years since the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), and some experts are questioning the effectiveness and costs brought on by the law, the Toledo (Ohio) Blade reported on Saturday. The anniversary is significant because when BAPCPA took effect on Oct. 17, 2005, it changed the countdown clock to eight years -- from six years previously -- before a debtor is eligible to file for bankruptcy again. The law also established a "means test" for consumer debtors, raised filing fees, required more documentation and mandated pre-bankruptcy credit counseling and post-bankruptcy money-management courses. ABI Resident Scholar Prof. Kara Bruce said that the reforms now seem more like a solution that was in search of a problem. "You have to ask now, was there abuse actually occurring and was anything really being fixed?" Bruce said. The net result of bankruptcy reform, Bruce said, was a law that gave creditors greater certainty at the expense of removing a lot of discretion by bankruptcy judges to give the debtor a fairer shake. Jeffrey Morris, a former University of Dayton law professor and a partner with the law firm of Porter Wright Morris & Arthur in Dayton, Ohio, said that the reforms were partly intended to decrease bankruptcy filings, and as predicted, filings have dropped. But Morris said that the decline in filings was more likely because of a general pullback by the credit markets to extend credit to risky clients, rather than changes in the law. "I just think that the tightening of credit generally has created a situation [where] high-risk individuals don't get credit anymore," Morris said. "That belt-tightening that is imposed by the larger financial industry means fewer people have credit to default on." Read more.

GOVERNMENT SHUTDOWN

GOVERNMENT SHUTDOWN WILL STALL HOME LOANS FOR THOUSANDS

Beginning next week, thousands of home buyers will be unable to get approvals for their mortgages because of the government shutdown, potentially undercutting the nation's resurgent housing market, the Washington Post reported on Saturday. Without paperwork from the Internal Revenue Service, the Social Security Administration and in many cases the Federal Housing Administration, banks and other mortgage lenders will be less willing to make loans, if they can make them at all. For instance, lenders rely on the IRS to confirm borrowers' income and on Social Security to confirm their identity. Every day that government offices remain shuttered will delay an ever-larger fraction of mortgage closings, industry leaders say, jeopardizing mortgage and interest-rate approvals, and spooking both sellers and buyers. About 15,000 new home mortgages and 18,000 refinancings on average are completed across the country each day. Read more.

GOVERNMENT SHUTDOWN CREATES DELAYS FOR SMALL BUSINESSES LOOKING FOR LOANS

The government shutdown is throwing a wrench into efforts by some small businesses to get government-backed loans from the U.S. Small Business Administration (SBA), the Wall Street Journal reported today. Lenders said that they continue to process and submit loans to the SBA, but borrowers will have to wait for approvals. Other borrowers face shutdown-related paperwork snafus that are slowing loan fundings. Even if the government gets back to work this week, the existing backlog could delay some loan approvals by six weeks or longer, compared with a normal wait time of about two weeks, said Lynn Ozer, president of SBA/government guaranteed lending at Susquehanna Bank. The biggest waits are likely to be for loans that have to go through the standard approval process, either because they weren't made by a "preferred lender" that can unilaterally underwrite loans or require SBA approval to waive a specific loan requirement, she said. SBA officials have indicated that banks may be able to refinance certain loans they made during the shutdown into loans with SBA guarantees after the government reopens, said Tony Wilkinson, chief executive of the National Association of Government Guaranteed Lenders, a trade group. But that process is "problematic and expensive," he said, noting that borrowers will have to go through two closings, and lenders aren't certain the SBA will guarantee the loans. Read more. (Subscription required.)

CONSUMER CREDIT IN U.S. INCREASES $13.6 BILLION ON CAR PURCHASES

Consumer borrowing rose more than projected in August as Americans took out more loans for motor vehicle purchases and education, Bloomberg News reported yesterday. The $13.6 billion increase in credit followed a $10.4 billion gain in July, the Federal Reserve said yesterday. Revolving debt, which includes credit card spending, decreased by $883 million in August after falling $1.8 billion the month before, the Fed's figures showed. The string of three straight declines in revolving loans is the longest since consecutive decreases to November 2010. Consumer loans made by the federal government, mostly for school tuitions, jumped by $21.9 billion before seasonal adjustment after increasing $4.8 billion in July. Read more.

COMMENTARY: WHY ONE CALIFORNIA TOWN IS KEEPING WALL STREET UP AT NIGHT

After five years of the federal government gently nudging banks to forgive homeowner debt that they took on in better days, cities like Richmond, Calif., have found a legal weapon that the financial industry truly fears: eminent domain, according to a commentary in Saturday's Washington Post. Richmond's city council on Oct. 2 voted for a plan to wrest underwater mortgages from the hands of Wall Street, depriving investors of tens of millions of dollars in order to save borrowers from foreclosure. Investors and banks have acted aggressively to stop Richmond's plan, lobbying the mayor and council members directly. Wells Fargo and Deutsche Bank, on behalf of scores of investment funds, sued to stop the plan. The securities industry points out that the plan would also hurt pensioners who own pieces of Richmond's mortgages. Indeed, last week, the California Public Employees' Retirement System -- the safety net for some Richmond workers -- expressed concerns. In a backlash to the plan, the market boycotted the city's most recent bond issuance, forcing it to withdraw the $34 million offer, which was supposed to refinance earlier debt. After the council vote, a district court judge threw out the investors' complaint as premature -- not on its merits, but because the city hadn't actually seized any mortgages yet. Read more.

DETROITERS LIVING AMID RUINS RESIST MOVING AS CITY REORGANIZES

Detroit, which filed the largest U.S. municipal bankruptcy on July 18, has almost 150,000 vacant parcels on and 700,000 people living in 139 square miles (360 square kilometers) after losing more than half its population since the 1950s, Bloomberg News reported today. Planners envision farms and other nonresidential uses for the empty land, as well as population-dense areas where it's easier to offer services. Yet some residents who have put down roots don't want to move. The Motor City is considering incentives, such as those New Orleans used after Hurricane Katrina, to encourage people to relocate rather than forcing them to. It's among the many challenges of creating functional neighborhoods in what was once the fourth-largest U.S. city, one that since March has been run by a state-appointed emergency manager. Today, most Detroiters live in areas with vacancy rates as high as 30 percent, and almost 10,000 are in neighborhoods unlikely to rebound, according to Detroit Future City. Read more.

ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS

Law school students are invited to submit a paper between now and March 4, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.

RISKY TIMES FOR SECURED LENDERS AND SERVICERS TO BE FOCUS OF FIRST ABI WORKSHOP PROGRAM- ATTEND IN PERSON OR VIA LIVE WEBSTREAM!

You will not want to miss the abiWorkshops series' inaugural program, "Risky Times for Secured Lenders and Servicers." The program is cosponsored by TMA (Chesapeake), IWIRC (D.C./Greater Maryland) and RMA (Potomac), and will be held on Nov. 6 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 6 program include:

- Living with the New CFPB Mortgage Servicing Rules
- Business Lending: Navigating What Lies Ahead
- Business Lending: Recent Legal Developments

For more information or to register for the "Risky Times for Secured Lenders and Servicers" abiWorkshop on Nov. 6, please click here.

EXPERTS TO EXAMINE STUDENT LENDING AND BANKRUPTCY AT ABI WORKSHOP PROGRAM ON NOV. 15

Experts will tackle the hot topic of student lending issues in bankruptcy on the abiWorkshops series' new program, "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" The program will be held on Nov. 15 from 9 a.m. to 3 p.m. ET in the ABI Headquarters Conference Center in Alexandria, Va. The abiWorkshops series provides attendees two great ways of participating: You can register to attend in person at the ABI Conference Center, or you can participate via a live webstream! Topics that will be covered on the Nov. 15 program include:

- Student Lending Today: Who Borrows, How Much, Delinquency & Default Trends
- Repayment Options: Income Based Repayment and New Lender/Servicer Programs
- Litigation under Sect. 523(a)(8): What Proofs Are Needed? Evidence Demonstration

For more information or to register for the "You Can't Discharge Student Loans in Bankruptcy - Or Can You?" abiWorkshop on Nov. 15, please click here.

ABI GOLF TOUR UNDERWAY; LAST STOP FOR 2013 IS WINTER LEADERSHIP CONFERENCE IN DECEMBER

The 7th and final stop for the 2013 ABI Golf Tour is on Dec. 5 at the Trump National Golf Club, held in conjunction with ABI’s Winter Leadership Conference. Final scoring to win the Great American Cup — sponsored by Great American Group — is based on your top three scores from the seven ABI events. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! A 22-handicapper won the tour event at July’s Southeast Bankruptcy Workshop. There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NEW CASE SUMMARY ON VOLO: MENDAROS V. JPMORGAN CHASE BANK N.A. (9TH CIR.)

Summarized by Richard Tisdale of Fried, Frank, Harris, Shriver & Jacobson LLP

The Bankruptcy Appellate Panel affirmed the bankruptcy court's order annulling the automatic stay and granting appellee JPMorgan Chase Bank's motion to validate a post-petition foreclosure sale of the debtor's property.

There are more than 1,000 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI’s Volo website.

NEW ON ABI’S BANKRUPTCY BLOG EXCHANGE: FIFTH CIRCUIT NIXES CONSENT IN STERN CASES

The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent blog post examines a recent decision brought about by the Fifth Circuit's interpretation of Stern v. Marshall in which it said that consent cannot apply in Stern situations.

Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.

ABI Quick Poll

Does the bankruptcy court's Section 105 power enable it to surcharge the debtor's exempt property?

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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  CALENDAR OF EVENTS
 

2013

October
- Professional Development Program
    Oct. 11, 2013 | New York, N.Y.
- Chicago Consumer Bankruptcy Conference
    Oct. 14, 2013 | Chicago, Ill.
- International Insolvency & Restructuring Symposium
    Oct. 25, 2013 | Berlin, Germany

November
- abiWorkshop: "Risky Times for Secured Lenders and Servicers"
   Nov. 6, 2013 | Alexandria, Va.
- Complex Financial Restructuring Program
   Nov. 7, 2013 | Philadelphia, Pa.
- Corporate Restructuring Competition
   Nov. 7-8, 2013 | Philadelphia, Pa.
- Austin Advanced Consumer Bankruptcy Practice Institute
   Nov. 10-12, 2013 | Austin, Texas
- Detroit Consumer Bankruptcy Conference
   Nov. 11, 2013 | Detroit, Mich.

  



-abiWorkshop: "You Can't Discharge Student Loans in Bankruptcy - Or Can You?"
   Nov. 15, 2013 | Alexandria, Va.
- Delaware Views from the Bench
   Nov. 25, 2013 | Wilmington, Del.

December
- Winter Leadership Conference
    Dec. 5-7, 2013 | Rancho Palos Verdes, Calif.
- ABI/St. John’s Bankruptcy Mediation Training
    Dec. 8-12, 2013 | New York

January
- Western Consumer Bankruptcy Conference
    Jan. 20, 2014 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
    Jan. 23-24, 2014 | Denver, Colo.


 
 
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