Alexandria, Va. — Increasing costs to file for chapter 7 bankruptcy continue to put the financial “fresh start” further out of reach for low-income Americans, according to an article in the February ABI. “Since BAPCPA (the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005), the cost of counsel for a routine chapter 7 case has increased beyond the reach of many people to pay for it,” write Bankruptcy Judge Henry Callaway (S.D. Ala.; Mobile) and Jonathan Petts of Upsolve (New York) in their article “Too Broke for a Fresh Start.” “As a result, many low-income Americans, particularly financially vulnerable minority communities, remain trapped in debt because they cannot access chapter 7.”

BAPCPA, which made a number of changes to bankruptcy law that were intended to prevent abuse of the bankruptcy system, added regulations that have significantly increased the costs of providing legal services to chapter 7 debtors. “Under BAPCPA, Congress significantly increased the amount of documentation that a debtor must provide their trustee to obtain a discharge, imposed personal liability on debtors' counsel for the accuracy of a debtor's bankruptcy forms, and required debtors to attend paid financial counseling sessions before and after filing in order to obtain a discharge (among other things),” Callaway and Petts write. “These new requirements significantly increased the cost of providing chapter 7 representation.” The authors estimate that the cost of chapter 7 now often reaches $2,000 in some markets.

Low-income debtors who cannot afford to pay chapter 7 attorneys' fees up front often face one of four negative outcomes, according to Callaway and Petts: (1) remaining stuck in debt outside bankruptcy protection; (2) filing deficient pro se petitions; (3) falling prey to fraudulent petition-preparers; or (4) filing a no-money-down chapter 13 case that is likely to result in dismissal without any lasting debt relief.

Given the severity of the current access problem, Callaway and Petts look at two new experiments in the legal system to make chapter 7 more accessible: electronic self-representation (eSR) by the Administrative Office of the U.S. Courts at a few test locations, and online legal aid, including Petts’ nonprofit, Upsolve.

“The approaches outlined in this article – and others not discussed here – deserve to be tested with data so we can see what works for those who cannot afford counsel,” Callaway and Petts write. “As stewards of the bankruptcy system, we have an obligation to find a better path forward.”

ABI’s Commission on Consumer Bankruptcy is preparing to release its final report of recommendations and improvements to the consumer bankruptcy system at ABI’s 2019 Annual Spring Meeting, set for April 11-14 in Washington, D.C. To view the ongoing work of the Consumer Commission, including videos of open meetings and prepared witness testimony, please click here.

To obtain a copy of “Too Broke for a Fresh Start,” please click here.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abi.org/education-events.