February ABI Journal Article Estimates that BAPCPA Has Resulted in 5 Million Fewer Bankruptcy Filings Since 2005
Alexandria, Va. — The cumulative total of bankruptcy filings since the implementation of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is estimated to have been about 5 million less than it would have been had the 2005 law not been enacted, according to an analysis in the February edition of the ABI Journal. “Supporters of the  bill thought that the high rate of filings [prior to BAPCPA] constituted a crisis and that BAPCPA eliminated certain existing opportunities for abuse,” writes Ed Flynn, a consultant with ABI who previously worked for more than 30 years at the Executive Office for U.S. Trustees and the Administrative Office of the U.S. Courts. In his article “BAPCPA: The Mystery of the 5 Million Missing Cases,” Flynn writes, “It does appear … that the legislation has led to a permanent drop in filings somewhere in the 30 percent range.” The causes of the permanent drop in filings, according to Flynn, include: 1) Increased cost to file: BAPCPA made filing for bankruptcy more expensive. 2) Mandated credit counseling: A small percentage (10-15 percent) do not wind up filing for bankruptcy once they complete BAPCPA’s credit counseling requirement. 3) Required tax returns: Debtors must now provide past tax returns, which might present an impediment for some potential filers. 4) Public perception: There may be a sizeable number of people who do not think that they are eligible for bankruptcy, even though it has been eight years since BAPCPA’s implementation. 5) The “Thousand Paper Cuts:” BAPCPA contains many other provisions that make bankruptcy either more difficult or less beneficial to the debtor than it was before 2005. “Logic dictates that certain economic factors would correlate well with bankruptcy filing trends,” says Flynn, including mortgage and credit card delinquency rates, unemployment rates and home prices. However, Flynn found that none of these economic indicators provided a solid correlation to actual bankruptcy filing activity. By examining historical filing trends and revolving debt levels, Flynn estimated in his article what the filing numbers might have been had BAPCPA not been implemented in 2005. Flynn deduced that bankruptcies would have fluctuated in three distinct periods over the past eight years: • 2005: “We would have seen a 10 percent decrease in filings from 2004, rather than the 30 percent increase that occurred” in the run-up to BAPCPA’s implementation.” • 2006-2010: “Filings would have started to increase in 2006, with overall yearly increases of 5 percent in 2006, 10 percent in 2007 and 15 percent each in 2008 and 2009.” • 2011-2013: Bankruptcy filings have declined by nearly one-third over the last three years, likely due in part to the drop in revolving debt levels that occurred between 2009-12. “There would have been a comparable reduction in filings if BAPCPA had never been enacted.” To obtain a copy of “BAPCPA: The Mystery of the 5 Million Missing Cases,” published in the February issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at [email protected] ### 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 more than 13,000 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.abiworld.org/conferences.html.
Thursday, February 6, 2014