The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) was designed to address arguments that the Bankruptcy Reform Act of 1978 was abused by consumers and riddled with loopholes – costing the credit industry millions of dollars in unnecessary credit losses. While a reduction in total bankruptcy petitions since its passage in 2005 offers evidence of the Act’s success, new research from TowerGroup finds that initial optimism may need to be tempered in the face of growing criticism.
In anticipating the passage of the BAPCPA, a record number of consumers filed bankruptcy petitions in 2005 to avoid the more stringent requirements of the coming legislation. A graphic illustrating the impact of BAPCPA on bankruptcy petitions can be downloaded and seen at: http://www.towergroup.com/research/content/page.jsp?pageId=1522
The U.S. Courts reported the April volume of bankruptcy filings for 2006 was 70% below 2005. Creditors and legislators point to the reduction in petitions as confirmation of the success of BAPCPA. TowerGroup believes it is too soon to declare success and it will take at least another 12 months before the impact of BAPCPA is understood.
While bankruptcy filings are down, recent bankruptcy volumes and consumer delinquencies are back on the rise. The National Association of Consumer Bankruptcy Attorneys met with legislators in February 2007 to share its point of view that BAPCPA is not working. Critics of BAPCPA point to the Act’s unintended negative consequences including higher costs to administer the bankruptcy process, longer time frames to resolve bankruptcy proceedings, and higher costs for consumers.
With opponents charging that the Act serves the credit industry more effectively than consumers, TowerGroup expects the new Congress to closely review BAPCPA in the coming year – with revisions to the Act a strong likelihood.
The TowerGroup report titled, “Consumer Bankruptcy Reforms of 2005: Promises Kept, Unintended Consequences” by Dennis Moroney, a senior analyst in the Bank Cards research service at TowerGroup, explores the business and consumer impact of the BAPCPA. The research examines whether the reforms made through the Act are achieving their purpose, and what unintended consequences have resulted. The study also examines whether the modification to the Bankruptcy Reform Act of 1978 did in fact increase the amount of consumer debt recoverable by creditors and / or promote personal responsibility among consumers for individual financial behavior.