2005 Changes in Bankruptcy Law a Dismal Failure

The Bankruptcy Reform Act of 2005 reported to be a “Dismal failure”.

The bankruptcy law, approved by Congress in 2005 after years of debate, makes it much harder for households to get out from under their consumer debt.

The Bankruptcy Abuse Prevention and Consumer Protection Act enacted in 2005 also imposed new duties and obligations on attorneys. Lawyers must prepare a §342(b) notice, describing the debtor’s bankruptcy options and warning of the consequences of asset concealment or fraud.

According to an article in Bloomberg: The result of the new bankruptcy law: More people being forced to walk away from their homes, leaving lenders holding the bag. Perversely, a law intended to help the financial industry may be damaging the housing sector, creditors and borrowers alike.

Increased Attorney Fees Result from Changes in the Bankruptcy Laws.

According to the Bloomberg article “Under the old law, the average cost of filing for Chapter 7 was about $800 to $1,400 in attorney and other fees, according to Henry J. Sommer, president of the National Association of Consumer Bankruptcy Attorneys. He estimates that the cost is now up to roughly $1,400 to $2,400. That’s a hefty price tag.”

Attorneys are also required to certify, “after reasonable investigation” that the information in the debtor’s petition is “well grounded in fact.” In addition, BAPCPA now governs the conduct of “debt relief agencies” which has been held to include attorneys. These new provisions contain prohibitions on deceptive or improper conduct, such as making misrepresentations, and counseling a client to take on more debt in contemplation of filing.

They also require attorneys to make extensive written disclosures to their clients about the need for accurate information in the petition and supporting documents, and to caution their clients about certain aspects of bankruptcy. Finally, they require the debtor and his or her attorney to execute a written contract prior to filing that clearly sets forth the services to be rendered and fees to be charged.

Most debtors have complied and will continue to comply with the new BAPCPA conditions with the aid of an attorney. Such compliance, however, has not been without cost. These procedural requirements have taken their toll on debtors, attorneys, trustees, and judges and have had a direct and quantifiable effect on how the bankruptcy system operates, and how bankruptcy is practiced..Lois R. Lupica, Maine Law Foundation Professor of Law University of Maine School of Law.

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Note from Diane: Make sure to send a thank you letter to your congressmen and women.