To Poor to File Bankruptcy: Hundreds of thousands of Americans are hounded mercilessly by debt collectors, but unable to afford to file for bankruptcy.

Why Do Some Law Firms Act Like Used Car Sales Lots?

seniorsTen years after the passage of the “new” bankruptcy law we find a new class of Americans “the permanently insolvent”.    You won’t find reference to this group in any financial magazine.  But, hundreds of thousands of Americans are in a position of being hounded mercilessly by debt collectors, but unable to afford to file for bankruptcy.

“The reform has generated a substitution, from formal bankruptcy to insolvency,” said Stefania Albanesi, lead author of “Insolvency After the 2005 Bankruptcy Reform,” a new study by economists at the Federal Reserve Bank of New York and Columbia University.

“Since insolvents are unable to repay debt, they are subject to collection actions and financial judgments and have difficulties obtaining unsecured credit,” she said. “This is particularly bad for low income individuals, as they have little savings and sometimes rely on debt to face unforeseen expenses and the like.”

Their poor credit does not allow them to obtain credit to buy a home, vehicle or even get a credit card. They tend to be part of the group that uses payday loans or title loans. By falling into the trap of using these high interest loans (sometimes as much as 750%) they are forever trapped.

The study, which was published in January and summarized this week in a Federal Reserve blog post, reached a variety of conclusions about the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. Few of the economists’ findings were encouraging for consumers.

  • The bottom lines of credit card companies, banks and other financial institutions have been nourished by the act, which was proposed by Wall Street interests, passed by Congress, and signed by President George W. Bush on April 20, 2005. It went into effect Oct. 17, 2005. “We cite research … suggesting that profitability has risen for credit card companies as a result of BAPCPA,” Albanesi said.
  • But consumers have suffered. Low income Americans, those most in the need of help, have been the most deeply damaged by changes that made it more difficult and far more expensive to file for protection under bankruptcy laws. “Our analysis suggests that the 2005 bankruptcy reform caused a decline in bankruptcy filings, which were replaced by a sizable rise in insolvency and foreclosure,” the study’s authors reported. “We show that insolvency is a state associated with a high degree of financial distress in comparison to bankruptcy. This consequence of BAPCPA is potentially welfare reducing for households.”
  • Though it may not seem to matter if you are bankrupt or insolvent — after all, you’re broke either way — the differences are profound for consumers, especially those struggling to find a fresh start.

Click here for the entire article…

472 words|2.4 min read|Categories: Bankruptcy, Bankruptcy Videos, Credit Report, Document Preparers|By |Published On: May 8th, 2015|Last Updated: May 29th, 2022|

Share this article

Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.

*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*

Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Google Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Yelp Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Avvo Reviews
Avvo - Rate your Lawyer. Get Free Legal Advice.
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Alignable Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Better Business Bureau
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Google Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Yelp Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Avvo Reviews
Avvo - Rate your Lawyer. Get Free Legal Advice.
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Alignable Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Better Business Bureau

In Case You Missed It

  • “If you follow everything she says the process is easy and stress free.” J.E. Don’t hesitate, call Diane! Diane has been a huge lifesaver! I reached out to Diane through a Google [...]

  • All Attorneys Must Return Client Calls, Even Flat-Fee Attorneys In a recent bankruptcy case, In re: Dennis Molnar, 19-bk-09525, 2024 WL 190919 (Jan. 17, 2024 N.D, Ill.), a court highlighted a [...]

  • Published On: February 2, 2024

    “I highly recommend Diane Drain if you are looking for a fantastic bankruptcy attorney who will look out for you and your interests.” D.D.Z. Diane has been an amazing attorney. This was [...]

  • Published On: October 27, 2023

    “I am so thankful I got to encounter two amazing people who helped me every step of the way.” M.K.B. I found Diane Drain just by going through Google and looking for [...]