Did Bankruptcy Reform Go Far Enough?

Almost exactly ten years ago, American consumers learned about the Bankruptcy Abuse and Consumer Protection Act. The legislation became law on October 17, 2005. According to a recent article in American Banker Magazine, the legislation “was the culmination of a bipartisan effort in Congress to change a legal system that seemed to encourage bankruptcy filings during a time of prosperity.”
Depending on which side of the economic spectrum you are on, you may have mixed feelings about bankruptcy reform. On the one hand, for many consumer advocates, reform efforts did not do enough to address issues impacting debtors. For example, we have yet to see bankruptcy reform measures that address private student loan payments and the limitations of income-based repayment plans. On the other hand, business advocates argue that the reform measures did not do enough to curb the rate of bankruptcy in our country. Do we need to return to the issue of bankruptcy reform? What are some of the key issues faced by Chicago consumers that should be addressed?
Decrease in Bankruptcy Filings Over Last Ten Years
According to the article, the bankruptcy reform measures that became law a decade ago objectively met one goal: a reduction in the number of personal bankruptcy filings. Since 2005, consumer bankruptcies have dropped from nearly 1.7 million (in 2005) to 920,000 (in 2014). As banking advocates point out, the drop in the total number of consumer bankruptcies occurred despite the financial setbacks associated with the crash of the housing market and the recession.
Which requirements of the Bankruptcy Abuse and Consumer Protection Act likely resulted in a drop in consumer filings? One of the most impactful elements of the law is its requirement that, before bankruptcy, debtors go through consumer credit counseling. While Chapter 7 bankruptcy or Chapter 13 bankruptcy often are the most successful ways for Oak Park debtors to get out from under insurmountable debt, certain consumers may learn about alternative options through consumer credit counseling. And the U.S. Department of Justice reports that 140 different nonprofits currently have federal approval for providing credit counseling.
What if you are not sure whether consumer credit counseling could help you to consider alternative options to bankruptcy? And what if filing for Chapter 7 bankruptcy is the only way for you to get a fresh start? For Chicagoans who have been negatively impacted by unexpected medical bills and other expenses that simply cannot be prevented (yet also do not figure into everyday expenses), consumer bankruptcy may be the best course of action.
Problems with Fraudulent Bankruptcy Filings
If bankruptcy can help many consumers, why are some parties so opposed to it? One of the reasons suggested by the article concerns consumer bankruptcy and fraud. For example, certain consumers who have filed for bankruptcy end up with court documents containing “material misstatements” about assets or income. When you file for bankruptcy, you must be completely honest about your assets and your income. Under the Bankruptcy Abuse and Consumer Protection Act, bankruptcy case documents must undergo audits to prevent against fraud. Last year, an audit determined that 23 percent of bankruptcy filings contained material misstatements, and more than 2,000 bankruptcy cases resulted in criminal prosecutions.

What is the takeaway here? You must be honest when you file for bankruptcy. In addition, this information highlights the complexity of filing for bankruptcy. To ensure that your case documents look exactly as they should, you will need the assistance of an experienced Chicago bankruptcy attorney.
A dedicated bankruptcy lawyer in Oak Park can help you to think through your options before you file for bankruptcy. And if you decide to file for Chapter 7 bankruptcy, we can assist you every step of the way. Contact the Emerson Law Firm to learn more.
See Related Blog Posts:
Federal Loans, Student Debt, and Limited Options

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