““Bankruptcy Abuse Bankruptcy Abuse Prevention and Consumer Prevention and Consumer

Protection Act of 2005- Protection Act of 2005- Proponents Intentions and Proponents Intentions and

the Effects of the Act”the Effects of the Act”Presented by:Presented by:

Matthew F. GlarrowMatthew F. Glarrow

PSC 499- Senior CapstonePSC 499- Senior Capstone

OutlineOutline

Overview/Brief Summary of Chapters 7, 11 Overview/Brief Summary of Chapters 7, 11 & 13.& 13.

Historical Perspectives/ Inherited Traditions.Historical Perspectives/ Inherited Traditions. Major Changes in the U.S. Bankruptcy Code Major Changes in the U.S. Bankruptcy Code

over the last half century.over the last half century. Bankruptcy Abuse Prevention and Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005 and its Consumer Protection Act of 2005 and its proponents, effects, and changes. proponents, effects, and changes.

Did the legislation accomplish what its Did the legislation accomplish what its authors and proponents thought it would?authors and proponents thought it would?

Conclusion Conclusion

Chapter 7- LiquidationChapter 7- Liquidation

Debtor files a petition for reliefDebtor files a petition for relief Debtor surrenders all nonexempt Debtor surrenders all nonexempt

assets to Trusteeassets to Trustee Trustee sells/auctions debtor’s assetsTrustee sells/auctions debtor’s assets Creditors are paid from the money Creditors are paid from the money

generated from the sale of the generated from the sale of the debtor’s assetsdebtor’s assets

Creditors are paid by “priority-Creditors are paid by “priority-distribution rules” distribution rules”

Chapter 11- (Corporate) Chapter 11- (Corporate) ReorganizationReorganization

Debtor files a petition for relief, listing all Debtor files a petition for relief, listing all creditors, and assets.creditors, and assets.

Creditors are stayed from collecting Creditors are stayed from collecting money from the debtor until a Plan is money from the debtor until a Plan is implemented.implemented.

In most cases, the debtor operates as the In most cases, the debtor operates as the Trustee of the case and continues to run Trustee of the case and continues to run the business (under court supervision).the business (under court supervision).

Debtor is required to file monthly financial Debtor is required to file monthly financial reports with the court (allows court to reports with the court (allows court to supervise).supervise).

Plan of ReorganizationPlan of Reorganization

Ch.13- Adjustment of Debts of an Ch.13- Adjustment of Debts of an Individual with Regular IncomeIndividual with Regular Income

Debtor files a petition for relief.Debtor files a petition for relief. Designed to help debtors develop a Designed to help debtors develop a

repayment plan, learn how live financially repayment plan, learn how live financially stable lives and repay their debt.stable lives and repay their debt.

Debtors repay their debts over a 3 or 5-Debtors repay their debts over a 3 or 5-year court supervised repayment plan.year court supervised repayment plan.

Debtors repay more debt under Ch. 13 Debtors repay more debt under Ch. 13 than they would under Ch. 7. (2/3 don’t than they would under Ch. 7. (2/3 don’t complete plan- see “A”) complete plan- see “A”)

Historical Perspective- Historical Perspective- The Early English system and The Early English system and

traditions the US inheritedtraditions the US inherited 1542- 11542- 1stst known bankruptcy law in known bankruptcy law in

EnglandEngland 1570-1570- Debtor’s PrisonsDebtor’s Prisons 1869- Debtor’s Act1869- Debtor’s Act

Major Changes in The United Major Changes in The United States Bankruptcy CodeStates Bankruptcy Code

1800- The First Act1800- The First Act Bankruptcy Act of 1876Bankruptcy Act of 1876 1898- first relief for companies 1898- first relief for companies

against their creditorsagainst their creditors 1900-mid-1970s1900-mid-1970s Bankruptcy Reform Act of 1978Bankruptcy Reform Act of 1978 Bankruptcy Reform Act of 1994Bankruptcy Reform Act of 1994 Bankruptcy Reform Act of 1999Bankruptcy Reform Act of 1999

BAPCPA ’05- Proponents and BAPCPA ’05- Proponents and their expectations for the Acttheir expectations for the Act

Lobbyists for credit card industry-Lobbyists for credit card industry- Consumer Credit Industry Consumer Credit Industry House Report 109-031 on “Factors House Report 109-031 on “Factors

Supporting Bankruptc Reform” Supporting Bankruptc Reform” Senator Charles Grassley’s (Iowa, Senator Charles Grassley’s (Iowa,

Republican) comments on the billRepublican) comments on the bill

BAPCPA ’05- Legislative BAPCPA ’05- Legislative Changes in the U.S.B.C. CodeChanges in the U.S.B.C. Code

Ch. 7 “means test”Ch. 7 “means test” Ch. 11- mandatory pre-filing credit Ch. 11- mandatory pre-filing credit

counselingcounseling Ch. 13- mandatory completion of debtor Ch. 13- mandatory completion of debtor

education class prior to receiving dischargeeducation class prior to receiving discharge Lengthened amount of time allowed Lengthened amount of time allowed

between filings in all chapters (see notes)between filings in all chapters (see notes) Automatic Stay (see notes)Automatic Stay (see notes) Additional Documents & Schedules- Additional Documents & Schedules- STUDENT LOANSSTUDENT LOANS

Effects of the Legislation-Effects of the Legislation-Did it accomplish what it was Did it accomplish what it was

“supposed to?”“supposed to?” ““About 95% of people who could About 95% of people who could

have filed before October 17, still have filed before October 17, still qualify under the new law” Barry qualify under the new law” Barry Frost, NJ USBC Trustee.Frost, NJ USBC Trustee.

USBC, MDA Comparative FilingsUSBC, MDA Comparative FilingsJan. 1999-Dec. 2006Jan. 1999-Dec. 2006

Middle District of AlabamaMiddle District of AlabamaCh. 13 Sept. ‘04- Sept. ‘06Ch. 13 Sept. ‘04- Sept. ‘06

0

100

200

300

400

500

600

700

800

Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06

Middle District of AlabamaPre and Post BAPCPASept 2004 - Sept 2006

Ch. 13 Filings

Ch. 13 Filings 440 428 394 365 342 275 319 331 352 380 341 442 416 771 98 149 175 150 203 237 242 328 285 346 312

Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06

Middle District of AlabamaMiddle District of AlabamaCh. 13 Comparative Filings Ch. 13 Comparative Filings

Oct. ‘04- Sept. ‘05Oct. ‘04- Sept. ‘05

0

100

200

300

400

500

600

700

800

Middle District of AlabamaCh. 13 Filing Comparison

FY 2004 428 394 365 342 275 319 331 352 380 341 442 416

FY 2005 771 98 149 175 150 203 237 242 328 285 346 312

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Middle District of AlabamaMiddle District of AlabamaCh. 7 Sept. ‘04- Sept. ‘06Ch. 7 Sept. ‘04- Sept. ‘06

0

200

400

600

800

1000

1200

1400

1600

1800

Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06

Middle District of AlabamaPre and Post BAPCPASept 2004 - Sept 2006

Ch. 7 Filings

Ch. 7 Filings 333 321 331 332 282 396 508 420 375 349 336 440 625 1629 32 37 48 87 123 139 103 126 91 103 93

Sep-04 Oct-04 Nov-04 Dec-04 Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-05 Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06

Middle District of AlabamaMiddle District of AlabamaCh. 7 Comparative Filings Ch. 7 Comparative Filings

Oct. ‘04- Sept. ‘05Oct. ‘04- Sept. ‘05

0

200

400

600

800

1000

1200

1400

1600

1800

Middle District of AlabamaCh. 7 Filing Comparison

FY 2004 321 331 332 282 396 508 420 375 349 336 440 625

FY 2005 1629 32 37 48 87 123 139 103 126 91 103 93

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Lowest Bankruptcy Rates in 2005Lowest Bankruptcy Rates in 2005((Households per consumer bankruptcy filing)Households per consumer bankruptcy filing)

*According to the American Bankruptcy Institute*According to the American Bankruptcy Institute*National Average is 60.16*National Average is 60.16

* “The American Bankruptcy Institute survey ranked all 50 states and the District of Columbia.”* “The American Bankruptcy Institute survey ranked all 50 states and the District of Columbia.”

RankRank StateState Households Households per consumer per consumer filingfiling

11 IndianaIndiana 34.4134.41

22 OhioOhio 37.1937.19

33 UtahUtah 39.5239.52

44 TennesseeTennessee 39.739.7

55 OklahomaOklahoma 40.8640.86

Highest Bankruptcy Rates in 2005Highest Bankruptcy Rates in 2005((Households per consumer bankruptcy filing)Households per consumer bankruptcy filing)

*According to the American Bankruptcy Institute*According to the American Bankruptcy Institute *National Average is 60.16*National Average is 60.16

* “The American Bankruptcy Institute survey ranked all 50 states and the District of Columbia.”* “The American Bankruptcy Institute survey ranked all 50 states and the District of Columbia.”

RankRank StateState Households per Households per consumer filingconsumer filing

5151 South CarolinaSouth Carolina 123.16123.16

5050 AlaskaAlaska 122.64122.64

4949 VermontVermont 119.61119.61

4848 District of ColumbiaDistrict of Columbia 115.93115.93

4747 HawaiiHawaii 109.54109.54

Bankruptcy Filings By State-Bankruptcy Filings By State-Highest in 2005 Highest in 2005

(Contents from derived from Table F, provided by the United States (Contents from derived from Table F, provided by the United States Bankruptcy Courts)Bankruptcy Courts)

# of filings# of filings State/ DistrictState/ District CircuitCircuit

60,53360,533 CA/ CCA/ C 99

56,59156,591 IL/ NIL/ N 77

52,18952,189 FL/ MFL/ M 1111

51,22251,222 OH/ NOH/ N 66

50,40950,409 MI/ WMI/ W 66

*26,411*26,411 AL/ NAL/ N 1111

*8,871*8,871 AL/ MAL/ M 1111

Bankruptcy Filings By State-Bankruptcy Filings By State-Highest in 2006 Highest in 2006

(Contents from derived from Table F, provided by the United States (Contents from derived from Table F, provided by the United States Bankruptcy Courts)Bankruptcy Courts)

# of Filings# of Filings State/ DistrictState/ District CircuitCircuit

58,59458,594 CA/ ECA/ E 99

54,26854,268 OH/ NOH/ N 66

52,25152,251 IL/ NIL/ N 77

50,12550,125 MI/ EMI/ E 66

44,50744,507 OH/ SOH/ S 66

*22,354*22,354 AL/ NAL/ N 1111

**7,310**7,310 AL/ MAL/ M 1111

ConclusionConclusion The United States Bankruptcy process and Code The United States Bankruptcy process and Code

are unique and unlike any other system of debt are unique and unlike any other system of debt relief in the world. The U.S., on the whole, has a relief in the world. The U.S., on the whole, has a problem with excessive individual/ consumer, and problem with excessive individual/ consumer, and corporate insolvency problems. Credit card corporate insolvency problems. Credit card companies spent a lot of money to push the companies spent a lot of money to push the BAPCPA of 2005 through Congress and its effects BAPCPA of 2005 through Congress and its effects were minimal, as compared to those painted by were minimal, as compared to those painted by lobbyists of the consumer credit industry. lobbyists of the consumer credit industry. Statistics prove the filing numbers across the Statistics prove the filing numbers across the country are back on the rise. However, the country are back on the rise. However, the BAPCPA of 2005 is not the answer to the debt BAPCPA of 2005 is not the answer to the debt issues of individuals and companies (or small issues of individuals and companies (or small businesses) in America. businesses) in America.