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Study Finds 2005 Bankruptcy Reform Act Hasn't Helped

"Creditors have done worse" since the bankruptcy law was amended in 2005 to enhance recoveries, according to a study by University of Maine School of Law Professor Lois R. Lupica. In her study, funded by the American Bankruptcy Institute, Lupica said the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was intended to prevent "the discharge of debt consumers could afford to pay."

"The theory that there are can-pay debtors lurking in the shadows was not confirmed by the data," Lupica said in an interview.

 

The professor said the 2005 law was designed to compel individual bankrupts to pay more by restricting access to Chapter 7, where creditors typically get nothing. The theory, according to Lupica, was that more consumers would be forced into Chapter 13, where creditors are often paid a portion of their debts through payment programs spread over about five years.

 

Lupica said she wasn't surprised by the findings.  "The data confirmed my intuition developed from speaking with hundreds of bankruptcy trustees and judges," she said in an interview.  We are not surprised either.  The revisions to the Bankruptcy Code have made it more difficult and expensive to file, but not more fair.  Many who could have filed Chapter 7 before the amendments cannot file Chapter 7 now and cannot afford a Chapter 13. We are hoping future amendments will fix some of these problems.

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