Bankruptcy Reform

     Two years ago today the reform law took effect.

One of our Detroit Judges predicted more asset cases for Chapter 7 trustees, because the personal property exemptions changed to a maximum of $475 per item, 11 USC 522 (d)(3).

Has not happened.

The $400 bankruptcies were costing every American family, according to Congressional testimony, that predicted savings now showing up where?

Has not happened.

Attorneys dropping out of bankruptcy practice, because of the complexities and paperwork requirements?     That has happened.

More than twice as much work per case for me, so my fees have doubled.

Pricing people out of filing?  I think that has happened, to some extent.

Impossible to calculate, filings soared on the eve of the law changing, plummeted after, and are not back to old law levels yet in Michigan, but, with our poor economy, they will probably hit that mark next year.

The bottom line, the vast majority of people filing do not have the money to pay their debts.  If you change the law to make them jump through hoops, fill out more forms, take useless credit counseling, you can drive some attorneys into other practice areas, you can dissuade some people from filing, but you are not putting money into their pockets with which to pay their debts, whether they file or not.

So, no benefit to creditors.

Chapter 13 trustees in Detroit used to automatically object to zero percent to unsecured creditor plans.  Not now.

So, unsecured creditors are getting less overall in Detroit than before.  Not what the creditor lobby had in mind spending north of 80 million dollars to buy, uhh, influence, four, or was it five? consecutive Congresses to pass their law.

One last note on the mandatory pre-filing credit counseling requirement.

A debtor attorney friends describes it this way.

So, you are in an accident, you go to the emergency room.

You are asked, do you have insurance?  No, you reply.

Well, here is a handout on why it is a good idea to have health insurance.  Go home and read it, then we will give you a quiz.

What about treating my injuries?

Not so fast, you are told, not until you read the handout and take the quiz.

What are my 84 year old clients supposed to learn from credit counseling?   That they should not have taken cash advances on their credit cards to help their grandchildren because one (or both) of the parents has a substance abuse problem?

What is my client with the million dollars in debt from a failed business going to learn in a couple of hours that will save him from the need to file?

Lawyers are advocates.  We do the best we can for our clients under the law as it is.

Nothing in the new law has prevented that from continuing.