BAPCPA: Triumph of Politics Over Common Sense

Bankruptcy reform two years ago today was a victory for politicians and lobbyists who had a point to make — and it had nothing to do with improving the law. The craven and the brutal side of politics comes to the fore when Congress works on laws that don’t mean much to them — meaning they won’t seriously affect their ability to be re-elected — and BAPCPA is a spectacular example.

Not a lot of people care, much less think much, about bankruptcy. We are always talking to people who never imagined filing a case only a few months before they do. So no one votes based on how a Congressman stood on bankruptcy. It’s a “free” vote for a politician — whatever he does won’t lose him an election. In a world where one side of legislation — in this case creditors — have a lot of money and the opposition has little or none, this is dangerous. The urge for a politician to give up his vote in return for campaign contributions becomes overwhelming.

In 2005, it got the better of Congress. The strengthened Republican majority even used the bankruptcy reform bill as a test of party unity — the only amendments to the bill that would be seriously considered had to be approved by the leadership and every vote was along party lines. Is that because it was crucial to the parties? Not really. It was a way of testing if everyone would tow the line.

This would only be an interesting political science study except it was the first serious overhaul of bankruptcy in over 25 years — and Congress barely talked to the specialists. It even ignored the work of a Commission it set up almost 10 years earlier. As is clear to almost everyone, the bill was not written by anyone with much practical experience in bankruptcy.

All one needs to do is explore this blog for stories about the oddities of BAPCPA to see the bizarre, the unintended, and the perverse. But it was clear during the debate over BAPCPA’s passage that the professional community was being actively excluded. Any experienced bankruptcy attorney could have achieved the stated goals in a few simple amendments. Probably 20 pages. That’s easy; they just refused to listen.

It would be as though the tried to revamp the entire health care system — but refused to talk to doctors, hospital administrators, or medical schools. Only the drug companies. (Ironically, pretty much what happened in the prior Congress.)

The bankruptcy system — judges, trustees, attorneys, clerks, and staff — all struggle now to make it work with higher costs and very little tangible benefit to anyone for the changes made. It is working, just not necessarily the way the drafters intended. And certainly not the way Congress said it would and, most likely, not how the lobbyists expected (if they cared).

There’s an important civics lesson here. Bankruptcy is minor in the grand scheme. It is not health care, public safety, Social Security, or defense. And the manifest failures of bankruptcy “reform” can be a warning — there are no “free” votes and you have to listen to the people who toil in the field or you will screw-up. The world is too complicated to get it wrong very often.

And, perhaps, the time has come for Congress to start fixing these mistakes.