Did Revisions To Bankruptcy Start A Revolution?

14 Nov Did Revisions To Bankruptcy Start A Revolution?

Last month, we marked the sixth anniversary of changes to the bankruptcy law. The Bankruptcy Abuse Prevention and ConsumerProtection Act (BAPCPA or dis-affectionally called BARF by many in the field ofbankruptcy) became operative on October 17, 2005. And then the world changed.

A little more than six months later, the Case-Shiller index of real estate values reached their peak and began a free-fall that hasn’t stopped yet. Soon real estate will be worth what it was in 1998 and the U.S. will have lost a decade of growth. Many have filed for bankruptcy to get out from under depressed values.

Much has been said about thte “perfect storm” of threats to our economy that set up during the ten years prior to 2005, but we may be on the precipice of revolutionary change, both good and bad.

Although no one wants to use the word “depression” publicly when referring to the economy, consider the following:

  1. Foreclosures have increased 14% during the last quarter and the number of pending foreclosures and mortgages in default is staggering..
  2. Home ownership is falling and is reaching historic lows among segments of the population. Parts of Florida are reaching 20% vacancy and other states are not far behind.
  3. Unemployment is pegged at a stubborn 9%, but that number doesn’t include those who no longer qualify for benefits or college or high school grads who have never been able to find a job. More than 400,000 people lose their job every week.
  4. Municpalities and state governments are running huge deficits as they struggle to maintain social services in the face of declining tax collections. Look at Harrisburg, PAor Jefferson County, Alabamathat have filed for bankruptcy.
  5. Tent cities of the displaced are showing up everywhere. Check the desert outside San Diego, CA or any of the “Occupy Wall Street” or its progeny around the country.

Meanwhile, the number of people around the country filing for bankruptcyhave declined some 15 to 20 percent since the beginning of the year. Why? Because bankruptcy is designed as a safety net to catch you before you hit the ground. You file for bankruptcy to save assets and future income. But when you have neither, why bother to file bankruptcy?

You can almost point to the reforms in bankruptcythat started this ball rolling. It removed the safety valve for overburdened consumers and any incentives for starting a small business that might grow into the next Apple computer.

So here is my prediction for the outcome of the BAPCPA. Watch the protests growing our the “Occupy Wall Street” closely. They have already spread to there parts of the country and even other parts of the world. If the winter season or real change does’t cool the protests off, there is the potential for real violence. Out of that violence can come a revolution. Even if there is no violence, change has already started. Credit card spending has reached no lows. As I tell my local judges, “People who are in foreclosure don;t buy big screen TVs.” That cripples our entire consumer economy.

“ConnecticutGene Melchionne is a bankruptcy lawyer covering the entire State of Connecticut. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

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