Researchers have found that congressional changes to the U.S. bankruptcy law has kept financially struggling people out of bankruptcy court, but not from going bankrupt. Because of a new study, written by economists Jaromir Nosal of Columbia University and Stefania Albanesi of the New York Fed, the Federal Reserve Bank of New York has shed some light on why some individuals are simply too poor to file for bankruptcy.
In 2005, lawmakers made changes to the law and the cost for filing for bankruptcy became more expensive. According to the study, The Bankruptcy Abuse Prevention and Consumer Protection Act from 2005 may have eliminated the chance to start over for many who needed it.
The report clearly reveals that a “sizable group of individuals exists that does not file for bankruptcy, but seems unable to pay off their debts.” Researchers said, “These individuals are concentrated at the bottom of the income distribution, and therefore they are the ones who would be expected to benefit most from the relief offered by personal bankruptcy.” Individuals with financial troubles are less likely to have much access to new lines of credit and they also tend to have lower credit scores than those who file for bankruptcy, the study showed.
Professor Lois R. Lupica from the University of Maine’s law school conducted an earlier study and found that the cost of a Chapter 7 filing grew from $600 to $2,500. According to the numbers from the study, more paperwork, mandatory credit counseling classes and attorney fees made up most of the cost. The average rose from $663 to $986.
In an interview with The Wall Street Journal on Tuesday, Prof. Lupica agreed that the study reveals that the increase in cost has stopped people from filing. Approximately 601,000 people and couples filed Chapter 7 in 2014, far less than the 1.1 million filings recorded in 2010 from the recession-era peak, according to the U.S. Administrative Office of the U.S. Courts.
Consumer advocates who opposed financial industry lobbyists, voiced that the bankruptcy process was being abused by people who filed for Chapter 7 protection to cancel their debt, when they were able to still repay a portion of the debt over time. After an 8 year battle to reform the U.S. consumer bankruptcy laws, former President George W. Bush signed the law on April 20, 2005.
The New York Fed study stated that they are the first to focus on the individuals “who no longer file for bankruptcy post-reform.” Researchers used Consumer Credit Panel/Equifax Data from 1999 to 2013 to study and track anonymous individuals, in order to draw their conclusions. Unlike the Consumer Bankruptcy Project which houses volumes of data on people who did file for bankruptcy, this study includes those who did not file, which the academic community may find to be particularly useful.
If you are in a financial crisis and are considering filing bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.
Source: http://blogs.wsj.com/economics/2015/04/14/too-poor-to-file-for-bankruptcy/