San Jose Bankruptcy Attorney explains how the 2005 Bankruptcy Reform law has failed
San Jose Bankruptcy Attorney explains how the 2005 Bankruptcy Reform law has failed
In 2005, significant changes to the federal bankruptcy code were enacted at the behest of the credit card companies. The goals of the reform were to reduce the number of bankruptcy filings and to move more people from Chapter 7 liquidation filings to Chapter 13 reorganization filings. Analysis of the data shows that the law has had no effect on either goal.
The number of bankruptcy filings has reverted to the mean number that existed prior to the law’s enactment. The percentage of Chapter 13 bankruptcy filings has been in a steady decline following the post-enactment spike and has also reverted to the mean that existed prior to 2005. So who has been the big winner in this?
It appears that the credit card companies have been the big winners. While the number of Chapter 13 reorganization plans, complete with repayment schedules has dropped, the credit card companies have continued to collect interest and payments during the lengthened process that the reform law has created. Many people file a Chapter 13 reorganization and cannot live under the payment plan. After two years they can file for a Chapter 7 liquidation, but the credit card companies receive two years of payments prior to the Chapter 7 filing. At the exorbitant interest rates charged on many cards, those two years of payments make all the money they spent on lobbying Congress for reform worthwhile, despite the fact that the bankruptcy filing numbers have not appreciably changed.
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