Congress has concluded that the voyage of consumer bankruptcy in the United States is off course and that some of its crew - consumer bankruptcy attorneys and bankruptcy judges - no longer can be completely trusted at the helm. Following years of drama reminiscent of the 1914 silent film serial "Perils of Protection Act of 2005 ("the Act"). Save perhaps the 1938 introduction of Chapter XIII, the correction presents the most far reaching changes in consumer bankruptcy law since the adoption of the Bankruptcy Act of 1898. These changes come little more than a decade after Congress established a National Bankruptcy Review Commission (the second such commission in twenty-five years) to review, improve, and update the Bankruptcy Code "in ways which do not disturb the fundamental tenets and balance of current law." A House Report accompanying the legislation that established the second Commission pronounced Congress "generally satisfied with the basic framework established in the current Bankruptcy Code.
The Act ignores most of the Commission's consumer bankruptcy recommendations. Fueled by concern about dramatic increases in Chapter 7 filing rates, the Act accepts instead the premise,advanced persistently and forcefully by and on behalf of extenders of consumer credit, that too many consumer debtors with the ability to repay meaningful amounts of non-priority unsecured debt have been seeking Chapter 7 relief. Advocates of reform have attributed much of this alleged abuse to consumer bankruptcy law that they characterize as lenient, to an alleged decline in the moral shame and social stigma associated with bankruptcy, and to increased attorney advertising. This claim of abuse, together with concomitant suggestions for restricted access to the Chapter 7 discharge, is a familiar refrain, having been advanced several times during the twentieth century, most notably in the 1930s, in the 1960s, and soon after the 1979 effective date of the Bankruptcy Code.
"Means testing" is a cornerstone of the perceived solution. Means testing, a formula applied to the imputed income, imputed expenses, and actual debt of some individuals who file, or might otherwise file, a Chapter 7 petition, can deny Chapter 7 relief to some consumer debtors presumed able to pay a defined portion of their non-priority unsecured debt over a five-year period.
Although means testing will affect only a small percentage of individual debtors contemplating Chapter 7, it has nonetheless commanded the lion's share of debate, overshadowing other significant components of the reform. I discuss several of these other components of consumer bankruptcy reform in this Article. Part I considers the purposes, contours, and possible benefits,costs, and consequences of two new conditions to Chapter 7 and Chapter 13 relief for individual debtors: receipt by the debtor of a briefing and related budget analysis by a nonprofit budget and credit counseling agency as a condition to the filing of a petition, and completion of an instructional course in personal financial management as a condition to discharge.
Part II explains means testing and dismissal of consumer Chapter 7 cases for abuse, in part to suggest both the transitory and enduring flaws of means testing and in part to provide important context for the remaining portions of the Article.
Part III considers provisions requiring that consumer Chapter 7 debtors furnish what may often be superfluous additional information and computations in support of a petition.
Part IV considers extensive new rules governing the behavior of consumer bankruptcy attorneys. It includes discussion of rules restricting the kind of advice that an attorney may give to a client and mandating specific content in advertising, rules that raise significant First Amendment issues. It also includes discussion of rules imposing new due diligence obligations upon consumer bankruptcy attorneys and authorizing sanctions for violation of those obligations, rules that have raised significant concerns about the viability of consumer bankruptcy practice and access of debtors to legal representation.
2005: A Consumer Bankruptcy Odyssey
, 39 Creighton L. Rev. 225
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