Discussion Paper

Is the 2005 Bankruptcy Reform Working?

Abstract: While the name of the Bankruptcy Abuse Prevention and Consumer Protection Act suggests two goals, BAPCPA seemed to be more about abuse prevention than consumer protection. The abuse alleged by proponents of BAPCPA, particularly credit card lenders, was that filers were using Chapter 7 bankruptcy to avoid paying credit card debt they could afford to pay. BAPCPA aimed to curb the alleged abuse through a variety of obstacles, most notably a means test intended to divert better off filers from Chapter 7, where credit card and other unsecured debts are discharged (forgiven), to Chapter 13, where unsecured debts may be rescheduled. In this post, I investigate whether BAPCPA is working, where by ?working? I mean reducing the overall bankruptcy rate, and reducing that ratio of Chapter 7-to-Chapter 13 filings. Some observers have argued that the reform failed on both counts, but my analysis suggests that conclusion may be only half right.

Keywords: Ch. 13; Bankruptcy reform; credit cards; Ch. 7;

JEL Classification: D1;

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Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2012-06-04

Number: 20120604