Contrary to the impression created by its title, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAP/CPA), the most sweeping revision in our nation's bankruptcy law since the 1978 Bankruptcy Code, goes too far in attacking abuse, but not far enough in providing protection.
To be sure, bankruptcy abuse does occur. One example involves the unlimited homestead exemption available in Florida, and it works like this: A crafty debtor obtains cash through loans secured against assets located outside Florida; pays cash for his dream house in Florida; discharges the debts through bankruptcy; and keeps the Florida house free and clear. Restrictions now apply to limit abuse of the homestead exemption, but there is no outright ban, and a loophole remains for those who can afford to wait.
Most bankruptcies, however, do not occur because debtors have executed a premeditated plan to avoid paying the expenses of reckless spending. Bankruptcies occur because people lose jobs, suffer unplanned medical expenses, and face other unexpected hurdles. Many consumers, including the well educated, easily justify using credit to pay for necessary expenses, especially after being convinced that “no payments ‘til 2007” will provide enough time to come up with the money. With so much credit so readily available, it’s no wonder that people get in over their heads. And this is where the BAP/CPA falls short.
This legislation does nothing to prohibit creditors from snaring debtors. It does not prevent a credit card company from unilaterally modifying credit card agreements. It does not bar a creditor from deciding to apply payments in excess of the minimum payment to future minimum payments rather than the principal, a practice no doubt designed to keep the debt in place. There is nothing to protect consumers from being forced to waive the Constitutional right to a jury, thus permitting the common practice by creditors of compelling mandatory arbitration that is inconvenient and costs far more than a lawsuit would in a local court. And there is no cap on interest rates, as perhaps there should be on debt related to expenditures for food, medicine, education, and utilities.
Instead of offering real protection for consumers, however, the BAP/CPA leaves debtors more vulnerable to predatory lenders. Section 707 of the BAP/CPA, for example, obligates a debtor’s attorney to verify that the bankruptcy petition is well grounded in fact, warranted by existing law, and does not represent an abuse. This requirement will dissuade attorneys from accepting bankruptcy clients, and imposes a burden that reshapes the traditional role of the attorney as that of an advocate to that of adversary of his client. Warning: Take the lawyers away and the creditors will have their way.
Congress must have learned by now, from the battle against illegal drugs, that both users and suppliers are to blame. So must Congress come to realize the bankruptcy problem cannot be solved by punishing debtors alone, without controlling the creditors that supply the credit. In the meantime, let us remember to pray as we have been taught, “...forgive us our debts as we forgive those who are indebted to us.”
Peter Agostino is co-owner of Anderson Agostino & Keller PC, a South Bend, Ind.-based civil law practice.
Bankruptcy Cases Filed in the United States
*for twelve month period ending June 30 Source: uscourts.gov
Average Consumer Debt of U.S. Households in 2003 (not including mortgages)
$ 8,000 of total = credit card debt
quoting October 2003 Federal Reserve statistics
Credit Card Solicitations Received by U.S. Households
• 71% of U.S. households receive solicitation(s) each month
• On average, these households receive 68 solicitations each year