Bankruptcy Law Ineffective?

A recent article on MSNBC suggests that a federal law, which was enacted in 2005 to make it more difficult for Americans to file for bankruptcy, is failing.

The article is referring to the Bankruptcy Abuse and Consumer Protection Act of 2005, which aimed to prevent Americans from abusing the bankruptcy system. Essentially, this Act imposes additional requirements on Americans who wish to be eligible for bankruptcy filings. For example, the Act requires applications to pass a “mean” income test in certain situations, complete credit counseling, and provide tax returns and proof of income.

In an attempt to show that this Act is ineffective, the article presents a prediction that bankruptcies through the next year could level off at 1.6 million – the same number which prompted the creation of the new bankruptcy law. Similarly, the article says that the law has “failed” to steer people away from Chapter 7, as these filings currently account for 69% of all bankruptcy filings – a number that is only slightly slower from the proportion of Chapter 7 filings in 2004, which leveled off at 71%.

However, these statistics do not show that the 2005 Act is “failing.” In 2009, Americans face one of the greatest economic crises in US history. Thus, one would expect the amount of 2009 filings to be much greater that that of previous years. The fact that the amount of 2009 bankruptcy filings is still less than that of 2004 – even if only slightly less – indicates that the Act is effective.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s