Sunday, May 22, 2005

Chapter 13, the Mainstream Media and the New Bankruptcy Bill

The Consumer Federation
Makes chapter 13 plans to save homes and cars far more difficult. Contrary to the supposed aim of encouraging more chapter 13 payment plans, numerous provisions in the bill will make chapter 13 much harder and less attractive. For many debtors, the bill will require five year plans (up from three years), assuring that the failure rate will be even higher than the current two-thirds who can’t complete plans because of unexpected income or job loss.


Most Chapter 13s fail before completion. The most authoritative study revealed that 18% of Chapter 13 filings are dismissed before confirmation. Of confirmed plans, 32% are successful and 49% are dismissed after confirmation, which translates to a postconfirmation failure rate of 60%, according to "Consumer Bankruptcy's New Clothes: An Empirical Study of Discharge and Debt Collection in Chapter 13."

From the The Department of Justice

Federal Judicial Center

The most recent draft of proposed bankruptcy legislation requires debtors to visit a debt counseling agency before filing a bankruptcy petition. All are watching the proposed legislation to determine if it will create more than a million new customers who will need to pay dollars to a debt counseling agency to obtain an entry pass into the bankruptcy court. This would result in a huge new revenue source for the industry.

The failure rates are excessive, particularly in the DMP program.

Now I don't know if this provision made it into the recently approved Bankruptcy law, but if it did here is what we have. Consumers would be directed into a totally unrealistic debt counseling plan with high failure rates. From there they could enter into a Chapter 13 which also has unrealistically high payment rates ( I know one person -not me- who filed a Chapter 13. That individual makes 1200 a month gross, the bankruptcy court is taking 890 a month.) Two-thirds of all Chapter 13's are dismissed before they are completed.

Yet, by and large I saw no discussion of this issue in the mainstream media nor by politicians. Why? Why is congess mandating that people participate in a Chapter 13 when for the most part this plan is an abject failure? Why was there no discussion of this issue in the mainstream media? I mean WTF? This is insane. If I only got successful results 30% of the time I'd be fired. For the most part Chapter 13's only work for peaople with a large amount of secured debt -and a large amount of assets to begin with it sounds like they were designed for people with cash flow problems not to help people got in over their heads. Yet there is no discussion in the mainstream media of the large -and negative - impact these things have on most of the people who get them.
As near as I can tell the new Bankruptcy law was desirned to help two groups. Creditors and Debt Counseling companies.