The Great Recession
Housing prices in many markets began to plummet in 2006. For virtually all middle and lower income families and individuals who were homeowners, this meant that their only major asset had lost a tremendous amount of value. And for those whose mortgage was now underwater, their asset had become a liability.
This housing crisis had far-reaching consequences for almost everyone in these income brackets. Jobs were lost, houses were foreclosed upon, and cars were repossessed. Many of these individuals had nowhere else to turn financially, so they looked to bankruptcy for a way out.
Can the Poor Still Afford to File?
The BAPCPA added several layers of complexity to filing for bankruptcy. It made it more difficult for attorneys, and made it virtually impossible for individuals trying to file without the assistance of an attorney. Almost everyone had no choice but to use an attorney to file for bankruptcy, and attorneys were forced to charge more because their job was now more complicated and time-consuming. Additionally, the law required that attorney fees were paid before a bankruptcy case could be filed. This meant that a debtor could not receive his protection under the law until he paid his attorney and court filing fees in full.
This created the ironic combination of making bankruptcy, which was needed most by the poor, too expensive for them to file. Many organizations offered some legal assistance to the poor, and the court allowed for the filing fee to be waived in extreme circumstances. However, this typically only provided a small reduction in what someone had to pay to file for bankruptcy.
Hardest on Those Who Need it Most
One webinar panelist pointed out that since the creation of the BAPCPA, there has definitely been a drop in the number of bankruptcy filings, especially among the poor. However, this has coincided with an increase in the number of insolvent individuals and a rise in the number of home foreclosures. This indicates that the poorest individuals who need bankruptcy protection are not actually filing for bankruptcy.
In part 3 we will see how BAPCPA affects chapter 13 cases and unsecured creditors.