BAPCPA (Bankruptcy Abuse Prevention And Consumer Protection Act Of 2005) has been characterized as among the best (or worst depending on point of view) examples of special interest federal legislation ever passed by Congress. The act’s history is important:
Under pressure from creditor lobbying efforts, Congress and the Clinton administration in 1994 funded a bi-partisan blue ribbon panel dubbed the Bankruptcy Review Commission. Its mission was a comprehensive study of the bankruptcy system in response to creditor interests’ complaints of widespread but undocumented abuses.
Democrats’ poor showings in 1992 and 1994 elections left Congress controlled by Republicans. President Clinton agreed to a commission to find the facts. The credit industry argued a significant number of Americans had the “ability to repay†their debts, but egged on by greedy bankruptcy attorneys, debtors were choosing instead to slough off debt. Debtors were cast as well-to-do credit card abusers who were financially irresponsible, increasing the cost of borrowing for others. Little or no evidence was ever offered to back up creditors’ arguments.
Creditors’ actual motivation: to slow down their losses that had steadily increased as more and more Americans defaulted on high interest credit card debt and turned to bankruptcy courts for help. The probable real reason for increased bankruptcy case filings: Independent studies showed the rate of bankruptcy cases filed in the 1990’s correlated directly with the expansion of consumer credit by primarily big banks.
Following the unfortunate death from cancer of its first chairman, Mike Synar of Oklahoma, the Commission’s work began by 1996. Hearings were conducted across the U.S. The Commission concluded no major overhaul was needed in the Bankruptcy Court system, found no major abuses, and most profoundly determined the overwhelming number of cases were caused by circumstances beyond debtors’ control. Four frequent factors cited were 1) Loss of job; 2) Divorce; 3) Medical catastrophe, and 4) Death or disability of a family member.
The Commission’s report was not even formally released before Senator Charles Grassley (R-Iowa) pronounced it dead on arrival and put finishing touches on a bill drafted by a Visa lobbyist. Some of its provisions were blatant overreaching. In 1998, Senator Grassley introduced a bill to reward creditors’ steady campaign contributions (primarily to Republicans, but also to prominent Democrats on the Senate Banking Committee and House Financial Services Committees). Due to great differences in versions of the bill passed in the House and Senate, the first bill stalled. New bills introduced in 1999 in both houses were reconciled in a post-election lame duck session and sent to the President. It contained many ill considered provisions, and President Clinton vetoed that bill on December 19, 2000, in the waning days of his second term in office.
President George W. Bush telegraphed Capitol Hill before taking office he would sign any bankruptcy reform bill that both houses of Congress agreed to. George Bush’s number one campaign contributor in his 2000 presidential campaign was reportedly the MBNA Employees Political Action Committee. The attacks of 9-11-2001 delayed a House/Senate conference’s efforts to reconcile differences in each chamber’s bills. The Senate was in the hands of Democrats and consensus could not be reached. Congress adjourned in 2002 with no bill. A similar effort in the 2003-2004 Congress failed when Senator Chuck Schumer (D-NY) included a provision making injuries and fines/penalties from violence outside abortion clinics non dischargeable in bankruptcy. The provision appeared to have a chilling effect on free speech and was opposed by groups on that basis. That poison pill in the Senate version killed the bill in the House.
The re-election in 2004 of President Bush and Republican majorities in both Senate and House led Bill Frist, then Senate Majority Leader, to try to deliver on promised Republican legislative goals. A bill overriding state class actions was passed. Flush with victory, Frist then found a week on the Senate’s calendar and scheduled the Bankruptcy bill for consideration. In early March, 2005, proponents were allowed several days of Senate floor debate, but no committee hearings were scheduled. The House, under a rule, announced the Senate’s bill would come to a vote without mark up, committee hearings, or debate; there would be an up-or-down vote by House members. That process would avoid the inconsistent versions of the bill that killed earlier efforts. Opponents of the law could already claim partial success; their efforts since 1998 had watered down many of the most objectionable aspects of the bill. The bill’s final form remained a patchwork of special interest provisions. But opponents such as Senator Edward Kennedy succeeded in making substantial improvements by amendment during the bill’s Senate floor debate.
President Bush signed BAPCPA into law on March 20, 2005, with a 180-day implementation period. In that time period, over 2 million bankruptcy court cases were filed. Later studies revealed many persons who filed in the “gap†would not have filed a case for months or years, but were convinced they had to act before the law changed. For many who filed, it was a good strategy. Others acted rashly, filing chapter 7 cases out of reflex, not following a well informed decision making process. Those persons filing chapter 7 will be denied any bankruptcy relief for 4 to 8 years, and many will need bankruptcy relief for new debt problems. The United States Trustee asserts many cases filed in the gap did not benefit the debtor.
BAPCPA left the predecessor Bankruptcy Reform Act of 1978 substantially intact, despite efforts to harm consumers’ fresh start. Here is a brief history of bankruptcy in the United States.