I have one more point of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 to analyze: changes to the automatic stay to repeat filings. In the time leading up to its passage, many in Congress (and certainly creditors) believed debtors filed successive, strategic bankruptcies in a manner to avoid paying debts they owed or stay out of foreclosure when they had no realistic hope of staying in their homes.
As a result of the BAPCPA, section 362(c)(3) limits the automatic stay “with respect to the debtor” to thirty days if the debtor had a bankruptcy case dismissed within the previous year. “Parties in interest,” including debtors, can move the bankruptcy court to extend the automatic stay if they can prove their cases were filed in good faith. Lack of good faith includes failing to follow the court’s requirements or failing to demonstrate a “substantial change in the financial or personal affairs” since the prior case’s dismissal.
Despite the seeming innocuousness of this provision, it hasn’t really done much to prevent subsequent bankruptcy filings. For example, one January 2008 study, which surveyed a random sample of north Texas filings between 2004 and 2006, found that debtors merely delayed their second bankruptcy filing to avoid the change to the law rather than reduce the rate of repeat filings. Before the BAPCPA, less than 17 percent of bankruptcy filings were repeats, yet afterward the rate was nearly identical.
After the BAPCPA, by contrast, the timing of the second filing stretched into the future: Instead of 61 percent of second bankruptcies occurring within a year of the first, only 37 percent did, even though the debtors’ circumstances weren’t much different. At the same time, the percent of subsequent filings occurring between one and two years rose from 13 percent to 20 percent. Thus, debtors shifted their tendency to file a successive bankruptcy from within a year to within two, thwarting the purpose of the BAPCPA. Strategic filers will be strategic.
Another study, published in 2015, found that nearly 15 percent of all bankruptcies in 2007 were repeat filings and 69 percent of chapter 13 debtors filed a new petition within a year of their last ones’ failures. Astonishingly, 98 percent of motions to extend the automatic stay under section 362 succeed, indicating that debtors either can afford to wait to file until more than a year and a month have passed, or they get the relief they need anyway. Creditors object to motions to extend the stay a mere 7 percent of the time. The study contains many entertaining comments by bankruptcy judges the researcher interviewed and are worth the read for those who are inclined. The author recommends more in-depth analysis of why people file bankruptcy again and separating frivolous filings from those that have a justification, e.g. losing a job.
The 2008 paper is here; the 2016 one here.
The lesson learned from the BAPCPA is to listen to the bankruptcy judges and lawyers who experience the system firsthand and the academics who research it rather than change the Bankruptcy Code according to political whims.
If you’re encountering financial difficulties in 2016, the BAPCPA is largely irrelevant to you, but many years ago the system worked better for debtors. Nevertheless, you should talk to an experienced New York bankruptcy lawyer to navigate the arbitrary changes the BAPCPA imposed on debtors.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.