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When the new bankruptcy law passed
in 2005, critics vigorously attacked the legislation. Consumer advocates,
bankruptcy attorneys and some lawmakers blasted the act as unfair
and anti-consumer.
But supporters of the Bankruptcy Abuse Prevention
and Consumer Protection Act, which went into effect in October,
counter that the law's demands are reasonable and address a mushrooming
problem with bankruptcy fraud that was costing consumers billions
of dollars.
"This bill would not have gotten anywhere if
it was as extreme as what the critics are trying to make it out
to be," says Pete Lawson, director of congressional and public
affairs at the U.S. Chamber of Commerce in Washington, D.C.
Others argue that, in any case, it is too early to
evaluate the law's impact since it's less than a year old.
"Those who would have been most affected by the
law most likely have filed prior to the law going into effect (in
October)," says Todd Zywicki, visiting professor of law at
Georgetown University Law Center.
The cause for filings
Consumer advocates argue that most bankruptcies are caused by medical
problems, unemployment or divorce. Proponents of the new law acknowledge
these factors play a role, but say they are greatly overstated.
Stuart Feldstein of SMR Research Corp., a market research
firm in Hackettstown, N.J., says the company's bankruptcy-rates
database identified no correlation between bankruptcy rates and
unemployment rates, but found a close correlation with a number
of other factors.
"Among them were the percentage of adults who were divorced,
the percentage of the population covered by health insurance, overall
consumer debt levels, ages, nearness of gambling casinos, lawyer
advertising (we added up column inches of ads in Yellow Pages phone
books by metro area), minimum auto insurance coverage requirements
by state, growth of adjustable-rate consumer debt and a few other
things," he says.
He says the database, which dates back to 1989 and
is updated quarterly, looks at the numbers of personal bankruptcy
filings by county, metro area and the nation.
"This database allowed us to compare bankruptcy
rates in local areas to other available economic and social statistics
from the Census Bureau, the Bureau of Labor Statistics and other
sources. We were able to search for which economic and social data
actually correlated with high or low bankruptcy rates."
Zywicki argues that there's another factor that plays
a significant role.
"What seems to be the case is unemployment has
been low; divorce rates have been falling and interest rates have
been falling," he says. "We've had 20 years of economic
growth. People are filing because of economic distress. What seems
to have changed is the willingness for people to file.
"Bankruptcy laws have been so generous that it
has provided people with greater incentives to file. Secondly is
the change in social norms and social stigma so that bankruptcy
doesn't have a degree of disapproval. Those seem to be the largest
examples given the lack of other economic variables."
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