Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
April 28 — The total number of bankruptcy filings for Chapters 11 and 12 for the 12-month period ending March 31 increased compared with the same period last year, but filings for Chapters 7 and 13 decreased, according to statistics released April 28 by the Administrative Office of the U.S. Courts.
Total bankruptcy filings for the 12-month period ending March 31 fell 8.5 percent compared to filings for the same period ending March 31, 2015. The March 2016 annual bankruptcy filings totaled 833,515, compared with 911,086 cases in the year ending March 2015, the AOUSC said.
“The main cause [why consumer Chapters 7 and 13 filings have decreased] is the continuing effect of the 2005 law, which made bankruptcy much more expensive and burdensome, but less effective,” Henry J. Sommer, former president of the National Association of Consumer Bankruptcy Attorneys, told Bloomberg BNA April 28.
Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) on April 20, 2005, which made significant changes to the Bankruptcy Code. One important change was to make it more difficult for consumers to file bankruptcy under Chapter 7.
“Chapter 11 was not changed as much in 2005, and cost of filing is less of an issue in those cases,” Sommer told Bloomberg BNA.
In Chapter 7 bankruptcy, a debtor's nonexempt assets are liquidated and the proceeds are distributed to creditors. Chapter 13 bankruptcy allows individuals receiving regular income to obtain debt relief while retaining their property, but they must propose a plan that uses future income to repay a portion of their debts over a three to five year period.
Chapter 11 reorganization is for businesses or individuals whose debts exceed the statutory thresholds for Chapter 13 bankruptcy, and Chapter 12 is designed to protect family farmers and family fishermen.
Sommer told Bloomberg BNA that the effects of BAPCPA “were masked for a while by the financial crisis, but are now being seen.” He also noted that “the biggest debt problem many people now have is student debt and bankruptcy can do little to help with that.”
Bankruptcy Code Section 523(a)(8) prohibits the discharge of educational loan debt — unless excepting such debt from discharge would impose an undue hardship on the debtor and the debtor's dependents, according to , pt. II, ch. 63 (D. Michael Lynn et al. eds., 2016).
Regarding the increase in Chapter 11 cases, “it is difficult to read much of a trend into these latest numbers,” Professor Robert Lawless, University of Illinois, told Bloomberg BNA April 28. “Numbers go up and down — that is what they do,” he said.
“With these latest Chapter 11 filing numbers, it is just as likely the apparent upward trend in Chapter 11s stems from the chosen cutoff date rather than a real trend,” Lawless said. “The 12 months ended December 31 showed basically no change in Chapter 11s (http://www.uscourts.gov/news/2016/02/04/bankruptcy-filings-drop-10-percent-calendar-year-2015) (28 BBLR 171, 2/11/16), and the 12 months ended September 30 showed a drop in Chapter 11s (http://www.uscourts.gov/news/2015/10/28/fiscal-year-bankruptcy-filings-continue-fall) (27 BBLR 1443, 10/29/15),” he said.
Also, “the Chapter 11 figures can be sensitive to the way the data are compiled,” Lawless told Bloomberg BNA. “One large business with multiple subsidiaries who all file bankruptcy can skew the Chapter 11 numbers. We need more months of data before we can say there is an upward trend in Chapter 11 filings” he said.
The majority of bankruptcy filings involve non-business debts. During the 12-month period ending March 31, non-business bankruptcy filings totaled 808,718, down from 884,956 non-business bankruptcy filings in the previous year.
Business filings during the 12-month period ending March 31 fell to 24,797, from 26,130 in the previous year, the AOUSC said.
The number of bankruptcies filed by Bankruptcy Code chapter ending March 31 are as follows:
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Full text is available at: http://www.uscourts.gov/news/2016/04/28/march-2016-bankruptcy-filings-down-85-percent
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