GAO Report Shows High Cost of 2005 Bankruptcy Reforms
The United States Government Accountability Office (GAO) recently released a study titled "Dollar Costs Associated with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" to examine the costs and impact of this law, often referred to as BAPCPA, on the US Trustee Program as well as the consequences of its enactment for federal judiciary, consumers, and private trustees.
The GAO reviewed the bankruptcy trustee program and federal judiciary thoroughly, interviewing staff and officials in addition to bankruptcy attorneys, consumer organizations, creditors and private trustees.
After collecting the information, the GAO reached the following conclusions:
1. Trustee Program and Federal Judiciary Revenues Are Down.
The GAO found that revenues from the Trustee Program filing fees fell from $74 million to $52 million between 2005 and 2007; federal judiciary and miscellaneous fee revenues also fell during the same time period, from $237 million to $135 million.
The reason? These declines were largely due to the mass influx of consumer bankruptcy filings prior to the effective date of BAPCPA in October 2005. While there were 600,000 bankruptcy filings in 2006, almost any number would have been a decrease from the artificial increase the previous year.
The revenues also suffered from heightened expenses as a result of BAPCPA. The GAO also found that the Trustee Program spent approximately $72.4 million on BAPCPA-related activities from 2005 to 2007; this included staff time dedicated to verifying the means test, debtor audits, data collection and reporting, and credit counseling and debtor education requirements.
Likewise, the federal judiciary paid up to an estimated $48 million in start-up costs for training and revising bankruptcy rules, forms and procedures, and other similar measures.
2. Consumers Are Paying Higher Legal and Filing Fees since BAPCPA.
While it could not be comprehensive in studying the hundreds of thousands of bankruptcy cases filed, the GAO estimated from a randomized sample that:
- the average attorney fee for a Chapter 7 bankruptcy case increased by nearly $400, from $712 in February-March 2005 to $1,078 in February-March 2007;
- standard attorney fees for Chapter 13 cases rose in nearly all districts and divisions studied, and more than half of cases saw an increase of 55 percent or more;
- total Chapter 7 bankruptcy filing fees are up $90, from $209 to $299;
- total Chapter 13 bankruptcy filing fees are up $80, from $194 to $274;
- the number of Chapter 7 debtors filing without an attorney has declined; and
- credit counseling and debtor education fees are typically around $100.
3. Private Trustees Are Spending More Time Administering Bankruptcy Cases.
Among the private trustees interviewed for the GAO report, most indicated that they are spending more time and resources administering each bankruptcy case as a result of new BAPCPA requirements on documentation, verification and reporting, despite the fact that fewer bankruptcies have been filed since the law went into effect.
