Trial lawyers and easy bankruptcy = good
Typical message from this communist progressive rag.
Sometimes banks and corporations can be bad and trial lawyers and "easy" bankruptcy can be good.
The "savings" from this new legislation will be negligible. A few quotes from April 6, 1999, ABI study
( ABI - American Bankruptcy Institute )
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PART III--PROJECTED NET GAIN AND THE IMPOSSIBLE DREAMS.
How much more might unsecured creditors collect under means-testing? VISA estimated that number at "over $4 billion,"(94) then qualified that estimate by stating "[t]his assumes that income remained unchanged relative to expenses and liabilities during the 60 month repayment period."
In 1997, some 926,000 nonbusiness Chapter 7 cases were filed. If we assume that our sample holds for the nation as a whole and that 3.55% or 32,873 were can-pays, each with nonpriority unsecured debt of $35,303,(96) and that each could repay 75% or $26,477 of that unsecured debt. If all 32,873 debtors repaid $26,477 apiece, it would total about $870 million, nowhere close to VISA's estimate. However, even that $870 million is based on at least four unrealistic assumptions:
First, that well-counseled debtors will not evade can-pay status by increasing debt or charitable contributions;
Second, that the debtors' incomes, expenses and debts will remain relatively unchanged for five years;
Third, that 100% of the can-pays will file and complete five-year Chapter 13 plans; and
Fourth, that unsecured creditors will bear no part of the cost to sort all Chapter 7 cases for means-testing and to monitor the 30,000 + can-pays over five years in Chapter 13.
Fifth, that unsecured creditors collect nothing from Chapter 7 debtors at present.
None of these assumptions is well-founded. The first four are impossible dreams and the last is simply untrue. Let's start with the first, the assumption that well-counseled debtors will not choose to avoid can-pay status by increasing debt or charitable contributions prior to filing. As discussed above, the Tithing Bill allows debtors to divert up to 15% of annual gross income into H.R. 3150's extraordinary expense category. We also pointed out the incentives to increase secured debt, especially by buying a car, prior to filing. Many debtors with above-median income could and some would use these routes to escape five years of payments in Chapter 13. If we conservatively assume that only one-quarter of the can-pays would do so, that reduces the can-pay pool to 25,000 debtors and reduces net gain to about $700 million.
Now let's consider the likelihood that for five years, the incomes, expenses and debts of the can-pay debtors will remain relatively stable. Truly, this is an impossible dream. Over five years, of course, some will die. The rest will get five years older and many will be deeper in debt. Like other human beings, the can-pays will suffer disease, divorce, disability and downsizing that for some will substantially reduce income and increase expenses. Even delightful events like new babies entail years of additional expenses and, eventually, student loans. None of these events is stopped by the automatic stay. As the GAO remarked with reference to VISA's studies, there is "no empirical basis for assuming five years of stable income and expenses."(97)
Another impossible dream is that the can-pays would file and complete a five-year Chapter 13 plan. It is common knowledge that current voluntary Chapter 13 plans have only a 30% completion rate, and many of these were just three-year plans to begin with.(98) To be sure, the can-pays would be a select group, with above-average ability to repay at the outset, so one could expect a better completion rate, perhaps as high as 50%. But for all the reasons set forth above, plus sheer bad luck and for some, bad habits, many will not finish their plans.(99)
If only half of these 25,000 plans fail, after making payments for an average of two and one-half years, that would reduce net gain to about $525 million.
The fourth impossible dream is that it will cost unsecured creditors nothing to sort a million Chapter 7 cases a year into can- and can't-pays. Perhaps all these costs can be shifted to taxpayers, but there will be real costs, as the CBO has shown,(100) and unsecured creditors are taxpayers too. But let's be conservative here too. The CBO estimates that H.R. 3150's provisions as a whole would cost $214 million in the first five years, plus another $8-16 million a year for additional judges needed for means-testing.(101)
Assume that only $25 million of these costs are born by unsecured creditors either directly due to higher Chapter 13 administrative costs, or indirectly through increased taxes. That brings us down to $500 million.
Finally, the VISA studies also assume that unsecured creditors collect nothing from Chapter 7 debtors at present. This is false. Chapter 7 debtors frequently reaffirm debts scheduled as unsecured.(102)
They must also repay student loans and other nondischargeable unsecured debts. Let's assume that all such payments by 1997 Chapter 7 filers amount to $50 million. This $50 million is not new money dependent on means-testing; unsecured creditors already collect that much. So we subtract $50 million from our $500 million, giving us a projected net gain of $450 million .
In seeking that pot of gold from the can-pay minority, however, it is vital that we not bar the many can't-pays from a fresh start. Means-testing would be mean indeed if it hurt the many to capture the few.
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