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Abstract:
The greatest fear of many families in serious financial trouble is that they will lose their homes. Bankruptcy offers a last chance for families save their houses by halting a foreclosure and by repaying any default on their mortgage loans over a period of years. Mortgage companies participate in bankruptcy by filing proofs of claims with the court for the amount of the mortgage debt. In turn, bankruptcy debtors pay these claims to retain their homes. This process is well-established and, until now, uncontroversial. The assumption is that the protective elements of the federal bankruptcy shield vulnerable homeowners from harm.

This Article examines the actual behavior of mortgage companies in consumer bankruptcy cases. Using original data from 1700 recent Chapter 13 bankruptcy cases, I conclude that mortgage servicers frequently do not comply with bankruptcy law. A majority of mortgage claims are missing one or more of the required pieces of documentation for a bankruptcy claims. Fees and charges on claims often are poorly identified and do not appear to be reasonable. The bankruptcy data reinforce concerns about the overall reliability of the mortgage service industry to charge homeowners only the correct and legal amount of the debt and to comply with applicable consumer protection laws. Mistakes or misbehavior by mortgage servicers can have grave consequences. Bloated claims can jeopardize a family's ability to save their home in bankruptcy. On a system level, mistakes or misbehavior by mortgage servicers undermine America's homeownership policies for all families trying to buy a home.

The data also reinforce concerns about whether consumers can trust financial institutions to adhere to applicable laws. The findings are a chilling reminder of the limits of formal law to protect consumers. Imposing unambiguous legal rules does not ensure that a system will actually function to safeguard the rights of parties. Observing the reality that laws can underperform or even misfire has crucial implications for designing legal systems that produce acceptable and just behavior.

mortgages, home loans, mortgage servicing, bankruptcy, foreclosure, consumer protection

Abstract:
Consumer credit and consumer bankruptcy filings have grown rapidly over the last two decades, and several researchers have attempted to understand the relationship between these two intertwined features of the modern American economy. Teasing out causation is almost impossible, as consumer advocates lay blame on the industry and the industry responds by citing the same data to show consumer misbehavior. Using a novel vantage point, this analysis examines what the credit industry's behavior toward recently bankrupt families reveals about its internal profit models and the likely causes of consumer bankruptcy. The empirical evidence on postbankruptcy credit solicitation belies the industry's characterizations of bankrupt families as opportunistic or strategic actors. Original data from longitudinal interviews with consumer debtors show that many lenders target recent bankrupts, sending these families repeated offers for unsecured and secured loans. The modern credit industry sees bankrupt families as lucrative targets for high-yield lending, a reality that has important implications for developing optimal consumer credit policy and bankruptcy law.

bankruptcy, consumer credit, credit cards, consumer law, credit markets

Abstract:
An untested assumption of Chapter 7 bankruptcy is that it rehabilitates debtors for a fresh start in the economy. Using original, longitudinal data, we examine this assumption against the realities of life after bankruptcy. Our findings challenge the fresh start as the theoretical underpinning for consumer bankruptcy relief. We found that just one year after bankruptcy, one in four debtors was struggling to pay routine bills, and one in three debtors reported an overall financial situation similar to, or worse than, when they filed bankruptcy. Our analysis of these data demonstrates that steady and sufficient income is the key to improved post-bankruptcy financial health. Factors that cause household income to decline, such as unemployment and underemployment, illness or injury, and old age, undermine the chances of financial recovery. These data reveal the limitations of bankruptcy as a social safety net and highlight the fragile economic situations of American families. We conclude that bankruptcy is an incomplete tool to rehabilitate those in financial distress, and we suggest adjustments to bankruptcy law and social programs that will improve the ability of consumers to achieve a fresh start after financial failure.

Bankruptcy, consumer bankruptcy, consumer credit, fresh start, consumer debt

Abstract:
Just three years ago, Congress enacted controversial amendments to the Bankruptcy Code. The proponents claimed that the changes would drive the "can pay" debtors (of which there were supposedly many) from the bankruptcy courts with tough new income-based eligibility requirements. And indeed, after the enactment of the amendments, the number of people filing for bankruptcy plunged. In this Article - the initial report of the 2007 Consumer Bankruptcy Project - the authors analyze the first national, random sample of post-amendments bankruptcy filers. Contrary to the advocates' claim that high-income filers would be driven from the system and, by implication, that those remaining would have more modest incomes, the data show no change in the income levels of bankruptcy filers after the amendments. These findings thus cast doubt on the suggestion that those purged from the bankruptcy courts - approximately 800,000 in 2007 alone based on trend extrapolation - were high-income deadbeats; they instead appear to have been ordinary American families in serious financial distress. The data also show that debtors filing for bankruptcy in 2007 have even greater debt loads than their counterparts from 2001, a development that seems to track a national trend of increasing consumer debt. The findings thus align with at least two predictions of some legal scholars. The first is that the bankruptcy reform bill was not aimed at high-income abusers but was instead a general assault on all debtors, regardless of their financial circumstances. The second is that debtors are waiting longer - and incurring more debt - before ultimately seeking bankruptcy relief, consistent with the so-called "sweat box" theory of credit card lending.

2007 Consumer Bankruptcy Project, bankruptcy reform, consumer debtors, credit risk, predatory lending

Abstract:
This article examines the home affordability of chapter 13 bankruptcy debtors under current law, which prohibits the cram down or modification of residential mortgage loans. Using original empirical data from a national study of over 1700 chapter 13 bankruptcy cases, it analyzes the relationship between housing costs and income for bankrupt households. More than two-thirds of homeowners in chapter 13 bankruptcy live in unaffordable or severely unaffordable housing, according to the standards developed by the Department of Housing and Urban Development. Such families spend more than 30 percent of their incomes at the time of bankruptcy on paying their mortgages and related housing costs. The large fraction of their incomes that bankrupt homeowners commit to paying their housing cost reduces the odds that they will succeed in saving their homes in bankruptcy and completing their chapter 13 repayment plans. The Article considers how these data could inform the debate about whether Congress should amend the Bankruptcy Code to permit the modification of home mortgages, offering examples from real bankruptcy cases to show the beneficial effects of mortgage modification to create sustainable homeownership. It concludes that permitting mortgage modification would enhance the usefulness of bankruptcy as a tool to address the foreclosure crisis.

mortgage, mortgage modification, bankruptcy, housing affordability, cram down, homeowenership, home mortgages, subprime housing, housing costs

Abstract:
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) raised numerous provocative issues for the bankruptcy system. Many of these problems are fundamentally empirical research problems and will engage scholars for years to come. BAPCPA does not just create questions, however. The law itself actually seeks to provide answers. BAPCPA contains several explicit provisions about statistics and studies, and the law's emphasis on disclosure implicitly increases the amount of data about people and businesses in financial trouble. The central place of empirical research in BAPCPA reflects the importance of data in modern policymaking. Indeed, much of the bankruptcy reform debate was a battle of numbers. By including research mandates in the new law, Congress articulated an empirical research agenda about bankruptcy for the federal government.

I assert that BAPCPA provides both opportunities and hazards to advance our understanding of bankruptcy. The development of comprehensive federal data offers the potential to dramatically increase the scope of knowledge about the bankruptcy system. The peril lies in the government conducting its research without the transparency and accountability necessary to convince private industry, academic scholars, and the general public of the integrity and usefulness of these data. Rather than eclipsing academic research, the federal government's bold new foray into empirical bankruptcy work challenges the scholarly community to engage with government and private industry to ensure the collective improvement of bankruptcy knowledge. The result of BAPCPA could be a new universe of bankruptcy data that offers everyone a better understanding of how bankruptcy functions.

bankruptcy, empirical research, government data, bapcpa

Abstract:
This paper examines bankrupt families' attitudes toward, and need for, financial education. The data are derived from a longitudinal study of families who filed for personal bankruptcy. We examine the implications of bankrupt debtors' attitudes and experiences for the content and delivery of bankruptcy financial education, which in 2005 was made a prerequisite to consumer debtors' eligibility for discharge of their debts. We report the degree to which bankrupt families believed a financial education course would have helped them avoid bankruptcy and describe how these attitudes vary by demographic characteristics. We examine key financial difficulties that families face after bankruptcy and highlight ways in which bankruptcy financial education could be responsive to the realities of families' lives after they file bankruptcy.

bankruptcy education, consumer bankruptcy, financial education, financial literacy

Abstract:
Despite their role at the forefront of empirical research on the legal system, bankruptcy scholars are typical of the legal academy in their ignorance of the perspectives and experiences of rural Americans. No empirical study has systemically considered or acknowledged the role of community size in understanding when and why Americans turn to the bankruptcy system. Until now, the plight of rural families has been ignored. Overlooking the rural experience has impoverished our understanding of the financial pressures facing Americans. Without knowledge about rural Americans, who make up one-fifth of the U.S. population, our collective knowledge about the bankruptcy system generally and the economic pressure on all families is deeply flawed.

The original data developed in this Article reveal that rural America is home to extraordinary, unexplored economic distress. Contrary to conceptions about a rural cultural resistance to debt and the pastoral nature of rural life, rural families appear to be facing more severe financial hardship than their urban counterparts. The bankruptcy data reveal the depth and nature of the financial squeeze on rural families. Rural Americans live in areas where low wages and reduced job opportunities leave them with smaller incomes, but at the same time, they pay the same or higher prices for many of the same goods and services that urban Americans do. This is the worst of both worlds. Rural households have fewer dollars to spend and more demands on those dollars - both from past debts and current expenses. The nature of rural bankruptcies reflects the declining rural economy and the losing struggle of rural families who are trying to make ends meet despite severe income, job and medical problems. Far from being immune from the financial pressures on American households, rural families inhabit the deepest hollows in a map of economic well-being. Exploring this terrain offers critical insights on legal scholarship and bankruptcy policy.

The data presented in this Article expose important differences in the economics of bankrupt families that correlate with place of residence. Because these differences between urban and rural families have gone unexplored until now, our understanding of the bankruptcy system has been distorted. This distortion is more pernicious because scholars have frequently failed to acknowledge their urban bias. In showing how rural residence creates differences among bankruptcy filers, this Article exposes the need to consider rural perspectives in studies of all legal fields. Exploring how the role of place shapes use of the legal system opens up a new way to flush out variations in how laws actually operate. My conclusions suggest that future legal scholarship in all disciplines should be cognizant of the ways in which rurality, like race, gender, non-citizen status, or age, may influence perspectives on law.

The suffering of rural families revealed in the bankruptcy data has powerful implications for our understanding of the American economy as a whole. Learning how the economics of rural failure differ from that identified in urban areas allows a critical evaluation of how prior studies may have underreported the financial distress of bankrupt families by overlooking place of residence as a relevant factor. The rural bankruptcy data also offer a compelling example of the need for specialized rural policy in America. These findings highlight the need to build a healthy rural economy and offers insights into the problems that push rural families to bankruptcy, a financial breaking point.

bankruptcy, empirical, farmers, insolvency, rural

Abstract:
The current dynamic of increasing credit card use juxtaposed with regulatory pressure on the credit card industry reflects our society's deep ambivalence about paying with plastic. This Review of Professor Ronald J. Mann's Charging Ahead: The Growth and Regulation of Payment Card Markets, praises the book for its refreshingly balanced perspective on the optimal use of credit cards. The Review begins by unpacking the regression analyzes that are the centerpiece of the book's examination of the economic effects of credit cards. Mann isolates credit card spending as a driver of increased total consumer debt, even after controlling for card debt. He then shows that borrowing on cards - distinguished from noncard borrowing - is separately associated with an increase in bankruptcy filings. The Review then identifies an important limitation of Charging Ahead. An aggregate examination of the effects of credit cards does not reveal how card use affects the variety of card use strategies by individual families. Analyzing original data from the Consumer Bankruptcy Project, the Review highlights the vulnerability of "cardless" families to financial hardship. Credit card reform may effectively alter Americans' calculus about whether to pay with credit cards, and Mann offers many cogent reforms. Such behavioral change does not itself provide families with the income and savings necessary to protect them from adverse economic events as many factors beyond card use expose families to financial stress.

credit cards, debit cards, consumer debt, bankruptcy, payment systems, household finance

Abstract:
In the heated debate surrounding the recent reforms to America's bankruptcy laws, Congress' decision to make Chapter 12 (a specialized type of bankruptcy relief available only to farmers) a permanent part of the Bankruptcy Code was widely heralded as a positive step for rural Americans. However, empirical evidence shows that very few farmers actually use Chapter 12 and that bankruptcy relief has not and cannot halt the decline in family farming. A vast majority of rural Americans are not farmers and will not be helped by Chapter 12. Instead, these families will face increased hurdles to filing for bankruptcy relief under the recent reforms to the generally applicable consumer bankruptcy laws. This Article analyzes the amendments to Chapter 12 and argues that America's rural families remain vulnerable to financial failure as policymakers continue to conflate the agricultural and rural economies.

bankruptcy, agriculture, farming, rural