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http://ssrn.com/abstract=1286284
 
 

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Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors


Robert M. Lawless


University of Illinois College of Law

Angela K. Littwin


University of Texas School of Law

Katherine M. Porter


University of California - Irvine School of Law

John A. E. Pottow


University of Michigan Law School

Deborah Thorne


Ohio University - Department of Sociology

Elizabeth Warren


Harvard Law School

October 17, 2008

American Bankruptcy Law Journal, Vol. 82, pp. 349-406, 2008
U of Michigan Law & Economics, Olin Working Paper No. 08-023
U of Michigan Public Law Working Paper No. 133
U Illinois Law & Economics Research Paper No. LE08-034
U of Texas Law, Law and Econ Research Paper No. 136
Harvard Law and Economics Discussion Paper
U Iowa Legal Studies Research Paper No. 08-50

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.

Number of Pages in PDF File: 59

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

JEL Classification: A10, D10, D18

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Date posted: November 7, 2008 ; Last revised: June 18, 2009

Suggested Citation

Lawless, Robert M. and Littwin, Angela K. and Porter, Katherine M. and Pottow, John A. E. and Thorne, Deborah and Warren, Elizabeth, Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors (October 17, 2008). American Bankruptcy Law Journal, Vol. 82, pp. 349-406, 2008; U of Michigan Law & Economics, Olin Working Paper No. 08-023; U of Michigan Public Law Working Paper No. 133; U Illinois Law & Economics Research Paper No. LE08-034; U of Texas Law, Law and Econ Research Paper No. 136; Harvard Law and Economics Discussion Paper; U Iowa Legal Studies Research Paper No. 08-50. Available at SSRN: http://ssrn.com/abstract=1286284

Contact Information

Robert M. Lawless
University of Illinois College of Law ( email )
504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

Angela K. Littwin
University of Texas School of Law ( email )
727 East Dean Keeton Street
Austin, TX 78705
United States
Katherine M. Porter
University of California - Irvine School of Law ( email )
535A Administration
Irvine, CA 92697-1000
United States
John A. E. Pottow (Contact Author)
University of Michigan Law School ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-3736 (Phone)

Deborah Thorne
Ohio University - Department of Sociology ( email )
Athens, OH 45701-2979
United States
Elizabeth Warren
Harvard Law School ( email )
1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-495-3101 (Phone)
617-496-6118 (Fax)
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