Ripple or Revolution? The Indeterminacy of Statutory Bankruptcy Reform

Abstract:     
This symposium contribution considers the implications of recently enacted bankruptcy legislation. An omnibus bankruptcy bill has substantially amended titles 11 and 28 of the United States Code, and the professionals involved with bankruptcy are working hard to prepare for the quickly approaching effective date. All of this activity suggests that something big is happening. But will bankruptcy really be so different a year from now, two years from now, five years from now? And how will these changes affect people who are candidates for personal bankruptcy? I argue one must look beyond the statutory revisions to answer these questions.

Legal and sociological research suggests that the bill's impact will be filtered through the influences of day-to-day actors in the bankruptcy system. As in the past, this filtering may mute or magnify certain statutory changes and may produce variation around the country. Assessments of the impact of formal law changes are incomplete without taking this filtering into account.

Notwithstanding this filtering, it is reasonable to predict that the changes will make bankruptcy more complicated and expensive for bankruptcy filers to some extent. Even so, the real life impact of the changes is unclear. Researchers know little about filers after bankruptcy or about how their recovery compares with that of insolvent individuals who avoid bankruptcy. If studies were to find that many filers confront serious financial trouble again two or three years after bankruptcy, then they might call into question the effectiveness of bankruptcy. Similarly, if studies were to find that non-filers with similar profiles recover equally well through non-bankruptcy means, then statutory changes that make bankruptcy more difficult may not be as consequential as they seem. Ultimately, therefore, it is difficult to characterize the impact of these changes on financially distressed individuals without knowing more about the effectiveness of bankruptcy in an absolute and comparative sense.

Number of Pages in PDF File: 22

Keywords: bankruptcy, consumer credit

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