The Failed Reform: Congressional Crackdown on Repeat Chapter 13 Bankruptcy Filers

Abstract

After decades of lobbying to “get tough” on bankruptcy repeat filers, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The Bankruptcy Code now requires that the automatic stay, which prevents creditors from pursuing the property of bankruptcy debtors, expires after thirty days for petitioners who file for bankruptcy within one year of a previously failed petition. Debtors can file a motion to extend the stay, but there is a presumption of a bad faith filing, only overcome if a debtor can show there has been a “substantial change in his or her financial or personal affairs” that makes discharge likely. Despite the Congressional focus on repeat filers, there has been little scholarly study of them. This study uses a national random sample to analyze post-BAPCPA repeat filers. I find that even post-BAPCPA, there is a significant number of repeat filers. Indeed, 14.7% of all bankruptcy petitions filed in 2007 were repeaters, and of Chapter 13 repeat filers, 69% filed a new petition within a year after a previous petition’s failure. Further, the strict new Congressional rules for repeat filers have effected little practical change: 98% of petitions to extend the automatic stay are granted, even though the majority of repeat filers provide no evidence of changed circumstances. Based on these findings, interviews with bankruptcy judges, trustees, and lawyers, and analysis of relevant case law, I explain why BAPCPA’s crack-down on repeat filers has effected little practical change, and argue that effectively tackling the refiler problem will likely require very different tactics than those employed in BAPCPA.

Keywords: Bankruptcy, Chapter 13, Refilers