A Fresh Start for Personal Bankruptcy Reform: The Need for Simplification and a Single Portal

Abstract

This article develops the case for simplification of personal bankruptcy, using a single consumer portal and incorporating a repayment requirement for those debtors with surplus income. It provides an overview of how the 2005 Bankruptcy Act fails to prevent abuse but burdens all filers with new paperwork and other new hurdles. The result is to reduce access to a discharge by increasing the cost of bankruptcy, while still allowing relief to better off debtors, especially those who plan ahead and can afford good legal advice. The article then turns to implementation issues for a simpler system, drawing upon the conditional discharge approach used in Australia and Canada. These issues include setting the repayment period and measuring surplus income. A simplification project should also provide straightforward rules on collateral retention and establish uniform federal bankruptcy exemptions. A simpler system involving a single portal is the most promising way to prevent abuse without reducing access to bankruptcy for those in desperate need of relief.

Keywords: bankruptcy reform, consumer bankruptcy