Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: How the Credit Card Industry's Perseverance Paid Off

By Scott, Robert H.,, III | Journal of Economic Issues, December 2007 | Go to article overview

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: How the Credit Card Industry's Perseverance Paid Off


Scott, Robert H.,, III, Journal of Economic Issues


Enacted on October 17, 2005, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) marked the most significant change in United States' bankruptcy legislation since 1978. An important aspect of BAPCPA is that it makes fewer people eligible to file Chapter 7 bankruptcy. Until BAPCPA, Chapter 7 was the most popular form of personal bankruptcy because it eliminated non-secured debt--mostly, credit card debt. BAPCPA was passed at a time when the United States was experiencing significant annual increases in personal bankruptcy filings. While some researchers (e.g. Posner 1975; Michelle White 1991) have claimed that bankruptcy is a fault of moral character, there is another suspect: namely, the credit card companies that profit from increasing consumer indebtedness, but were losing $4 billion a year due to bankruptcy filings before BAPCPA (Waller 2001, 874). This paper presents research showing how the credit card industry developed, how credit card companies helped implement BAPCPA, and the new law's effects on the economy and individuals.

William Waller's article "Kick'em While They're Down: Anti-Consumer Bankruptcy Reform" (2001) is the best presentation to date of the institutionalist view of personal bankruptcy. But Waller's paper was published before BAPCPA was enacted. There are important implications associated with BAPCPA that Waller did not (could not) foretell. This analysis builds upon the work of Waller and other institutional economists (Adkisson and McFerrin 2005; Dolfsma and McMaster 2007; Redmond 2001; Veblen [1899] 1994; Watkins 2000) by presenting an institutionalist interpretation and analysis of BAPCPA. Specifically, this paper isolates the credit card industry as the main driving force behind BAPCPA.

This paper draws on research conducted in the year since BAPCPA's enactment that study its many effects. On October 16, 2006 the independent nonprofit bankruptcy research organization, American Bankruptcy Institute (ABI), organized a program entitled "A Year After BAPCPA" at Georgetown University Law School. (1) The program included practitioners, lawyers, judges, academics, and policy specialists from all sides of the BAPCPA debate. The program's transcript (247 pages) provides detailed insight into BAPCPA's influence on consumers, lawyers, and the economy in the first year of its existence.

The following sections present: (1) the nuances of bankruptcy types; (2) the highlights of BAPCPA; (3) some different perspectives on personal bankruptcy; (4) empirical findings that identify characteristics of bankruptcy fliers; (5) policy prescriptions to help reduce the overall number of personal bankruptcies and minimize negative effects of BAPCPA; and (6) concluding remarks.

Nuances of Bankruptcy Types

The Bankruptcy Act of 1898 is the foundation of today's modern bankruptcy laws. Before this act, bankruptcy laws were not permanent; they were enacted only during times of economic crisis. It was the Chandler Act of 1938 (a New Deal reform) that first made bankruptcy legislation more debtor-friendly (Adkisson and McFerrin 2005, 450). One important change made was to include the option to file Chapter 13 bankruptcy, which allowed people with considerable assets to file bankruptcy and pay off a portion of their debt over a number of years. Until this time, Chapter 7 bankruptcy was the only personal bankruptcy option available (Nader 2005; Skeel 2001).

The two most common types of personal bankruptcy are Chapter 7 and Chapter 13. (2) Chapter 7 bankruptcy allows a debtor to dissolve eligible debt obligations. Before BAPCPA's enactment, Chapter 7 bankruptcy filings accounted for an average of 70 percent of all personal bankruptcies. Just after BAPCPA, the number of Chapter 7 filings fell below 30 percent (www.abiworld.org). (3) It is a common misperception that Chapter 7 bankruptcy discharges all personal debt. In fact, Chapter 7 bankruptcy only eliminates unsecured high interest debt, financial company loans, and some medical debts. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: How the Credit Card Industry's Perseverance Paid Off
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.