Consumer Bankruptcy's New Clothes : An Empirical Study of Discharge and Debt Collection in Chapter 13

Consumer bankruptcy filings hit another record high in 1998, with nearly 1.4 million consumers filing for bankruptcy relief. This trend sparked a debate in Congress about means-testing chapter 7 bankruptcy filings. Proponents of reform argued that it would curtail fraud and abuse. Opponents believed that consumer debt was swamping income growth, and that the deregulation of the consumer credit market had led to overgenerous lending and hence to more bankruptcies. This is an empirical study of whether filers for chapter 13 bankruptcy cases are abusing the system, or whether debtors are truly being swamped by debt in excess of their incomes. It finds that a large percentage of chapter 13 filers had previously filed for bankruptcy, indicating the potential for abuse of the system's provision of an automatic stay of collections. It also finds, however, that the vast majority of debtors were in desperate need of debt relief, and that most had most incomes or lived in poverty. This study also challenges the basic premises of the Bankruptcy Code by concluding that unsecured creditors are collecting a small percentage of their claims in chapter 13, so that chapter 13 may not be an effective procedure for the collection of unsecured debt as contemplated by the Code. Most debtors are using chapter 13 to deal with secured creditors, who collected 90% of all chapter 13 payments in the study. Perhaps the most striking finding is that successful debtors owed more secured debt than "failed" debtors