If You Filed Bankruptcy Just Before the 2005 “Reform,” You Now Can, or Likely Soon Will Be Able to, File Again

After filing bankruptcy, you hope you never have to do that again. But it’s good to know you can if you need to.

 These next two blogs are, first today, an important recent bankruptcy history lesson, and then in the second blog, why this lesson may be quite important to you.

Filing Bankruptcy in Good Economic Times

Eight years ago, in the late winter of 2005, the U.S. economy was relatively robust. The Gross Domestic Product (GDP) had increased in 2004 the most since before 9/11. In fact it would turn out that the GDP increases for 2004 and 2005, at 3.5% and 3.1% respectively, were the best from 2000 through the present.

And yet, more people filed bankruptcy in 2005 than any year in history.

The Bulge in Bankruptcy Filings 8 Years Ago

Here is a table of the total number of bankruptcy filings in the United States for the last 10 years: 

       YEAR

      # OF FILINGS

       2003

           1,660,245

       2004

           1,597,462

         2005

              2,078,415

       2006

              617,660

       2007

              850,912

       2008

           1,117,771

       2009

           1,473,675

       2010

           1,593,081

       2011

           1,410,653

       2012

           1,221,091

 

Notice that by far the most bankruptcies were filed in 2005. Not even in the depths of the Great Recession in 2009, 2010, and 2011 were more bankruptcies filed.

The BAPCPA Filing Bulge

The misnamed Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) is the reason for this otherwise oddly timed spike in filings. Other “Bankruptcy Reform” Acts had been kicking around Congress since 1997, and one even passed Congress in 2000 but President Clinton refused to sign that one into law. Then every year after that a similar bill was introduced but never passed, until after the 2004 Congressional elections. President Bush was re-elected to his second term and Republicans had won larger majorities in both Houses of Congress. On February 1, 2005 BAPCPA was introduced in Congress, in March the House of Representatives passed it, in April the Senate passed it, and President Bush signed it into law on April 20, 2005, with an effective date of October 17, 2005.

By the time of the results of the November 2004 election, the odds were high that some major “reform” would become law in the upcoming Congress. That became even clearer a few months later in February when the bill was introduced, so the word started going out that people who were considering filing bankruptcy should seriously consider filing before the new law went into effect. Then when the law did pass, with 6 months until its October, 2005 effective date, lots more people got the word and the rush was on to file before that date.

This filing frenzy is shown by the quarterly bankruptcy numbers during this period, with big quarterly increases from the November 2004 election until the October 2005 new law effective date, and the plummeting of filings right after:

 

       QUARTERS

     # OF FILINGS

        4th Q 2004

          371,668

        1st Q 2005

          401,149

        2nd Q 2005

          467,333

        3rd Q 2005

          542,002

          4th Q 2005

             667,431

        1st Q 2006

          116,771

 

Notice how more bankruptcies were filed in just the 4th Quarter of 2005 than in the entire year of 2006. (See the earlier table). In fact, according to the Administrative Office of the U.S. Courts, of the 667,431 bankruptcies filed in that 4th Quarter (October through December), 630,402 were filed in just the month of October. And more than 600,000 of those were filed in just the first 16 days of that October! That means that during those 16 days, the number of bankruptcy cases filed was about the same as during the entire year of 2006!

Why This Recent Bankruptcy History Matters

This history matters if you, or somebody you know, were one of those millions of people who filed bankruptcy in the run-up to BAPCPA, and because of the economic violence of the Great Recession you again need relief.

If you are one of these people, then you need to be aware of two things:

  1. The BAPCPA “reform” was both as bad and not as bad as feared. It is probably one of the most badly written pieces of Congressional legislation to have made it into law. It is filled with internal inconsistencies, logical conundrums, and unintended consequences. It has created infinite unnecessary headaches for millions of bankruptcy filers during its 7 and half years, as well as at every level of the federal bankruptcy court system all the way up to the U.S. Supreme Court. But partly because of its dreadfully bad drafting, most of the law’s changes have NOT changed the end result for most people needing bankruptcy relief. Most people filing Chapter 7 “straight bankruptcy” can do so, and most of the tools of Chapter 13 “adjustment of debts” are still available for those who need them.
  2.  If you need bankruptcy help again, you very likely either qualify now or will in the next few months. That’s the subject of the next blog. 

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