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On the Social Costs of Bankruptcy: Can the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 be an Effective Policy?

On the Social Costs of Bankruptcy: Can the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 be an Effective Policy?

Donald D. Hackney, Matthew Q. McPherson, Daniel Friesner, Candice Correia
Copyright: © 2014 |Volume: 5 |Issue: 1 |Pages: 34
ISSN: 1947-8402|EISSN: 1947-8410|EISBN13: 9781466656550|DOI: 10.4018/ijsesd.2014010106
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MLA

Hackney, Donald D., et al. "On the Social Costs of Bankruptcy: Can the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 be an Effective Policy?." IJSESD vol.5, no.1 2014: pp.58-91. http://doi.org/10.4018/ijsesd.2014010106

APA

Hackney, D. D., McPherson, M. Q., Friesner, D., & Correia, C. (2014). On the Social Costs of Bankruptcy: Can the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 be an Effective Policy?. International Journal of Social Ecology and Sustainable Development (IJSESD), 5(1), 58-91. http://doi.org/10.4018/ijsesd.2014010106

Chicago

Hackney, Donald D., et al. "On the Social Costs of Bankruptcy: Can the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 be an Effective Policy?," International Journal of Social Ecology and Sustainable Development (IJSESD) 5, no.1: 58-91. http://doi.org/10.4018/ijsesd.2014010106

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Abstract

The goal of BAPCPA is to shift bankruptcy filers from Chapter 7 to Chapter 13. The basis for this goal is the assumption that Chapter 7 filers repay much less of their debt than do Chapter 13 filers. Therefore, shifting debtors from Chapter 7 to Chapter 13 will increase debt repayment and lessen the amount of bankruptcy costs shifted to society as a whole. In order for this reasoning to be valid, it is necessary to substantiate the claim that Chapter 13 actually leads to substantial debt repayment. This paper examines the validity of this assumption using a random sample of filers from the Eastern Washington U.S. Federal Bankruptcy Court District in 2003 and 2005. The authors find that filers do, indeed, repay a substantial portion of their debts. This suggests that Chapter 13 is effective in generating debt repayment. However, Chapter 13 repayments also create major administrative costs, and frequently provide little benefit to general unsecured creditors. Moreover, the effectiveness of Chapter 13 bankruptcies is substantially reduced (by nearly a 2.5 to 1 ratio) if debtors do not successfully complete the repayment plans. As such, BAPCPA appears to miss an opportunity to further reduce the social costs of bankruptcy.

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