Five years ago the bankruptcy code was given a complete overhaul giving birth to the 2005 Bankruptcy Prevention and Consumer Protection Act, or BAPCPA for short. The bankruptcy code overhaul was supposedly put in place to stop what some opponents of bankruptcy described as rampant abuse of the bankruptcy system. Proponents of the BAPCPA Act wanted to decrease the number of bankruptcies by making it more difficult to file and by forcing more people to repay their debts in Chapter 13 bankruptcy . But has the BAPCPA achieved its goals and reduced the number of bankruptcy filings and bankruptcy fraud in general? Or, has it simply created new problems and erected unfair obstacles to those who truly need the protection of bankruptcy? Well, the number of bankruptcy filings have not decreased, a matter of fact, the number of Americans filing bankruptcy is nearing pre-2005 levels. What is happening is that many people are delaying their bankruptcy filing or forgoing a bankruptcy filing because they fear it won’t offer them the help they need. The bankruptcy system was designed to help individuals get a fresh financial start by discharging their debts but because modern debts have evolved so quickly, the current bankruptcy code is not adequately covering all of the challenges debtors face.
Below are two changes that would make the bankruptcy code even more effective in helping individuals get a fresh start:
- The ability to modify mortgages in bankruptcy. The debate over mortgage modification has been raging on since the beginning of the recession. The bottom-line is that homes have lost value and many are not worth the mortgages debtors are paying. Bankruptcy judges need to have the power to “cram-down” these mortgages so that they are more affordable to debtors who want to keep their homes after bankruptcy.
- The ability to discharge student loans in bankruptcy. Many analysts believe that the difficulty of discharging student loan debt in bankruptcy has indirectly caused the skyrocketing cost of education and exorbitant cost of many private student loans. Because student loans cannot be easily discharged in bankruptcy, lenders not only feel comfortable targeting students with debt; but they have an incentive to do so because they know students will most likely NEVER be able to get rid of student loan debt because of the bankruptcy laws.
Allowing the bankruptcy court to modify mortgages and more easily discharge student loan debt would make the bankruptcy system even more effective in helping debtors get a fresh financial start.