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Many People Are Too Broke for Bankruptcy

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Some prominent Democrats, including Senator Elizabeth Warren, have endorsed the idea of making bankruptcy more accessible.

It’s tax season. That also means it’s bankruptcy season. Every year, bankruptcy filings peak in March and stay elevated in April, as people use their precious tax refunds to finally purchase the thing they couldn’t afford before: bankruptcy.

All sorts of bad things happen when bankruptcy is out of reach for people, as ProPublica showed in a series of stories. People turn to unscrupulous operators who file phony bankruptcy cases, as happens often in Los Angeles. Particularly in the South, they turn to a form of bankruptcy that features a payment plan and that often ends in failure, leaving debtors worse off than when they filed. (African Americans are especially prone to that problem.) And finally, many people don’t file at all—and just hope that a debt collector doesn’t seize their wages.

In a report issued Thursday, the American Bankruptcy Institute, which counts 13,000 judges, attorneys, and other professionals among its members, offered a range of fixes for the bankruptcy system. Chief among them were suggestions on how Congress could change the law to make bankruptcy more accessible.

The main cost when filing bankruptcy is paying an attorney (which typically runs around $1,000), but the laws essentially require debtors to come up with the money up front. That’s particularly hard for people who are being squeezed by debt, so the report by the ABI’s Consumer Commission recommended making it possible for debtors to pay their attorneys over time after filing. This would require a change of the law, because attorney fees are usually wiped out just like any other debt when someone files for bankruptcy.



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Thanks !

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