The 2005 bankruptcy reform act was supposed to put an end to "absusive" filings. But recent data shows that in bad times like these, filings have returned to pre-2005 levels. A study by Ronald C. Mann and Katherine Porter published in the Georgetown Law Review, entitled Saving Up for Bankruptcy reported this shocking statistic (from a 1998 study):
Bankruptcy relief would have afforded an economic benefit to about 15% of (the study group), but only about 0.66-1% sought relief any given year.
In other words, the authors point out:
Most families in serious financial distress do not file for bankruptcy.
In fact, each year
foreclosure filings outstrip bankruptcy filings because many families do not
even try to use bankruptcy to save their homes.Similarly, thousands of families
are subject to collection calls for medical bills, and yet the number of bankruptcy
filings--even at its pinnacle--represents only a sliver of those struggling
with bills.
The paper goes on to explode the myth that people file emergency petitions as soon as collection activity starts. In fact, people put up with collection efforts for a long time, and make the decision to file slowly.
One factor in that slowness is the cost of bankruptcy. The new (five year old) law added substantial new burdens on attorneys, so now debtors have to save their pennies that much longer to be able to afford their bankruptcy.
