The Failed Reform: Congressional Crackdown on Repeat Chapter 13 Bankruptcy Filers

After decades of lobbying to “get tough” on bankruptcy repeat filers, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The Bankruptcy Code now requires that the automatic stay, which prevents creditors from pursuing the property of bankruptcy debtors, expires after thirty days for petitioners who file for bankruptcy within one year of a previously failed petition. Debtors can file a motion to extend the stay, but there is a presumption of a bad faith filing, only overcome if a debtor can show there has been a “substantial change in his or her financial or personal affairs” that makes discharge likely. Despite the Congressional focus on repeat filers, there has been little scholarly study of them. This study uses a national random sample to analyze post-BAPCPA repeat filers. I find that even post-BAPCPA, there is a significant number of repeat filers. Indeed, 14.7% of all bankruptcy petitions filed in 2007 were repeaters, and of Chapter 13 repeat filers, 69% filed a new petition within a year after a previous petition’s failure. Further, the strict new Congressional rules for repeat filers have effected little practical change: 98% of petitions to extend the automatic stay are granted, even though the majority of repeat filers provide no evidence of changed circumstances. Based on these findings, interviews with bankruptcy judges, trustees, and lawyers, and analysis of relevant case law, I explain why BAPCPA’s crack-down on repeat filers has effected little practical change, and argue that effectively tackling the refiler problem will likely require very different tactics than those employed in BAPCPA

Race, Class, and Access to Civil Justice

After many years of inattention, policymakers are now focused on troubling statistics indicating that members of poor and minority groups are less likely than their higher-income counterparts to seek help when they experience a civil justice problem. Indeed, roughly three-quarters of the poor do not seek legal help when they experience a civil justice problem, and inaction is even more pronounced among poor blacks. Past work on access to civil justice largely relies on unconfirmed assumptions about the behavior patterns and needs of those experiencing civil justice problems. At a time when increased attention and resources are being devoted to questions of racial and socioeconomic access to civil justice, it is critical to understand the underlying causes of the disparities in justice utilization. This Article uses original, empirical data to provide novel explanations for these puzzling inaction statistics. The data reveal previously undetected connections that are crucial for creating effective access to justice policy. The Article shows how negative past experiences with, and perceptions of, the criminal justice system play a crucial role in decision-making about seeking help for civil justice problems. Further, this Article is the first to explore racial differences in civil justice utilization among the poor, and to explain how degree of trust is a key explanation for these racial differences. Based on the findings, the Article proposes a paradigm shift in how to shape access to justice policy

“Robbing Peter to Pay Paul”: Economic and Cultural Explanations for How Lower-Income Families Manage Debt

This article builds upon classic economic perspectives of financial behavior by applying the narrative identity perspective of cultural sociology to explain how lower-income families respond to indebtedness. Drawing on in-depth qualitative interviews with 194 lower-income household heads, we show that debt management strategies are influenced by a desire to promote a financially responsible, self-sufficient social identity. Families are reluctant to ask for assistance when faced with economic hardship because it undermines this identity. Because the need to pay on debts is less acute than the need to pay for regular monthly expenses like rent or groceries, debts receive a lower priority in the monthly budget and families typically juggle their debts in private rather than turning to social networks for assistance. In some cases, however, debts take on special meanings and are handled differently. Respondents prioritize debts when they perceive payment as affirming a self-sufficient or upwardly mobile identity, but they reject and ignore debts they view as unfair or unjust. Because the private coping strategies families employ trap them in costly cycles of indebtedness and hinder future mobility prospects, debt management strategies are consequential for long-term financial well-being

The Bootstrap Trap

In the mid-1990s, Congress fundamentally altered the public safety net when it passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, otherwise known as welfare reform. Under the PRWORA, cash assistance was no longer an entitlement for income-qualifying families; instead, recipients faced work requirements and lifetime limits on receiving benefits. Bipartisan reformers sought to transform welfare from a program believed to trap poor mothers in a culture of dependence into a program that would promote a culture of self-sufficiency and personal responsibility. This shift in culture, it was argued, would ultimately lead to upward mobility. This Article shows how, ironically, over twenty years after welfare reform, the private safety net that many struggling families rely on—the credit system—disincentivizes the very self-sufficient behavior that welfare reformers had hoped to promote. Using the sociological concept of narratives, the Article shows how parents who have most internalized narratives of self-sufficiency are particularly at risk of financial ruin under the new regime. On a broader scale, this Article argues that, to better understand the relationship between law, inequality, and poverty, we need to further investigate how people experience and internalize structural conditions and how these structural conditions become sources of personal meaning and determinants of behavior. Such inquiries can lead to unexpected connections between seemingly disparate areas of law and policy, and ultimately to innovative policy interventions. Finally, this Article moves to the prescriptive. It argues for a public financial services program, Financial Services for Family Security (FSFS). FSFS would provide services such as financial advising, no-interest small loans, and debt management help, all aimed at increasing the financial resilience of struggling families

The Broken Safety Net: A Study of Earned Income Tax Credit Recipients and a Proposal for Repair

The Earned Income Tax Credit (EITC) is the largest federal antipoverty program in the United States and garners almost universal bipartisan support from politicians, legal scholars, and other commentators. However, assessments of the EITC missed an imperative perspective: that of EITC recipients themselves. Past work relies on largely unconfirmed assumptions about the behaviors and needs of low-income families. This Article provides a novel assessment of the EITC based on original data obtained directly from 194 EITC recipients through in-depth qualitative interviews. The findings are troubling: They show that while the EITC has important advantages over welfare, which it has largely replaced, it fails as a safety net for low-income families. The problem is that the EITC provides a large windfall to families only once per year, during tax refund season. However, low-income families are particularly vulnerable to financial shocks and instability. Not surprisingly, such events rarely coincide with tax refund season. Without a fix, the EITC leaves many families on the brink of financial collapse. In the years to come, many more low-income families may file for bankruptcy or become homeless. Despite this grim outlook, this Article suggests a straightforward and promising new way to distribute the EITC that maintains the program’s advantages while also providing a more secure safety net for low-income families in times of financial shock and instability

Cracking the Code: An Empirical Analysis of Consumer Bankruptcy Outcomes

Chapter 13 is a cornerstone of the bankruptcy system. Its legal requirements strike a balance between the rehabilitation of debtors through keeping assets and reducing debt, and the repayment of creditors over a period of years. Despite the accolades from policymakers, the hard truth is that the majority of the half-million families each year that seek refuge in chapter 13 bankruptcy will not achieve the debt relief of a discharge. Prior research found that those who drop out of bankruptcy quickly endure the serious financial struggles that they had before bankruptcy—now even worse off for having spent thousands of dollars to seek help. Despite the profound inefficiency of chapter 13 bankruptcy, we previously did not know what differentiates those who succeed in chapter 13 from those who fail. This article is the first study to use a national random sample to predict which debtors obtain a discharge of debt. Using sophisticated statistical techniques that allow us to control for unobservable or unmeasurable effects at the local level, we identify the factors that make completing chapter 13 bankruptcy more likely. We find, among other robust effects, that blacks are more than twice as unlikely to receive debt relief than non-blacks, that those without an attorney have extremely low odds compared to those who hire an attorney, and that families with children fare worse. We also find that the local variations in bankruptcy practice that have been deemed “best practices” do not correlate with higher rates of bankruptcy completion. We discuss the implications of our findings for the millions of families who struggle to repay their debts in bankruptcy, and suggest concrete fixes to increase the efficacy of the consumer bankruptcy system. This article upsets the debate about bankruptcy reform and will help shape policy and practice in upcoming decades

Credit Scoring Duality

Credit scoring is central to people’s financial growth and prosperity or financial decline and stagnation. People with a good credit score and accompanying credit report can buy opportunities to advance economically. The benefits they reap from their attractiveness to lenders and employers helps feed their future success. In contrast, people with a fair or poor credit score become stuck in cycle of high interest rates and costly loan terms, large required down payments, and denied applications for rentals, cell phone plans, and employment. Employers, service providers, lenders, and alternative financial service providers have begun to use alternative credit scoring models, which rely on data not typically tracked by the three major credit bureaus, such as income, rental history, and subscription services. Although touted as beneficial, the use of this alternative data does not necessarily make people more attractive because they perform below-average on many of the inputs. For instance, they earn lower salaries and have imperfect rental histories. Ultimately, most of the people with fair and poor scores, however calculated, find it nearly impossible to erase the blemishes that feed those scores. This essay, written as part of Two Americas symposium, details how the increasing reliance on credit scores has made this type of scoring integral to people’s access to the gates of economic citizenship. The increasing reliance on credit scoring has helped perpetuate and fuel household economic inequality. The essay concludes with a proposal for how to support people who lack the credit history or family assistance often needed to succeed in a financial world that depends on scoring

Credit Scoring Duality

Credit scoring is central to people’s financial growth and prosperity or financial decline and stagnation. People with a good credit score and accompanying credit report can buy opportunities to advance economically. The benefits they reap from their attractiveness to lenders and employers helps feed their future success. In contrast, people with a fair or poor credit score become stuck in cycle of high interest rates and costly loan terms, large required down payments, and denied applications for rentals, cell phone plans, and employment. Employers, service providers, lenders, and alternative financial service providers have begun to use alternative credit scoring models, which rely on data not typically tracked by the three major credit bureaus, such as income, rental history, and subscription services. Although touted as beneficial, the use of this alternative data does not necessarily make people more attractive because they perform below-average on many of the inputs. For instance, they earn lower salaries and have imperfect rental histories. Ultimately, most of the people with fair and poor scores, however calculated, find it nearly impossible to erase the blemishes that feed those scores. This essay, written as part of Two Americas symposium, details how the increasing reliance on credit scores has made this type of scoring integral to people’s access to the gates of economic citizenship. The increasing reliance on credit scoring has helped perpetuate and fuel household economic inequality. The essay concludes with a proposal for how to support people who lack the credit history or family assistance often needed to succeed in a financial world that depends on scoring

Essays in Access to Civil Justice

In this three-article dissertation, I explore access to civil justice issues from several dimensions. Existing data tells us that poor households are significantly less likely than moderate- and high-income households to attempt to resolve civil justice problems, and that black households are significantly less likely than white households to attempt to resolve civil justice problems through formal means. However, we do not know why. The first article finds that among poor respondents, past experiences with public institutions, both legal and non-legal, contributed to a personal narrative about, and strong desire for, self-sufficiency. This narrative made respondents hesitant to seek help for civil justice matters, even if seeking help appeared to be the financially rational behavior. The second article argues that though there are many similarities between how poor blacks and poor whites interact with the legal system, blacks are much more likely to distrust legal institutions. This distrust leads them to avoid seeking out legal assistance, even in the most dire of circumstances. In the third article, I examine a different access to justice issue. I consider the changes Congress made in 2005 to try to limit access to one of bankruptcy's main protections, the automatic stay, for people who file for bankruptcy more than once in a 365-day period. I find that judges have mostly ignored this law, and that it has made little difference in access to bankruptcy for repeat filer debtors. I explore the roots of the judges' behavior and suggest potential legal reforms