Nineteen Recent BAPCPA-Related Articles of Interest Available on SSRN

Time to take a break from BAPCPA case law outlines to consider some interesting BAPCPA-related scholarly articles that are available for downloading from the Social Science Research Network (sorted by SSRN ID No):

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University of Illinois College of Law's Robert M. Lawless: "Bankruptcy Filing Rates After a Major Hurricane."
(SSRN ID: 919861)

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University of Iowa College of Law's Katherine M. Porter: "The Bright Side of BAPCPA." (SSRN ID: 919322)

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UNC-Chapel Hill School of Law's Melissa B. Jacoby: "Bankruptcy Reform and Homeownership Risk." (SSRN ID: 918006)

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University of Wisconsin School of Law's Bernard Trujillo: "Regulating Bankruptcy Abuse: An Empirical Study of Consumer Exemptions Cases." (SSRN ID: 914019)

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University of Arizona College of Law's Jean Braucher: "A Fresh Start for Personal Bankruptcy Reform: The Need for Simplification and a Single Portal." (SSRN ID: 912561)

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Univ. of Missouri School of Law's Michelle A. Cecil: "Bankruptcy Reform: What's Tax Got to Do With It?" (SSRN ID: 912263)

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University of Wisconsin Law School's William C. Whitford: "A History of the Automobile Lender Provision of BAPCPA." (SSRN ID: 907086)

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University of Illinois College of Law's Robert M. Lawless: "The Paradox of Consumer Credit."
(SSRN: 906868)

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Federal Reserve Bank of Philadelphia's Robert M. Hunt: "Whither Consumer Credit Counseling." (SSRN ID: 905263)

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N. D. Fisher: "The Effect of Unemployment Benefits, Welfare Benefits, and Other Income on Personal Bankruptcy." (SSRN ID: 904759)

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Harvard Law School's Elizabeth Warren, UT-Austin Law School's Jay Lawrence Westbrook and Univ. of Mich. Law School's Teresa A. Sullivan: "Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Fillings." (SSRN ID: 903355)

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Univ. of Michigan's Dennis R. Capozza and UT-San Antonio's Thomas A. Thomson: "Subprime Transitions: Lingering or Malingering in Default?" (SSRN ID: 902882)

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UT-Austin School of Law's Ronald J. Mann: "Bankruptcy Reform and the 'Sweatbox' of Credit Card Debt." (SSRN ID: 895408)

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Univ. of Iowa College of Law's Katherine M. Porter and Ohio University's Deborah Thorne: "The Failure of Bankruptcy's Fresh Start." (SSRN ID: 894453)

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Univ. of Nevada Las Vegas School of Law's Judge Bruce Markell: "The Sub Rosa Subchapter: Individual Debtors in Chapter 11 after BAPCPA." (SSRN ID: 893582)

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Widener University School of Law's Juliet Moringielio: "Has Congress Slimmed Down the Hogs?: A Look at the BAPCPA Approach to Pre-Bankruptcy Planning." (SSRN ID:892034)

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National Consumer Law Center's Deanne Loonin and Elizabeth Renuart: "Life and Debt: A Survey of Data Addressing the Debt Loads of Older Persons and Policy Recommendations." (SSRN ID: 885398)

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NYU Law School's Karen Gross and Fordham Univ. School of Law's Susan Block Lieb: "Empty Mandate or Opportunity for Innovation? Pre-Petition Credit Counseling and Post-Petition Financial Management Education." (SSRN ID: 884487)

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UT-Austin's Li Gan and Washington Univ.-St. Louis' Tarun Sabarwal: "A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy." (SSRN ID: 847035)

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Abstracts for each of these papers follow:

 

Robert M. Lawless, "Bankruptcy Filing Rates After a Major Hurricane." (SSRN ID: 919861):

Twelve to thirty-six months after a major hurricane, bankruptcy filing rates appear to increase for affected areas. The Article draws that conclusion by examining all eighteen hurricanes that hit the fifty United States between 1980 and 2004 and that caused $1 billion or more in damages. Despite substantial limitations in the data that would obscure all but the strongest relationships, distinct patterns emerge. Although further empirical analyses should be done, these findings suggest that Congress should except victims of hurricanes and other natural disasters from recent legislation that will make it more difficult to get bankruptcy relief. Because higher bankruptcy filing rates can be a seen as a symptom of financial distress, this Article also suggests other ideas for legislative relief, including both temporary moratoria on debt collections and adverse credit reporting and more permanent relief such as mandatory debtor-creditor mediation before a creditor could get a court judgment against hurricane victims.

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Katherine M. Porter, "The Bright Side of BAPCPA." (SSRN ID: 919322):

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) raised numerous provocative issues for the bankruptcy system. Many of these problems are fundamentally empirical research problems and will engage scholars for years to come. BAPCPA does not just create questions, however. The law itself actually seeks to provide answers. BAPCPA contains several explicit provisions about statistics and studies, and the law's emphasis on disclosure implicitly increases the amount of data about people and businesses in financial trouble. The central place of empirical research in BAPCPA reflects the importance of data in modern policymaking. Indeed, much of the bankruptcy reform debate was a battle of numbers. By including research mandates in the new law, Congress articulated an empirical research agenda about bankruptcy for the federal government.

I assert that BAPCPA provides both opportunities and hazards to advance our understanding of bankruptcy. The development of comprehensive federal data offers the potential to dramatically increase the scope of knowledge about the bankruptcy system. The peril lies in the government conducting its research without the transparency and accountability necessary to convince private industry, academic scholars, and the general public of the integrity and usefulness of these data. Rather than eclipsing academic research, the federal government's bold new foray into empirical bankruptcy work challenges the scholarly community to engage with government and private industry to ensure the collective improvement of bankruptcy knowledge. The result of BAPCPA could be a new universe of bankruptcy data that offers everyone a better understanding of how bankruptcy functions.

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Melissa B. Jacoby, "Bankruptcy Reform and Homeownership Risk." (SSRN ID: 918006):

The personal bankruptcy system is part of a larger system of household risk management. Much of the discussion of personal bankruptcy has focused on bankruptcy's insurance role with respect to unsecured obligations like credit cards and medical bills. In this symposium contribution, I redirect the analysis by evaluating the bankruptcy system, and particularly chapter 13, as a mortgagor protection law. In particular, I explore how bankruptcy might be encouraging and prolonging unsustainable homeownership at significant financial and psychosocial cost. I then consider the impact of two recent revisions to the Bankruptcy Code relating to credit counseling and repeat filers. I conclude that these revisions may improve the system modestly by enabling sorting based on homeownership sustainability.

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Bernard Trujillo, "Regulating Bankruptcy Abuse: An Empirical Study of Consumer Exemptions Cases."
(SSRN ID: 914019):

This Article presents the results of an empirical study of bankruptcy court doctrine in consumer exemptions proceedings over a twenty-year period. The study shows a pattern in which the bankruptcy system values property exemptions to decrease the amount of the discharge for sophisticated debtors and increase the amount of the discharge for unsophisticated debtors. The data show that the presence of sophistication reduces a debtor's chance of success in an exemptions proceeding by as much as 71.6%. Courts systematically value exemptions to impose costs on the “can-pay” debtor. This pattern of abuse minimization emerged endogenously, without the prompting of hierarchical, exogenous forces such as Congressional or appellate court directives.

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Jean Braucher, "A Fresh Start for Personal Bankruptcy Reform: The Need for Simplification and a Single Portal." (SSRN ID: 912561):

This article develops the case for simplification of personal bankruptcy, using a single consumer portal and incorporating a repayment requirement for those debtors with surplus income. It provides an overview of how the 2005 Bankruptcy Act fails to prevent abuse but burdens all filers with new paperwork and other new hurdles. The result is to reduce access to a discharge by increasing the cost of bankruptcy, while still allowing relief to better off debtors, especially those who plan ahead and can afford good legal advice. The article then turns to implementation issues for a simpler system, drawing upon the conditional discharge approach used in Australia and Canada. These issues include setting the repayment period and measuring surplus income. A simplification project should also provide straightforward rules on collateral retention and establish uniform federal bankruptcy exemptions. A simpler system involving a single portal is the most promising way to prevent abuse without reducing access to bankruptcy for those in desperate need of relief.

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Michelle A. Cecil, "Bankruptcy Reform: What's Tax Got to Do With It?" (SSRN ID: 912263):

When Congress passed sweeping bankruptcy reform legislation in 2005, it failed to resolve a number of important issues in the area of bankruptcy taxation, a critical but often overlooked area of bankruptcy law. This article addresses one such issue, the tax consequences of property abandonments in a bankruptcy proceeding. It deals with how to treat the gain that accrues with respect to an asset after a debtor files for bankruptcy protection. The article takes a two-pronged approach to the issue. First, it argues that all post-petition appreciation should be taxed to the debtor rather than to the debtor's bankruptcy estate because the debtor enjoys the benefits of the asset's appreciation in value and because, from a tax perspective, the results will be identical irrespective of whether the debtor or the bankruptcy estate is taxed on the asset's post-petition appreciation. Second, the article proposes that the gain accruing before the termination of the bankruptcy proceeding be treated as discharge of indebtedness income so that the debtor can defer recognition of the gain until she is better able to pay the resulting tax. The article concludes that congressional adoption of this proposal will harmonize competing tax and bankruptcy policies and ultimately improve the bankruptcy system.

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William C. Whitford, "A History of the Autombile Lender Provision of BAPCPA." (SSRN ID: 907086):

This paper begins with a comparision of the status of auto lenders under BAPCPA (i.e., the new consumer bankruptcy law) and under pre-BAPCPA bankruptcy law. It concludes that the situation of the auto lenders has been considerably improved, probably more so than for any other large identifiable creditor group. The biggest gain for auto lenders is a prohibition of lien stripping under chapter 13 plans if the motor vehicle was acquired within 2.5 years of filing for personal purposes (or within one year of filing if acquired for other reasons).

The paper then provides a historical and political account for how BAPCPA came to take this form. The National Bankruptcy Review Commission made recommendations that would have considerably compromised the position of auto lenders in bankruptcy. The original bills introduced in the House of Representatives at the behest of a broad creditor coalition did not embrace these recommendations and did contain provisions favored by auto lender interests, but those bills did not embrace a broad prohibition of lien stripping in chapter 13. The lien stripping prohibition was added by amendment, on behalf of auto lender interests, made in a markup session of the Senate Judiciary Committee in 1998. Other creditor interests then acquiesced in this amendment, even though it was manifestly contrary to their interests. The paper, which is based in part on interviews with a number of lawyer/lobbyists involved in the process, speculates about the reasons for this acquiesence.

 

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Robert M. Lawless: "The Paradox of Consumer Credit."
(SSRN ID: 906868):

Congress designed the 2005 amendments to the federal Bankruptcy Code to decrease consumer bankruptcy filings, but does history suggest that is a reasonable expectation for the new law? Using government data, this paper examines the relationship between household debt and changes in the legal regime on bankruptcy filing rates. First, I find that the components of household debt have different relationships with bankruptcy filing rates over different time frames. Over both the short- and long-term, increased mortgage debt is associated with increased bankruptcy filing rates. Consumer debt, however, has a negative short-term relationship with bankruptcy filing rates but a positive long-term relationship. A run up in consumer credit seems to allow consumers to delay but not avoid bankruptcy. The relationships were statistically meaningful and robust to different specifications of statistical models.

Previous amendments to the federal bankruptcy law in 1938 and 1979 did not have any significant effect on bankruptcy filing rates. Rather, after each of these enactments, bankruptcy filings continued to move with overall macroeconomic trends unabated by changes in the legal regime. The 1984 amendments, however, were associated with an increase in filing rates, a rather surprising result given that the 1984 amendments - like the 2005 amendments - were meant to crack down on perceived overly generous bankruptcy laws. Others have noted that the 1984 amendments were followed by an expansion of consumer credit, which the other findings suggest are associated with a long-term increase in the filing rate. Taken together, these findings suggest the 2005 amendments may similarly lead to an expansion of consumer credit and a long-term increase in the bankruptcy filing rate.

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Robert M. Hunt, "Whither Consumer Credit Counseling." (SSRN ID: 905263):

For a half century, nonprofit credit counseling organizations have offered financial education and budget counseling sessions at nominal cost to borrowers. They also negotiate comprehensive repayment plans with a borrower's unsecured creditors. These repayment plans provide an alternative to bankruptcy that is valuable to many consumers. But credit counseling is not without controversy. In recent years, concerns about conflicts of interest and the emergence of a new breed of credit counselors have triggered significant legislative and regulatory activity and substantial restructuring of the industry.

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N. D. Fisher, "The Effect of Unemployment Benefits, Welfare Benefits, and Other Income on Personal Bankruptcy." (SSRN ID: 904759):

Personal bankruptcy, unemployment insurance, and Aid to Families with Dependent Children provide income and wealth insurance. Because they have similar purposes, it should not be surprising that some households use more than one of these programs or that the programs are substitutes. This study contributes to the personal bankruptcy literature by examining this interaction and finds that increases in unemployment benefits decrease the probability of bankruptcy.

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Elizabeth Warren, Jay Lawrence Westbrook, Teresa A. Sullivan, "Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Fillings." (SSRN ID: 903355):

A central concern in domestic economic policy has been the great increase in consumer bankruptcy filings since 1980. That concern was a major cause of the adoption of the 2005 amendments to the Bankruptcy Code. We analyze the data from three studies of consumer bankruptcy over twenty years to learn more about the causes of that increase. One consistent claim has been that a decline in reputational loss (stigma) has made filing for bankruptcy easier, thus explaining the rise in filings. The principal competing claim has been that increased filings arise from increased financial distress. We find that the declining-stigma hypothesis is implausible because the data show that consumer bankrupts are even more indebted now than their counterparts were in 1981 and 1991 and that there is no identifiable group of less-indebted bankrupts that were tempted into bankruptcy by reduced reputational costs. Those data and other factors support an inference that the stigma of bankruptcy may have increased over the past twenty years.

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Dennis R. Capozza and  Thomas A. Thomson, "Subprime Transitions: Lingering or Malingering in Default?"
(SSRN ID: 902882):

When a mortgage borrower becomes seriously delinquent (i.e., defaults), the lender initiates a time consuming and complex recovery process that may or may not result in foreclosure and eventual disposition of the real estate collateral (REO). This research studies this transition process for a unique sample of subprime mortgages that were seriously delinquent on September 30, 2001. Eight months later, possible states for the delinquent loans, in order, are a) to remain delinquent without deteriorating further, 2) foreclosure, 3) worsen, i.e., become more months delinquent, 4) bankruptcy and 5) cure. The data indicate that, relative to prime loans, when subprime loans becomes seriously delinquent (90 days or longer) they are about twice as likely to become REO but take about four times longer to get there. It is unusual for a subprime defaults to be cured suggesting considerable forbearance by subprime lenders. We explore determinants of the transition probabilities and find that the most economically important predictors of transition from default to any other state are the number of payments the borrower has made and the loan to value ratio.

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Ronald J. Mann, "Bankruptcy Reform and the 'Sweatbox' of Credit Card Debt." (SSRN ID: 895408):

Those that backed the 2005 bankruptcy reform law argued that it would protect creditors from consumer abuse and lack of financial responsibility. The substantial increase in the number of bankruptcies over the last decade combined with the perception of system-wide abuse apparently convinced legislators from both political parties that the backers had a point. Thus, Congress enacted amendments to the Bankruptcy Code that - if effective - would fundamentally change the core policies underlying the consumer bankruptcy system in this country. At least part of the rhetoric surrounding the reform debates was the idea was that if borrowers had to repay more of their debts, the creditors would achieve savings that - through pressures of competition - would be passed on to consumers in the form of lower interest rates and improved access to credit. This essay addresses some of the problems with the facial justification and considers what else creditors (and particularly credit card issuers) could have expected to achieve with the new law. My thesis is that the new law will benefit issuers substantially, though not for reasons commonly discussed in the negotiation and drafting of the statute. Means testing alone will not return enough in increased bankruptcy payouts to justify the lobbying expenditures and campaign contributions that led to the statute's enactment. Rather, I suggest, the most important effect will be to facilitate the card lending business model, by slowing the time of inevitable filings by the deeply distressed and allowing issuers to earn greater revenues from those individuals. In a nutshell, the new law does little for creditors once they reach the courthouse. Its most important effects instead will be on the ability of lenders to profit from debt servicing revenues generated by borrowers that are already in distress, but not yet in bankruptcy.

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Katherine M. Porter and Deborah Thorne, "The Failure of Bankruptcy's Fresh Start." (SSRN ID: 894453):

An untested assumption of Chapter 7 bankruptcy is that it rehabilitates debtors for a fresh start in the economy. Using original, longitudinal data, we examine this assumption against the realities of life after bankruptcy. Our findings challenge the fresh start as the theoretical underpinning for consumer bankruptcy relief. We found that just one year after bankruptcy, one in four debtors was struggling to pay routine bills, and one in three debtors reported an overall financial situation similar to, or worse than, when they filed bankruptcy. Our analysis of these data demonstrates that steady and sufficient income is the key to improved post-bankruptcy financial health. Factors that cause household income to decline, such as unemployment and underemployment, illness or injury, and old age, undermine the chances of financial recovery. These data reveal the limitations of bankruptcy as a social safety net and highlight the fragile economic situations of American families. We conclude that bankruptcy is an incomplete tool to rehabilitate those in financial distress, and we suggest adjustments to bankruptcy law and social programs that will improve the ability of consumers to achieve a fresh start after financial failure.

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Hon. Bruce Markell, "The Sub Rosa Subchapter: Individual Debtors in Chapter 11 after BAPCPA."
(SSRN ID: 893582):

In reforming the bankruptcy laws in 2005, Congress added several provisions to the Bankruptcy Code regarding the use of chapter 11 by individuals. These changes radically alter the basic chapter 11 rules with respect to individuals; among the most significant change is that postfiling service income, previously allocated to the individual debtor alone (and not available to pay prefiling creditor claims), was made property of the estate available to pay prefiling creditor claims. This article surveys the changes made and their possible impact, and suggests that they are sufficiently radical to have warranted a separate subchapter of chapter 11.

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Juliet Moringielio, "Has Congress Slimmed Down the Hogs?: A Look at the BAPCPA Approach to Pre-Bankruptcy Planning." (SSRN ID:892034):

In April, 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), the first major overhaul of bankruptcy law in 25 years. The proponents of BAPCPA were motivated primarily by a desire to put an end to bankruptcy abuse. The types bankruptcy abuse that BAPCPA’s proponents wished to discontinue included liquidations by consumers who might be able to fund a repayment plan and the sheltering of assets in high-exemption states.

This paper focuses on the second type of abuse, pre-bankruptcy exemption planning. Prior to the enactment of BAPCPA, courts exercised an enormous amount of discretion in determining whether a debtor’s conversion of non-exempt assets to exempt assets before bankruptcy was fraudulent as to creditors. The new legislation removes judicial discretion when certain types of asset conversions are involved, primarily conversions of personal property into exempt homesteads. In my article, I analyze whether these changes, which on their face seem to discourage pre-bankruptcy asset conversions, in fact impose any greater penalties on debtors than did the case law pre-BAPCPA.

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Deanne Loonin and Elizabeth Renuart, "Life and Debt: A Survey of Data Addressing the Debt Loads of Older Persons and Policy Recommendations." (SSRN ID: 885398):

The budgets of a growing number of older Americans are stressed by mounting debt loads as elders struggle to pay for necessities such as groceries, prescription drugs, and urgent home repairs. Debts levels of the elderly have taken a sharp turn for the worse since the early 1990s.

Older persons are going into debt, filing bankruptcy, and, in many cases, losing their homes in greater numbers than ever before. The authors analyze the causes of rising debt loads, including declining income, growing expenses, a shrinking safety net, and easier access to high cost credit. The preemption of usury and other state laws and deregulation of the credit marketplace are identified as causes of the high cost loan products and marketplace abuses that seriously injure the financial condition of older Americans. The article also examines the consequences of higher debt loads on the lives of the elderly.

The authors conclude with proposed strategies to address the issues raised. These recommendations are separated into seven main groupings: repairing the social safety net; eliminating abusive credit practices; rigorously enforcing current laws; strengthening support systems to manage legitimate debt; expanding effective education and prevention measures; increasing the availability of alternative products; and encouraging additional research by requiring ongoing evaluation and data collection.

Using credit as a source of income may have blinded society to the growing lack of security after retirement. In the short term, easy credit allows many elders to buy necessary services and products even when their monthly incomes are insufficient to cover the charges. In the long term, this trend likely is not sustainable for any American, not just those most vulnerable or living on the edge.

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Karen Gross and Susan Block Lieb, "Empty Mandate or Opportunity for Innovation? Pre-Petition Credit Counseling and Post-Petition Financial Management Education." (SSRN ID: 884487):

This article critiques two of the 2005 amendments to the Bankruptcy Code - one related to pre-bankruptcy counseling and the other related to post-filing debtor education. The article questions whether, when one looks beneath the surface, these new mandates actually improve the lives of consumer debtors. There are plenty of statutory requirements accompanying these new initiatives but these particularized requirements do not address the most critical issues, including establishing the goals of the counseling and education and the content of the required programming. In addition, we fear that the mandates will simply be an added cost of entering and exiting the bankruptcy system without providing concomitant benefits. That would mean we have created an empty mandate. We also provide suggestions for improvement that are feasible and do not require statutory amendment yet again.

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Li Gan and Tarun Sabarwal, "A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy." (SSRN ID: 847035):

A test of adverse events and strategic timing theories can be conducted by determining whether some relevant financial decision variables, such as financial benefit from filing for bankruptcy, or debt discharged in bankruptcy are endogenous with the bankruptcy decision or not. For the strategic timing theory such decisions are endogenous, while for the adverse events theory they are not. Hausman tests for endogeneity show that financial benefit, unsecured debt, and non-exempt assets are exogenous with the bankruptcy decision, consistent with the adverse events theory.

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Special thanks to the folks at ssrn.com, who suggested we let people know of the following policies and procedures in respect of downloading papers from SSRN:

Anyone new to our system who clicks on the link to purchase the paper will be first asked to register their e-mail address on our system. This is something that is required before one can download. The registration is just a security feature and doesn't cost anything, nor will the e-mail address be used for any other purpose but for our system to be able to recognize the user in his use of our services.

Thanks also to the firm's sharp summer intern, DeJohn Allen, for assembling this lengthy post.

© Steve Jakubowski 2006