Recent BAPCPA-Related Articles of Interest Available for Downloading from SSRN

The following BAPCPA-related papers, arranged by abstract ID number, can be downloaded from the Social Science Research Network:

Federal Reserve Bank's Astrid Andrea Dick and Andreas Lehnert: "Personal Bankruptcy and Credit Market Competition" (Abstract ID: 957778)

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Santa Clara Univ. School of Law's Gary Neustadter: "Yellow Pages and Web Site Advertising By Consumer Bankruptcy Attorneys After BAPCPA" (Abstract ID: 957893)

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Cardozo Law School's David Gray Carlson: "Means Testing: The Failed Bankruptcy Revolution of 2005" (Abstract ID:956158)

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Univ. of Mary Washington's Bradley Hansen and American University's Mary Hansen: "Legal Rules and Bankruptcy Rates: Historical Evidence from the States" (Abstract ID: 954393)

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Univ. of Illinois College of Law's Robert M. Lawless and Harvard Law School's Elizabeth Warren: "Shrinking the Safety Net: The 2005 Changes in U.S. Bankruptcy Law" (Abstract ID: 949629)

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Univ. of Arizona College of Law's Jean Braucher: "The Challenge to the Bench and Bar Presented by the 2005 Bankruptcy Act: Resistance Need Not be Futile" (Abstract ID: 947930)

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UC San Diego's Michelle J. White: "Abuse or Protection?" (Abstract ID: 944916)

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Adam Levitin: "Priceless? The Costs of Credit Card Merchant Restraints" (Abstract ID: 944278)

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Univ. of Illinois College of Law's Robert M. Lawless: "The Relationship Between Nonbusiness Bankruptcy Filings and Various Measure of Consumer Debt" (Abstract ID: 934798)

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UT Austin School of Law's Ronald J. Mann: "Credit Card Policy in a Globalized World" (Abstract ID: 705141)

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FYI, the graph is taken from a July 2006 Bulletin of the Federal Reserve Board, under the subheading entitled, The New Bankruptcy Law and Its Effect on Credit Card Loans.

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Abstracts for each of these papers follows:

Astrid Andrea Dick and Andreas Lehnert: "Personal Bankruptcy and Credit Market Competition" (Abstract ID: 957778):

The effect of credit market competition on borrower default is theoretically ambiguous, because the quantity of credit supplied may rise or fall following an increase in competition. We investigate empirically the relationship between credit market competition, lending to households, and personal bankruptcy rates in the United States. We exploit the exogenous variation in market contestability brought on by banking deregulation at the state level: after deregulation, banks faced the threat of entry into their state markets. We find that deregulation increased competition for borrowers, prompting banks to adopt more sophisticated credit rating technology. In turn, these developments led previously excluded households to enter the credit market. We document that, following deregulation, (1) overall lending increased, (2) loss rates on loans decreased, and (3) bankruptcy rates rose. Further, we find that lending and bankruptcy rates increased more in states with greater actual (rather than potential) entry, and that credit card productivity increased after the removal of entry restrictions. These findings suggest that entrants brought with them enhanced underwriting technology that allowed for credit extension to new borrowers.

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Gary Neustadter, "Yellow Pages and Web Site Advertising By Consumer Bankruptcy Attorneys After BAPCPA"
(Abstract ID: 957893)

Section 528 of the Bankruptcy Code ("Code"), added to the Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), requires that debt relief agencies disclose specified information in certain advertising directed to the general public. Many consumer bankruptcy attorneys have not yet attempted to comply with the advertising disclosure requirements in their Yellow Pages advertising or on their web sites and some attempts to comply fall short of the statutory requirements either for lack of required language or for failure to disclose the required information conspicuously. This article summarizes data in support of these conclusions, gathered from a review of advertising by consumer bankruptcy attorneys in fifty-one AT & T Yellow Pages directories published online after the April 2005 enactment of BAPCPA and from a review of some web sites to which some of those advertisements referred. This article also provides examples of complying, possibly complying, and non-complying advertisements, speculates about the possible reasons for non-compliance, and highlights some of the legal and practical issues posed by application of the statutory requirements to Yellow Pages and web site advertising.

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David Gray Carlson, "Means Testing: The Failed Bankruptcy Revolution of 2005" (Abstract ID:956158):

The monumental bankruptcy amendments of 2005 made means testing the very center of the attempt to restore discipline to consumer spending. Yet, one year of practical experiences shows that either the means test either promotes bankruptcy abuse, or it is meaningless, depending on whether courts think the mechanical means test pre-empts pre-2005 law, or whether it merely supplements it. This article explores the means test in details, shows why it is a flop, and what the courts have made of it so far.

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Bradley Hansen and  Mary Hansen, "Legal Rules and Bankruptcy Rates: Historical Evidence from the States" (Abstract ID: 954393):

Since the early twentieth century, observers have attributed the wide variation in state bankruptcy rates to variation in state legal rules such as garnishment and bankruptcy exemptions. Recent econometric analyses, however, conclude that legal rules do not matter. We explore the impact of legal rules on bankruptcy rates using a new technique - fixed effects vector decomposition - to exploit historical variation in legal rules. The technique allows us to estimate the impact of time-invariant legal rules in a fixed effects framework. We find that the variation in state legal rules explains much of the variation in state wage earner bankruptcy rates for 1926 to 1932.

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Robert M. Lawless and  Elizabeth Warren, "Shrinking the Safety Net: The 2005 Changes in U.S. Bankruptcy Law" (Abstract ID: 949629):

As part of an international symposium on consumer bankruptcy, we address some of the 2005 changes in the U.S. bankruptcy law. We outline briefly the political climate that led to the 2005 changes, and then we examine the four changes that are likely to have the greatest effect on families in financial trouble. We single out the new consumer credit counseling requirements as providing virtually no help to debtors, serving instead as one more costly hurdle a debtor must jump before filing bankruptcy. Means testing for chapter 7 eligibility has created confusion and perverse incentives for debtors. New burdens and restrictions on attorneys have increased the cost of legal representation. Finally, although not as widely publicized as other changes, new rules requiring audits of bankruptcy filings could significantly change how bankruptcy filers assert legal positions in their petitions and schedules. After considering these changes, we describe the plans of the 2007 Consumer Bankruptcy Project to go into the field to collect data on more than 2,000 bankruptcy filers.

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Jean Braucher, "The Challenge to the Bench and Bar Presented by the 2005 Bankruptcy Act: Resistance Need Not be Futile" (Abstract ID: 947930):

This article explores the initial reactions of the bench and bar to the 2005 Bankruptcy Act, enacted after an eight-year campaign by the consumer credit industry. Congress passed this legislation in a climate of unfair accusations against bankruptcy judges and debtors' lawyers, yet of course these actors then had to implement the law. The first part of the article categorizes early decisions of bankruptcy judges (on such matters as the new credit counseling requirement and the new debt relief agency provisions) in ascending order of effectiveness in resisting the worst intentions of the credit industry to throw up new hurdles even for honest but unfortunate debtors. Judges have been most effective when they have kept their eyes on serving the purported purposes of the act, abuse prevention and consumer protection. The second part of the article examines the activities of both individual lawyers and professional associations that have helped to keep the bankruptcy system running. Overall, despite the waste and chaos inflicted by the 2005 Bankruptcy Act, there is good news about professionalism in the early reactions of bench and bar to an extraordinary set of challenges.

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Michelle J. White, "Abuse or Protection?" (Abstract ID: 944916):

Bankruptcy policy balances conflicting objectives of providing consumption insurance to debtors and protecting creditors. The adoption of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act shifted the balance toward creditors by raising debtors' cost of filing for bankruptcy and reducing the amount of debt that is discharged in bankruptcy. The changes will have little effect on "opportunistic" debtors, who can still use pre-bankruptcy planning shelter substantial assets in bankruptcy. But the changes are likely to harm many non-opportunistic debtors - the people whom bankruptcy law is intended to help - simply because they cannot afford the high cost of filing. A better policy approach would be to require debtors to use of portion of both their wealth and future income to make payments on their debt, which would protect non-opportunistic debtors while deterring opportunism.

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Adam Levitin, "Priceless? The Costs of Credit Card Merchant Restraints" (Abstract ID: 944278):

Credit card transactions cost American merchants six times as much as cash transactions. American merchants paid nearly $40 billion to accept credit cards last year. Why, then, do consumers pay the same price for purchases, regardless of their means of payment?

The answer lies in a set of credit card network rules known as merchant restraints. Merchant restraints forbid merchants from surcharging for credit and discounting for non-cash payments, while the framing effect, a well-documented cognitive bias, makes discounting for cash ineffective. Merchant restraints thus prevent merchants from pricing according to consumers' payment method and from signaling to consumers the costs of their choice of payment method. Accordingly, consumers never internalize the costs of their choice of payment system.

Credit card merchant restraints lead to an overconsumption of credit, which has profound anticompetitive and social effects. This article examines how merchant restraints have distorted competition within the credit card industry and among payment systems in general. It also identifies several problematic social impacts of merchant restraints, including a regressive, sub rosa subsidization of affluent credit consumers by poor cash consumers and increased use of credit leading to increased consumer bankruptcy filings, inflation, and decreased consumer purchasing power.

The article contends that the economic justifications for merchant restraints are unfounded, that merchant restraints are better understood in the context of their historical development as a solution to a legal problem that no longer exists, and that merchant restraints are clear antitrust violations. Thus, the article proposes regulatory or judicial intervention to ban merchant restraint rules.

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Robert M. Lawless, "The Relationship Between Nonbusiness Bankruptcy Filings and Various Measure of Consumer Debt" (Abstract ID: 934798):

This web-based article was originally posted to the web in 2001. It explores the relationship between the U.S. nonbusiness bankruptcy filings and basic measures of debt carried by consumers, including mortgages. The conclusion is nonbusiness bankruptcy filings have a relationship to outstanding consumer debt. The paper also discusses the construction of the Federal Reserve's household debt service burden and how that data point may be an incomplete measure of consumer debt burden. The web site that hosted the paper no longer exists, and because the author periodically receives requests for the paper, it is made available here.

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 Ronald J. Mann, "Credit Card Policy in a Globalized World" (Abstract ID: 705141):

The rise of card-based payments has transformed the landscape of payments in the last half century, from one dominated by government-supported paper-based payments to one dominated by wholly private systems. The rise of those payments presents a number of policy problems, the most serious of which is the empirically demonstrable likelihood that use of the cards here and elsewhere contributes to an undue level of consumer credit and that borrowing on the cards contributes to a rise in the level of consumer bankruptcy. Because increasing financial distress imposes substantial externalities on the economies in which it occurs, the global rise of the credit card poses serious policy questions.

To understand how policymakers should respond, it is important to start by recognizing the powerful efficiencies that cards bring to payment systems, and how those efficiencies have driven the globalization of the payment card. Although the existing pattern shows great variation from country to country, regulators cannot be sure that the variations will persist. Building on existing historical research and on detailed contemporaneous data about the patterns of usage around the world, I show that the differences reflect the youth of the system, and the fact that few countries were as well suited to the rapid takeup of credit cards as the United States. Thus, the United States has developed an almost uniquely unitary payment system in which the credit card is both the dominant borrowing vehicle and the electronic payment instrument of choice. The pressures of globalization are rapidly driving convergence in card usage, except in those countries that have adopted substantial "speed bumps" to slow the growth of cards. Whether those speed bumps will deflect other countries from the problems faced in the United States remains an open question.

The natural question, then, is what policies will be useful to confine the problems related to credit cards without creating undue inefficiencies in retail payment systems. The ideal response would be one that drove the United States closer to the pattern evident in other countries, encouraging debit cards so as to protect the cost savings of electronic payments without the externalities generated by credit card usage. It is not easy, however, to devise policy responses that fit that goal. The closing part of this paper analyzes several different reforms that might be useful to policymakers of different perspectives: (a) permitting merchant credit card surcharges; (b) barring affinity programs, especially those that are conditioned on borrowing; (c) barring marketing to minors; (d) reorganizing the disclosure system to focus on the behavioral problems that make cards problematic; and (e) banning a few provisions that unacceptably shift costs from the card industry to the rest of society. Among other things, this suggests a shift in emphasis away from disclosures in account agreements to disclosures at the point of sale. Thus, for example, I reject recent proposals to provide enhanced disclosures for universal default provisions. On the contrary, I argue that those provisions should be banned from credit card agreements entirely, with a view to causing card issuers to limit the credit they extend to those that are demonstrably in financial distress.

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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.

© Steve Jakubowski 2007