7 BAPCPA Related Papers Available for Downloading from SSRN

The following BAPCPA related working papers can be downloaded from the Social Science Research Network:


Univ. of Wisconsin's Jodi L. Bellovary & Marquette Univ.'s Don E. Giacomino & Michael D. Akers: "A Review of Bankruptcy Prediction Studies: 1930 to Present." (Abstract ID: 892160)


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


Tel Aviv Univ's Buchmann Law School Ron Harris and Einat Albin: "Bankruptcy Policy in Light of Manipulation in Credit Advertising." (Abstract ID: 877053)


William & Mary Law School's Richard M. Hynes and Univ. of Chicago Law School's Eric A. Posner: "The Law and Economics of Consumer Finance." (Abstract ID: 874199)


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


UNLV Law School's Judge Bruce Markell: "The Sub Rosa Subchapter: Individual Debtors in Chapter 11 after BAPCPA." (Abstract ID: 893582)


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


Abstracts for each of these working papers follow:

Jodi L. Bellovary, Don E. Giacomino & Michael D. Akers, "A Review of Bankruptcy Prediction Studies: 1930 to Present." (Abstract ID: 892160):

One of the most well-known bankruptcy prediction models was developed by Altman [1968] using multivariate discriminant analysis. Since Altman's model, a multitude of bankruptcy prediction models have flooded the literature. The primary goal of this paper is to summarize and analyze existing research on bankruptcy prediction studies in order to facilitate more productive future research in this area. This paper traces the literature on bankruptcy prediction from the 1930's, when studies focused on the use of simple ratio analysis to predict future bankruptcy, to present. The authors discuss how bankruptcy prediction studies have evolved, highlighting the different methods, number and variety of factors, and specific uses of models.

Analysis of 165 bankruptcy prediction studies published from 1965 to present reveals trends in model development. For example, discriminant analysis was the primary method used to develop models in the 1960's and 1970's. Investigation of model type by decade shows that the primary method began to shift to logit analysis and neural networks in the 1980's and 1990's. The number of factors utilized in models is also analyzed by decade, showing that the average has varied over time but remains around 10 overall.

Analysis of accuracy of the models suggests that multivariate discriminant analysis and neural networks are the most promising methods for bankruptcy prediction models. The findings also suggest that higher model accuracy is not guaranteed with a greater number of factors. Some models with two factors are just as capable of accurate prediction as models with 21 factors.


Karen Gross & Susan Block-Lieb, "Empty Mandate or Opportunity for Innovation? Pre-Petition Credit Conseling and Post-Petition Financial Management Education." (Abstract 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.


Ron Harris and Einat Albin, "Bankruptcy Policy in Light of Manipulation in Credit Advertising." (Abstract ID: 877053):

This article argues that when credit suppliers market and advertise their credit products, they utilize and enhance consumers' cognitive biases, particularly their optimism bias and illusion of control. We apply the concept of manipulation to this practice. The biased and manipulated debtors attribute unrealistically low probability to negative life events, and high probability to positive life events. As a result of the manipulation, the biased debtors are triggered to borrow more than they would have borrowed otherwise. This additional borrowing may contribute to the default of these debtors and to their eventual bankruptcy. Empirical studies of the causes of bankruptcy show that before their default, bankrupts often experience negative life events such as loss of job, illness, accident or divorce, which decreased income, increased expenses, or both.

The bias and its manipulation justify legal intervention. The first justification is the restoration of debtors' autonomy and the rationality of their decision-making and choice. The second justification is distributive. Sophisticated, repeat, diversified, superiorly informed and non-biased institutional suppliers of credit gain from it. This is evident in the more aggressive marketing of credit in recent years to lower income deciles. The debtors lose as they suffer the stigma of failure, the higher costs of post-bankruptcy borrowing, possible loss of residence and job, and some of the direct monetary costs of bankruptcy. The third justification is externalities to the state, to non-manipulating creditors of any manipulated debtor, and to the debtor's family. Running the bankruptcy system imposes costs on the state. Maintaining asset-less, job-less or low-income discharged debtors is also borne in part by society and its tax payers. The more restrictive the exemption and discharge rules in a legal system and the more generous the safety net in different welfare states, the higher the externalities. Bankruptcy imposes externalities to family and other dependants of the bankrupt. Further, manipulative lenders increase their share of the bankrupt's assets at the expense of non-manipulative lenders. This constitutes an externality from one creditor to another.

Intervention can take place at two distinct stages. The first is the pre-landing-transaction stage. Here intervention can take the form of "asymmetric paternalism": regulation that prohibits manipulative practices and regulation that discloses information and de-biases potential borrowers. The use of tax and insurance is also considered. The second stage is the bankruptcy process stage. This can be general, dealing with exempt assets, discharge and fraud policies. It can be case specific, developing doctrines that would allow the rejection or demoting of specific claims by manipulating creditors in specific cases. The relative advantages and disadvantages of each stage and each type of regulation are discussed.

The prescriptions for intervention in this article are tentative and partial. Its main contribution is bringing together bodies of literature on cognitive biases, consumer decision making, lifetime cycle, social influence, advertising and marketing, behavioral law and economics, economic analysis of bankruptcy and socio-legal studies of bankruptcy. By combining these bodies of literature, the article provides a new perspective on bankruptcy and credit and offers a promising framework for future work.


Richard M. Hynes and Eric A. Posner, "The Law and Economics of Consumer Finance." (Abstract ID: 874199):

This survey of the law and economics of consumer finance discusses economic models of consumer lending and evaluates the major consumer finance laws in light of them. We focus on usury laws; restrictions on creditor remedies, such as the ban on expansive security interests; bankruptcy law; limitations on third-party defenses, such as the holder-in-due-course doctrine; information disclosure rules, including the Truth in Lending Act; and antidiscrimination law. We also discuss the empirical literature.


Deanne Loonin & Elizabeth Renuart, "Life and Debt: A Survey of Data Addressing the Debt Loads of Older Persons and Policy Recommendations." (Abstract 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.


Judge Bruce Markell, "The Sub Rosa Subchapter: Individual Debtors in Chapter 11 after BAPCPA." (Abstract 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.


Juliet Moringiello, "Has Congress Slimmed Down the Hogs?: A Look at the BAPCPA Approach to Pre-Bankruptcy Planning." (Abstract 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.

© Steve Jakubowski 2006

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