As BAPCPA Enters Its "Terrible Two's," BAPCPA Guru Catherine Vance Surveys Its Unruly Landscape

To me, the greatest benefit of blogging is that it has enabled me to meet and befriend so many in the profession (lawyers, judges, and professionals alike) whom I otherwise likely would never have even met. 

Cathy Vance, Vice President of Research & Policy and Associate General Counsel of Development Specialists, Inc. (DSI), is one such person. 

During BAPCPA's most formative and tumultuous years, starting in 1998, Cathy viewed BAPCPA's development from the unique vantage point of legal writer, analyst, and national education coordinator for the Commercial Law League of America

She has penned numerous articles on BAPCPA, and even published (with Corrine Cooper) a "best-selling" book (hey, #542,995 ranking on Amazon is actually high for a bankruptcy treatise!), which I reviewed briefly in this post of one year ago

In the book's preface, Cathy and her co-author open with the following thought:

We spent much of our time during the period from 2000 to March 2005 fighting the passage of the Bankruptcy Reform Act.  We wish it had not passed.  It is terrible legislation for a whole variety of reasons.

The remaining 350+ pages of the book prove their point!

Cathy is here in Chicago attending the 77th annual spring meeting of the Commercial Law League of America, fresh from her television debut last week on C-Span, which broadcast live on 4/13 the "Bankruptcy Roundtable discussion" at the ABI Spring Meeting (which featured an all-star panel that included Cathy, DSI's head honcho Bill Brandt, Illinois Senator Dick Durbin, Jefferies & Co.'s Bill Derrough, Cliff White, Acting Director of the Executive Office for US Trustees, and Travis Plunkett of the Consumer Federation of America).

Cathy, a BAPCPA guru if ever there was one, has graciously agreed (in what I hope will be an annual undertaking!) to post a few "happy" birthday thoughts and reflections on this, the 2d anniversary of BAPCPA's enactment, regarding some of the surprising results culled from a recently completed survey sponsored by the CLLA.

So without further ado, heeeeeeerrrrrreeee's Cathy! ........




HAPPY BIRTHDAY, BAPCPA!, by Catherine E. Vance

BAPCPA’s "terrible two's" are upon us!  So what’s been happening in this brave new world Congress foisted upon us?

The Commercial Law League of America’s Bankruptcy Section recently conducted a survey to get a sense of how practitioners have reacted to BAPCPA and of how they are perceiving the benefits and detriments of the new law.  Although anecdotal, the survey results are interesting and suggest where additional, preferably empirical, research might be done.

The respondents were a mixed bunch.  Business cases and creditor representation were more heavily represented, but consumer practitioners still made up a significant minority.  Asked to check all responses that would apply, the survey showed the following practice mix:

                                    Consumer            42.4%

                                    Business              72.3%

                                    Creditor               67.4%

                                    Debtor                 48.9%             

                                    Trustee                25.5%

Just over four percent of respondents selected “none of the above,” which would include, for example, bankruptcy judges or non-attorney turnaround professionals.  The respondents were split nearly evenly between CLLA members and non-members.

Attorneys: Fight or Flight?

The CLLA survey reflects shifts in attorneys’ practices as a result of BAPCPA.  Almost 47 percent said that they had increased what they charge clients, and the follow up question that asks for details on pre- and post-BAPCPA fees shows that the increases are primarily confined to consumer debtors’ attorneys.  No surprises here; no one really expected that consumer debtors’ attorneys would keep their rates the same once BAPCPA took effect.

A third of the respondents said they had changed their client mix as a result of BAPCPA.  Again, a review of the comments some respondents provided shows that this is largely a consumer practice phenomenon.  For some, the shift had to do with the proportion of chapter 13 cases relative to chapter 7 cases, so, for these practitioners, the shift wasn’t away from consumer work.  Others, however, stated that their firms had affirmatively determined that they would do no more consumer debtor work, and some cut out all debtor representation, including those debtors who would proceed under the new chapter 11 provisions for individuals.

BAPCPA has had an effect on pro bono representation as well.  A third of respondents said that pro bono representation had ceased because of BAPCPA, and nearly 13 percent said the amount of pro bono work they do has decreased.   In a related question, 28 percent of respondents said they had noticed an increase in pro se filings.

The practice shifts aren’t all happening on the debtor side:  some creditors’ lawyers are pulling out of the reaffirmation business.  Seventeen percent of respondents stated that they “no longer handle reaffirmation agreements for my clients because of the BAPCPA amendment.”  The nature of how the survey asked respondents to describe what kind of bankruptcy work they do makes it difficult to determine how many of the 17 percent are creditors’ attorneys because many respondents had mixed practices. But the responses show that some very clearly are creditors’ lawyers. 

Trustee Compensation

Two survey questions addressed whether bankruptcy trustee compensation ought to be increased and, if so, where the funds should come from. Just under a quarter of respondents (23.6 percent) thought no increase was warranted; among those with a contrary view, a third supported an increase only in chapter 7 no-asset cases, while 43 percent thought compensation should be upped in all cases. 

These results are a bit of a surprise.  The issue of a trustee pay raise garnered attention since BAPCPA’s enactment mainly because chapter 7 trustees have to do a lot more work in consumer cases, but still get paid the paltry pre-BAPCPA sum of $60 for each no-asset case.  It’s not at all clear what the impetus is for hiking compensation in other contexts.

In terms of paying for an increase, 44 percent thought it should come from a general surcharge on distributions to creditors, which barely edged out the 42 percent who thought a filing fee increase was the best solution.  Tapping the general treasury was the least popular of the stated options, but a handful of respondents provided their own ideas.  One suggested imposing a $50 fee for filing a proof of claim.  Another respondent amusingly proposed deducting the amount needed from the salaries paid to members of Congress.

Preferences

Two of the CLLA’s survey questions sought to gauge respondents’ perceptions of the various amendments to § 547 and the avoidance of preferential transfers.  The first asked which of four amendments (Deprizio repeal, ordinary course defense, $5,000 threshold for bringing suit, and the so-called “preference venue” amendment) has had the most effect on clients.  More than two-thirds of respondents said that it’s too early to tell.  Of those that did select one of the options, the ordinary course defense amendment was selected by nearly 21 percent of respondents and 14 percent chose the $5,000 threshold.  The other two, Deprizio and venue, garnered 1.7 percent and 5.7 percent respectively.

Asked about the overall effect of the amendments, again, a majority of respondents (54 percent) said it was too early too tell.  A quarter found the amendments to be beneficial to their clients, 11 percent said they were detrimental and ten percent answered suggested that there was little or no effect. 

The Best and Worst of BAPCPA

Three survey questions sought to find what respondents thought were the best and worst aspects of BAPCPA.  Two of those questions, one for consumer amendments and the other on the business side, asked if just one BAPCPA provision were to be repealed, which they would choose for elimination. 

The most disfavored business amendment was the time limit on rejection or assumption of unexpired leases, which garnered 40 percent of the votes.  Seventeen percent selected the new administrative expense for pre-petition trade debt and 14 percent voted to repeal the fast-tracking of small business debtors.  On this last issue, another question suggested that attorneys are advising small business clients to avoid bankruptcy; 23 percent of respondents said they had recommended a non-bankruptcy alternative, such as an assignment for the benefit of creditors, because of the fast-track amendments.

On the consumer side, the means test was the overwhelming favorite, chosen by 55 percent of respondents.  The next closest response was pre-petition credit counseling, which garnered 20 percent of the responses.  The unanswered question here is why the means test is so unpopular.  The survey doesn’t show whether this reaction is driven by any harm the means test may be visiting upon consumer debtors, the excess paperwork required to file a case, or the lack of clarity in much of the statutory language that comprises the means test.

An interesting aspect of the responses is that only eight percent selected the reaffirmation requirements as the best candidate for repeal, despite results showing that nearly 36 percent thought reaffirmation worked better before BAPCPA and, as noted above, 17 percent saying they no longer handle reaffirmations because of BAPCPA.

The survey also looked for what practitioners like about BAPCPA.  One survey question asked, “if all but one BAPCPA amendment were to be repealed, which one would you save?”  This question was open-ended; no specific provisions were offered for respondents to select.  Instead, the 67 percent who responded could offer whatever provision they wanted in the form of a comment. 

As might be expected, the results were quite varied.  Some respondents mentioned provisions that weren’t controversial during BAPCPA’s long legislative journey from bill to law, such as fee waivers for indigent debtors and the new chapter 15 procedures.  Some respondents listed amendments that have posed significant interpretive difficulties, like the limited application of the automatic stay for repeat filers and the so-called 910-day claims provision.  Others like the KERP restrictions, the homestead cap and the preference amendments.  There was no single provision, however, that stood out as a favorite on either the business or the consumer side.

On the whole, the CLLA survey gives us an interesting glimpse of BAPCPA in practice.  The odds that Congress might revisit BAPCPA are low, especially in the short term, and this survey strongly suggests that that is a good thing.  There are parts of the new law that practitioners view favorably, while for other parts it’s simply too early to tell how they will play out when applied to live controversies.  In short, as BAPCPA enters its "terrible two's," all we can say with certainty is that we still have much to learn.

© Steve Jakubowski 2007 (except for article, which is © Cathy Vance 2007)

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