A study funded by the American Bankruptcy Institute (ABI) found that creditors have not seen the benefits that were proposed in the Bankruptcy Reform Act of 2005. The Bankruptcy Act was designed to restrict access to Chapter 7 bankruptcies, where debts are discharged and creditors get nothing. The goal of the Act, was to push debtors towards Chapter 13 bankruptcy, where debts are paid back over a period of years.
“The banks and credit card companies lobbied to have the Bankruptcy Act passed at the expense of struggling consumers,” Jeffrey Freedman, Managing Attorney, said.
The study found that recoveries by unsecured creditors fell for both Chapter 7 and Chapter 13 bankruptcies since the 2005 Act was passed. In addition, the cost to file both Chapter 7 and Chapter 13 bankruptcies rose by an average of 51 percent.