Thursday, September 18, 2008

BAPCPA's Increase in Debtors' Attorney Fees and Costs

By Andrew Toth-Fejel, Bankruptcy Litigation Support for Attorneys,

This summer the U.S. Government Accountability Office (GAO), on request of a number of members of Congress, released a report entitled Dollar Costs Associated with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. In it the GAO presents its conclusions about post-BAPCPA increases in the cost of filing bankruptcy for consumer debtors .

(The report also analyzes the financial effect of BAPCPA on the U.S. Trustee Program, on trustees, and on the federal judiciary, but those will be the subject of another Bulletin.)

"This report did not seek to assess the benefits of the Bankruptcy Reform Act and is therefore not an evaluation of the merits of the act."

The conclusions of the report include the following:

  • Chapter 7 Attorney Fees:
  1. Increased from an average of $712 in February-March 2005 to an average of $1,078 in February-March 2007, a 51% increase.
  2. Breaking this down into different fee ranges (comparing the same pre- and post-BAPCPA periods as above) the frequency with which the attorney fees were less than $750 went from 59% of cases way down to 20%, the frequency with which the fees were from $750 to $999 went from 27% of cases to about the same at 28%, and the frequency with which the fees were $1,000 or more went from only 14% of cases to more than 52% of them.
  3. Also, cases in which Chapter 7 attorney fees exceeded $1,499 went from only 3 percent to 18 percent during the same 2-year period.
  • Chapter 13 Attorney Fees:
  1. Chapter 13 "presumptively reasonable" court pre-approved attorney fees in October 2005 just before BAPCPA's effective date ranged from $1,500 to $3,000, with a median of $2,000, but by February 2008 the fees increased to range from $1,800 to $4,000, with a median of $3,000.
  2. Some local rules and administrative orders that increased these Chapter 13 attorney fees expressly referred to the additional services required by BAPCPA as the reason for the increase.
  3. "[I]n some cases creditors rather than debtors bear the true financial costs of the fee increase," such as "in a Chapter 13 bankruptcy with a partial repayment plan, it may be the unsecured creditors rather than the debtor who absorb the cost of higher attorney fees."
  • Filing Fees:
  1. Two laws have affected filing fees: BAPCPA increased Chapter 7 fees from $209 to $274, and the Deficit Reduction Act signed into law in February 2006 increased it to $299; BAPCPA decreased Chapter 13 fees from $194 to $189, and the Deficit Reduction Act increased it to $274.
  2. Before BAPCPA bankruptcy courts did not have authority to waive the filing fee, authority which that law provided as to Chapter 7 debtors who had income of less than 150% of the official poverty line and were not able to pay in installments.
  • Credit Counseling and Debtor Education Costs:
  1. The report estimated that the combined cost of these two BAPCPA requirements was an average of about $100.
  2. The GAO noted that BAPCPA requires providers of credit counseling and debtor education services do so "without regard to the client's ability to pay," and during 2006 about 11% had their fees waived, in 2007 about 13% did, with an additional 28% in 2006 and 19% in 2007 who had their fees reduced.
  • Pro Se Filings:
  1. The report cited anecdotal evidence from varied sources that the post-BAPCPA increased attorney fees had increased the proportion of pro se filings, but the best statistical evidence (from GAO's own sampling and data from the Administrative Offices of the U.S. Courts) showed a decrease in at least Chapter 7 filings from about 11 percent in February-March 2005 to 5.9 percent in the 2007 calendar year.
  • Pro Bono Services:
  1. Fewer attorneys have been willing to volunteer to provide pro bono services, "largely due to the increased time and responsibiities required to handle a bankruptcy case," resulting in longer waits and possibly a reduction in the number of clients served.

by: Andrew Toth-Fejel
Bankruptcy Litigation Support for Attorneys

© 2008 Bankruptcy Litigation Support for Attorneys