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File This Under Calling BS on Bankruptcy Fearmongering

posted by Jason Kilborn

As anyone familiar with bankruptcy would have predicted, the dire predictions of disaster for municipalities seeking bankruptcy protection have proven to be ... let's just say exaggerated. Bloomberg is out with a notable story this morning on Jefferson County's healthy return to the bond market, carrying an investment-grade rating of AA-  within five years of emerging from municipal bankruptcy. This squares with similar accounts of consumers rehabilitating their credit within two to four years of a chapter 7 liquidation-and-discharge (see, for example, here and here). Let's all file this in our "lying liars and their bankruptcy impact lies" file and be prepared to continue to counter this, among the many, many other, bankruptcy scare myths to be debunked.

Comments

No argument here, Jason. But it would be fun to go back to 2005 and predictions of the end of consumer bankruptcy just to compare the relative "fearmongering," "dire predictions," and "bankruptcy scare myths." I am totally open and agnostic on what the results might be, but it might be interesting one way (as above) or the other (more responsible analyses and predictions).

Agreed, Chuck! Partisans often gravitate toward extremes in both directions. Full stop. Now the but ... If BAPCPA had been implemented as planned, for example following Chuck Grassley's insistence on every single consumer debtor filling out the entirety of the means test forms, the effect would have been more devastating. As I think Angie Littwin (and probably others) pointed out, moderate policy decisions by the US Trustee and courts have powerfully mitigated the ill effects of BAPCPA, for example allowing 90% of filers to avoid the means test's step two expense analysis after reporting below-median income. And as Lois Lupica's and others' work has shown, many consumer debtors have been priced out of bankruptcy by BAPCPA's formality-fest. Not the end of consumer bankruptcy writ large, but the end for many honest and unfortunate debtors. But again, good point on the "good for the goose, good for the gander" comment. Thanks!

Well, Grassley is a certified mental midget. I thought Iowa couldn't beat him, and then they started electing Steve King. As for blocking bankruptcy access, the abysmal success rate of Chapter 13 plans goes a long way toward showing how successful BAPCPA has been in accomplishing its main purpose.

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