With the passage of the 2005 Bankruptcy Act, it became more difficult for many people to file bankruptcy and receive relief from their creditors. It also became more expensive for almost everyone to seek this legal remedy, due to the numerous new burdens placed on attorneys and filers in preparing paperwork and filling out court documents. But it was not always this way, with the banks attempting to hijack the bankruptcy process and coerce debtors out of the system. In the past, various bankruptcy bills passed by the United States government were designed to help consumers, rather than larger financial institutions.
The federal Bankruptcy Code was passed in 1978 and enacted in 1979. This body of law was perhaps the most useful piece of legislation that Congress has ever passed, at least from a consumer rights standpoint. It gave debtors numerous benefits in seeking relief from debts that they could no longer pay, and was a legal remedy easily accessible to consumers with low to moderate incomes. For people facing financial difficulties, the 1978 Code was a huge benefit, and the process had not yet been co-opted by the large banks. But after the long decade of the 1970s, in which inflation was in the double digits, consumers needed a break.
With the Bankruptcy Amendments and Federal Judgeship Act of 1984, however, the banks made their first attempt at influencing the bankruptcy code to work in their favor. Thankfully, they did not get all that they wanted, and this act did not bring huge changes to the way the system works for the vast majority of people. Creditors were able to get some of their ideas put into law, making it slightly more difficult to file for bankruptcy, and making the process more harmful to debtors, but no substantial changes were made with the 1984 law.
The next law, in 1986, called the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act, did make more substantial alterations to the bankruptcy code. But these did not have huge effects on consumers, the cost of the process, or the accessibility of bankruptcy. Congress put into place more bankruptcy judges in various jurisdictions across the country, created the trustee system that the courts still use, and created a Chapter 12 bankruptcy section for farmers.
In 1994, another change was made to the bankruptcy code with the passage of the Bankruptcy Reform Act. This legislation was a mixed basket for consumers, as some provisions helped them, and others were more beneficial for creditors. This act also overturned a few Supreme Court decisions that had been made that were largely in favor of the large financial institutions, especially in regards to mortgage debt. The 1994 law overturned these decisions to make modifying mortgage debt easier.
The last substantial change to the bankruptcy code was the much discussed 2005 law, called the Bankruptcy Abuse Prevention and Consumer Protection Act. This act was neither aimed at preventing abuse nor protecting consumers. Instead, it was written mainly by lobbyists who did not understand the bankruptcy code in a attempt to impose more control on federal bankruptcy judges and make filing for Chapter 7 or Chapter 13 much more difficult and expensive. The only real positive to this act is that it was so poorly written that bankruptcy judges will be deciding on what the new laws mean for many years to come. In the end, many of the worst provisions may simply be ignored.
Since the late 1970s, the pendulum has swung from protecting consumers with substantial bankruptcy protections to making it more difficult for them to seek this legal remedy. In the meantime, federal monetary policy and related legislation has made easy credit much more available to Americans. When a financial disaster strikes, the banks have been working for years to make debt slaves of people, rather than allow them relief in bankruptcy court. With the 2005 act, the banks thought they got what they wanted, but it may turn out that the poor quality of the new law leaves in place many of the most powerful provisions and protections of the earlier laws.
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