Impact of New Administration on Bankruptcy Outcomes

Business man cartoon saying, What do I need to know now?

In recent months, bankruptcy attorneys and people considering bankruptcy have wondered how the new presidential administration might influence bankruptcy laws and the outcomes of personal bankruptcy petitions. We did, too. To gain perspective, we took a look at America First: A Budget Blueprint to Make America Great Again—produced by President Donald J. Trump’s Office of Management and Budget.

The Blueprint revealed a proposed budget change for the Department of Justice, which oversees bankruptcy laws. Specifically, the Blueprint would increase “bankruptcy-filing fees to produce an additional $150 million over the 2017 …  level to ensure that those that use the bankruptcy court system pay for its oversight.”

According to the report, the proposed 2018 DOJ budget is projected to save taxpayer dollars overall by consolidating, reducing, streamlining, and making its programs and operations more efficient. The DOJ Budget also manages critical investments to confront terrorism, reduce violent crime, tackle the Nation’s opioid epidemic, and combat illegal immigration.

While there is no reason to believe the Trump administration seeks to revise the substance of bankruptcy laws, other administrations and political agendas have influenced the bankruptcy codes over the years. In 2006, the last major overhaul to the Bankruptcy Code included the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which added a “Means Test” for consumer (personal bankruptcy) cases. Before the Means Test, debtors were allowed to pay off at least some of their debt, and it codified a debtor’s choice to pay creditors through an extended repayment plan, which was largely voluntary. According to a report published by the United States Department of Justice Executive Office for United States Attorneys, since BAPCPA was enacted, repayment of consumer debt is done through a three- or five-year payment plan under chapter 13 of the Bankruptcy Code; and a discharge of consumer debt is accomplished by filing for relief under chapter 7.

Under the DOJ, debt discharge and repayment plans are overseen by a bankruptcy trustee; the trustee’s role is to determine the debtor’s ability to repay creditors and oversee the bankruptcy process. For example, a trustee may require a debtor to produce voluminous records to prove his/her financial circumstances and determine repayment capability; the effect could increase overall filing costs. Some believe this scenario is more likely under an administration seeking to reduce government liability for court costs; some believe the new administration could favor creditors over consumers. Time will tell.

Given the proposed changes to the DOJ budget, with anticipated increase in court costs, it may be important for those considering bankruptcy to file before higher court costs take effect.

Consult a bankruptcy attorney if you have questions. Solomita Law is available to help.