Bankruptcy Reform Failed?

More missing the point from the WORM (worn-out reactionary media) when it comes to bankruptcy reform.

Today in the Washington Post, "Bankruptcy Counseling Law Doesn't Deter Filings," takes a narrow and one-sided view of the situation and mis-represents what's currently going on in credit counseling.

The basic angle of the story is that BK reform has been a failure, and even the credit counselors involved in pre-discharge counseling are saying so.

That's misleading at best. The system isn't failing, and the credit counseling requirement of BK reform isn't a bad idea.

It turns out that since bankruptcy reform went into effect late last year, not many people have been diverted from bankruptcy into Debt Management Plans. The Post takes that to mean that BK Reform is a failure. That's odd, considering the big rallying cry from BK Reform oppenents was that "working families would be denied the bankruptcy protection they need." According to this story, those predictions were way off base.

In fact, I said all along that not many people would be diverted from bankruptcy under the new rules. I supported BK reform because every filer would have to get budget counseling and education, which is not addressed at all in this article. Just because a person has to file bankruptcy in the end doesn't mean the counseling and education doesn't help them. How can we call the reforms a failure if we only look at the statistics on how many proceed to a Chapter 7 filing?

The Post article says the law's supporters "envisioned" that debtors would use repayment plans instead of bankruptcy. I never "envisioned" that. What I expected is precisely what is happening; everyone who needs bankruptcy is still getting it, and they're getting valuable counseling and education in the process. Where's the problem in that?

And finally, (and I almost hesitate to get into this here) the article completely misses a huge part of this story. Credit counselors don't dare try to convert bankruptcy filers into Debt Management Plans; if they do, they know that large groups of bankruptcy lawyers are ready to refer their clients elsewhere, or worse, file lawsuits against them. Why swim in those shark-infested waters? Better provide quality budget counseling and education, and send the client back to his/her attorney for proper legal advice.

I'm having a hard time figuring out who's really hurt by this. Everyone who needs bankruptcy is getting it. Bankruptcy lawyers essentially control credit counseling now, and the non-profit counselors are getting to help more people than ever. If I had to pick a loser, I'd say the creditors spent a lot of money to get this law that doesn't change things much on their end (counseling and education being good for consumers, but that's not helping creditors' bottom lines).

And the anti-bk reform voices in the WORM and and the blogosphere need to reconfigure their attacks (yet again). "People won't have access to bankruptcy" is dead as an argument. (It was always DOA, as far as I was concerned.)

Comments

[Thomas Blumer]

You caught this a day ahead of me.

The whole thing's so incoherent. "Doesn't deter filings" though they're way down? Doesn't force as many 13s as "expected"? Who expected?

I've got a deferred post for tomorrow I think in the morning that's basicially going to say it's WAY too early to tell anything. Maybe we'll have a clue about the long-run 5 going into 13 and the long-run filing rate after the backlog gets worked out, which I don't anticipate until at least the end of Feb. and which I don't expect stats for until the end of March.

I just grabbed two paras from your take for an update to tomorrow's post.

[Jeff Michael]

You're right, Tom, that it's way too early to decide whether BAPCPA has been a failure. In any case, the Washington Post has offered a stunningly shallow analysis of the situation.

[dianne wilkman]

I was interviewed for this article by Caroline Mayer. In our first conversation we spoke about service activity stats and I emailed her some stats we had compiled (# of sessions, # of free sessions, etc). Then, a few weeks later, I heard from another counseling agency that the story was getting finalized and that it featured my quotes. I thought, "what quotes"? I hadn't provided any. We spoke again during the week right before Christmas to go over my quotes and during our conversation I became alarmed at the so-called quotes because they were unrecognizeable to me and told her these did not represent me at all. One quote was close to "It's not working!" (meaning the new law) and she had another alarming quote that I had never said. She became very indignant and insisted I had said these things - "it's right on my screen!"...and then said "this is the last conversation we're having", after which she HUNG UP abruptly.

I wrote her editor, Martha Hamilton, to complain about Mayer's unprofessional treatment and to request that any Springboard information be withdrawn since it appeared that an obvious preconceived notion would be driving the reporter's story and I didn't want our data to be misused. Here's her response:

"Ms. Wilkman:

Thanks for your e-mail. I apologize for Caroline's hanging up on you, and I expect she has already called to do the same. I think it is a mark of professionalism, rather than unprofessionalism, to call and make sure that quotes are accurate and correctly attributed before a story appears in print. That is what Caroline was doing, but I can understand that it would be upsetting to find a quotation misattributed to you, however inadvertently. I can assure you, having worked with Caroline on the story, that she didn't go into it with a preconceived notion. But she shouldn't have hung up on you, no matter how contentious the conversation. My apologies."
Martha Hamilton

To her credit, Caroline Mayer did call later and left an apology message.

She was also pursuing the free session issue intently and it was my sense - and I may be wrong - that she was pushing the "agencies should be doing most or all of these sessions for free" meme. This is a big inside baseball sort of subject that we should get into more detail some other time, but it is part of the nit-picking of credit counseling agencies that bk reform opponents pursue.

So, we were not mentioned in her article, and that's fine with me.