Massachusetts Chapter 7 Bankruptcy By The Numbers

The consumer provisions pending in the proposed reform legislation rely heavily on projected increases in chapter 13 filings as a vehicle to return large amounts of money to general unsecured creditors. At least four reasons are cited to believe that this reliance is misplaced: 1) the pool of chapter 7 debtors who would move into chapter 13 don't have the capacity to repay at the levels reform proponents hope for; 2) even if current chapter 7 debtors who were means-tested into chapter 13 performed at the level of the average current voluntary chapter 13 debtors (a very big if), they would not repay the amounts of unsecured debt that have been claimed as the fruits of means testing; 3) the various deductions and exclusions in the most recent draft bills set rather easy targets for pre-bankruptcy planning that will allow debtors to remain in chapter 7; and 4) anti-lien stripping language in the legislation significantly reduces the chapter 13 incentives for debtors who might otherwise select the chapter. (2)

       Given the confidence placed on chapter 13 as an ambulance to rescue unsecured creditors, it is a good time to kick the tires. Perhaps the most compelling characteristic of chapter 13 is its regional variability along virtually every important dimension of the practice. Chapter 13 filing rates remain relatively stable over time at about 30 % of total filings. Completion rates hover nationally at about one-third of confirmed plans but this national average is a composite made up of extremely variable figures arising from different courtrooms, divisions, and districts. For example, between 1989-1999, Tennessee displayed chapter 13 consumer-case filing percentages ranging between 55.5% and 65.9%, while Massachusetts ranged between 12.5% and 17.6%. (3) Comparable variations can be found in almost every important part of the practice.

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