Failing to Answer Whether Bankruptcy Reform Failed: A Critique of the First Report from the 2007 Consumer Bankruptcy Project

Over the past quarter century, our knowledge of individuals who seek relief through the consumer bankruptcy system has been derived largely from the information that has been collected and analyzed by the Consumer Bankruptcy Project. The most recent iteration of the Consumer Bankruptcy Project, the 2007 Consumer Bankruptcy Project (the "2007 CBP"), extends well beyond prior iterations by drawing a nationwide random sample of bankruptcy filings. The first report published in connection with the 2007 CBP (the "First Report" or "Report") seeks to evaluate the success of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") in sorting debtors according to their ability to repay past debts from future income. Specifically, the First Report focuses on a comparison of the median income levels of pre-BAPCPA and post-BAPCPA debtors to discern how BAPCPA's sorting mechanism -- the means test -- has functioned. Based on its finding that the difference in the income profile of debtors who filed in 2007 and in 2001 is statistically insignificant, the First Report concludes "that instead of functioning like a sieve, carefully sorting the high-income abusers from those in true need, the amendments' means test functioned more like a barricade, blocking out hundreds of thousands of struggling families indiscriminately, regardless of their individual circumstances." In other words, bankruptcy reform failed. This Commentary argues that the First Report has possibly failed to answer the research question that it presented for three primary reasons. As an initial matter, the Report relies on two questionable assumptions to support its analysis. It assumes that enactment of the means test deterred 800,000 individuals from filing for bankruptcy in 2007. It also assumes that the combined income profile of these 800,000 individuals and those who actually filed in 2007 is similar to the income profile of debtors who filed in 2001. If neither of these assumptions holds, then the Report's analysis potentially cannot stand. Second, the Report provides an incomplete account of the purpose of the means test and does not provide a sufficiently nuanced account of the manner in which the means test would be expected to affect (1) the behavior of individuals who were considering filing for relief under Chapter 7 of the Bankruptcy Code and (2) the dismissal or conversion of Chapter 7 cases that were ultimately filed. As a result, the First Report improperly frames the research question. Third, even if one considers the Report's research question as it has been framed (i.e., as an inquiry into the deterrent effect of the means test), several methodological deficiencies cloud the data marshaled by the First Report. Among these deficiencies, the pre-BAPCPA sample of debtors may not be representative of the income profile of debtors nationally in 2001. Moreover, the Report focuses on the total income of debtors, rather than their disposable income, as a metric for evaluating the effectiveness of the means test -- an odd choice given the means test's focus on disposable income. Finally, the Report does not account for state variation and family size when considering debtor income levels, which makes income by itself an unsuitable metric for evaluating the deterrent effect of the means test. This Commentary concludes that, without better designed research questions and metrics for answering those questions, we cannot answer whether bankruptcy reform has failed.