Taking the new Consumer Bankruptcy Model for a test drive: Means-testing real Chapter 7 debtors

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Culhane, Marianne B.
White, Michaela M.
Issue Date
1999
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Journal Article
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Several bills pending in Congress would apply means-testing to Chapter 7 debtors, requiring those with apparent ability to repay to be dismissed from Chapter 7, leaving Chapter 13 as their main route to a discharge. Chapter 13 would require repayment over 5 years to prebankruptcy creditors.|The authors applied one proposed means-testing formula to a sample of 1043 Chapter 7 cases from seven states across the country. They found that only 3.6% of the debtors emerged as "can-pays" who would be barred from Chapter 7, and that unsecured creditors could expect to collect much less from such debtors than industry-sponsored studies have claimed. Further, the paper shows how predictable avoidance behavior, such as increasing secured debt and/or charitable contributions, could further reduce the number of "can-pays." Thus, the paper casts doubt on the efficacy of imposing burdensome additional requirements on all Chapter 7 debtors in order to bar 3.6% of those debtors from that chapter.
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Marianne B. Culhane & Michaele M. White, Taking the New Consumer Bankruptcy Model for a Test Drive: Means-Testing Real Chapter 7 Debtors, 7 Am. Bankr. Inst. L. Rev. 27 (1999), reprinted in part in Bankruptcy Anthology (Charles J. Tabb ed., 2002).
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1068-0861
1068-0861
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