Bankrupt profits: The credit industry's business model for postbankruptcy lending

Iowa Law Review

Volumn 93, Issue 4, 2008, Pages 1369-1421

  Porter, Katherine ^a  

^a UNIVERSITY OF IOWA   (United States)

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EID: 49449112094     PISSN: 00210552     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (273)

1. See NAT'L ASS'N OF CONSUMER BANKR. ATT'YS, BANKRUPTCY REFORM'S IMPACT: WHERE ARE ALL THE "DEADBEATS"? 2 (2006), available at http://www.nacba.com/files/main_page/0222 06NACBAbankruptcyreformstudy.pdf ("[T]he sweeping federal bankruptcy law changes that went into effect on October 17, 2005 are doing little more than imposing new costs and paperwork burdens . . . .");
2. Ronald J. Mann, Bankruptcy Reform and the "Sweat Box" of Credit Card Debt, 2007 U. ILL. L. REV. 375, 377 (cataloging changes to the Bankruptcy Code that impose burdens on consumer debtors);
3. Henry J. Sommer, Trying to Make Sense Out of Nonsense: Representing Consumers Under the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," 79 AM. BANKR. L.J. 191, 193-230 (2005) (describing changes to the Bankruptcy Code that impose burdens on bankruptcy attorneys).
4. See Susan Block-Lieb & Edward J. Janger, The Myth of the Rational Borrower: Rationality, Behavorialism, and the Misguided "Reform" of Bankruptcy Law, 84 TEX. L. REV. 1481, 1481 (2006) ("Congress recendy enacted legislation motivated by the perception that rational consumers act strategically when they borrow money and file for bankruptcy.");
5. Richard L. Wiener et al., Unwrapping Assumptions: Applying Social Analytic Jurisprudence to Consumer Bankruptcy Education Requirements and Policy, 79 AM. BANKR. L.J. 453, 459 (2005).
6. See A. Mechele Dickerson, Regulating Bankruptcy: Public Choice, Ideology, & Beyond, 84 WASH. U. L. REV. 1861, 1891-92 (2006) ("Supporters [of bankruptcy reform] focused on the culture of bankruptcy and the importance of 'personal responsibility,' and they suggested that debtors lacked integrity because they no longer felt any personal obligation to pay debts they could afford to repay."); Mann, supra note 1, at 377 ("The catch phrase in the legislative history was the 'bankruptcy of convenience.'").
7. As Mechele Dickerson has explained, bankruptcy reform raised ideological issues that may have persuaded individual members of Congress to favor the legislation. See Dickerson, supra note 3, at 1862. However, the standard characterization of the legislation is a public-choice story that strongly emphasizes the consumer-credit industry's capture of Congress through lobbying and financial contributions. See Victoria F. Nourse & Jane S. Schacter, The Politics of Legislative Drafting: A Congressional Case Study, 77 N.Y.U. L. REV. 575, 613 (2002) (opining diat the then-pending bankruptcy bill was a "poster child" result of the imbalance of money and power between interest groups).
8. See TERESA A. SULLIVAN ET AL., THE FRAGILE MIDDLE CLASS: AMERICANS IN DEBT 243 (2000) (identifying job and income loss, sickness and injury, divorce, and homeownership as frequent triggering causes of bankruptcy);
9. ELIZABETH WARREN & AMELIA WARREN TYAGI, THE TWO-INCOME TRAP: WHY MIDDLE-CLASS MOTHERS AND FATHERS ARE GOING BROKE 81 (2003) (citing self-reported data from bankruptcy debtors to establish that job loss, family breakup, and medical problems were the reason for eighty-seven percent of consumer bankruptcy filings).
10. SULLIVAN ET AL., supra note 5, at 256-60.
11. RONALD J. MANN, CHARGING AHEAD: THE GROWTH AND REGULATION OF PAYMENT CARD MARKETS 64 (2006).
12. See Dickerson, supra note 3, at 1870-73 (describing how opponents of bankruptcy reform used data to refute allegations of strategic debtors); see also WARREN & TYAGI, supra note 5, at 71-80 (describing the "Myth of the Immoral Debtor" and evaluating evidence to support this conception of bankruptcy filers).
13. Mann, supra note 1, at 376 ("Proponents spent much less time discussing the economics of the consumer credit industry or the business models of those most affected by consumer bankruptcy."); John A. E. Pottow, Private Liability for Reckless Consumer Lending, 2007 U. ILL. L. REV. 405, 407 ("Instead of, or at least in addition to, targeting debtors, Congress should fix its sights on creditors . . . .").
14. See Richard Hynes & Eric A. Posner, The Law and Economics of Consumer Finance, 4 AM. L. & ECON. REV. 168, 171 (2002) (citing research on reasons for the existence of secured credit).
15. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (codified as amended primarily in scattered sections of 11 U.S.C).
16. See generally Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 485 (2005) (chronicling the history of efforts to restrict bankruptcy relief).
17. WARREN & TYAGI, supra note 5, at 71-81.
18. See 11 U.S.C. § 707(b)(2) (Supp. V 2005). Numerous critics have attacked the means test. Some have complained that it creates large administrative and expense burdens that are not justified by the few families who are subject to the test. See Charles Jordan Tabb, The Death of Consumer Bankruptcy in the United States?, 18 BANKR. DEV. J. 1, 16 (2001) (concluding that the then-pending "means testing would create a huge new bureaucratic burden for courts, trustees, debtors, and debtors' attorneys - for everybody in the bankruptcy game, that is, except creditors");
19. Elizabeth Warren, A Principled Approach to Consumer Bankruptcy, 71 AM. BANKR. L.J. 483, 506 (1997) (describing the potential of means testing to harm the consumer bankruptcy system as a social safety net). Others have offered better systems to accomplish the goal of ensuring that creditors are repaid if a family can repay.
20. See Jean Braucher & Charles W. Mooney, Jr., Means Measurement Rather than Means Testing: Using the Tax System to Collect from Can-Pay Consumer Debtors After Bankruptcy, AM. BANKR. INST. J., Feb. 2003, at 6, 6 (proposing a system of "means measurement" that would "require chapter 7 debtors above a threshold income level to pay, according to a graduated scale, a percentage of income for a period of three years after discharge, with collections distributed to creditors");
21. Marianne B. Culhane & Michaela M. White, Catching Can-Pay Debtors: Is the Means Test the Only Way?, 13 AM. BANKR. INST. L. REV. 665, 666 (2005) (describing "[s]ome who believe the new means test is not mean enough" and hope to "supplement[] the means test with additional, more stringent can-pay tests").
22. See Bankruptcy Reform: Hearing Before the S. Comm. on the Judiciary, 109th Cong. (2005) (statement of Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard Law School), http://judiciary.senate.gov/testimony. cfm?id=1381&wit_id=3996. Some representatives cited the findings of these studies in the debates about bankruptcy reform.
23. See, e.g., 151 CONG. REC. H1979 (daily ed. Apr. 14, 2005) (statement of Rep. Scott) ("[W]hile some who file bankruptcy have been financially irresponsible, the overwhelming majority of those who file do so as a result of divorce, major illness, or job loss. Half of those who go into bankruptcy do so because of illness, and most of them had health insurance but still could not pay their bills.").
24. See SULLIVAN ET AL., supra note 5, at 61-62 (finding that the median income for those who file bankruptcy is about half the national median); Marianne B. Culhane & Michaela 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, 37 (1999) (reporting that only twenty-four percent of those in bankruptcy "had incomes at or above the national medians"). My own pre-BAPCPA scholarship focused on debtors' circumstances as well.
25. See Katherine Porter, Going Broke the Hard Way: The Economics of Rural Failure, 2005 WIS. L. REV. 969, 972-73 (documenting that rural bankruptcy debtors have more severe economic circumstances than urban bankruptcy debtors and using this finding to argue that bankruptcy reform could particularly harm rural families).
26. See SULLIVAN ET AL., supra note 5, at 186 (finding that "[d]ivorce and bankruptcy seem to be tied to each other"); WARREN & TYAGI, supra note 5, at 81 ("Nearly nine out of ten families with children cite just three reasons for their bankruptcies: job loss, family breakup, and medical problems."); Elizabeth Warren, Financial Collapse and Class Status: Who Goes Bankrupt?, 41 OSGOODE HALL L.J. 115, 144-45 (2003) ("[B]ankruptcy is a system that serves families on the way down. These individuals evidence substantial participation in activities that usually signal economic success - college, good jobs, home ownership - but something has gone badly wrong that results in their financial collapse . . . [such as] layoffs . . . [or] divorce . . . .").
27. Edith H. Jones & James I. Shepard, Recommendations for Reform of Consumer Bankruptcy Law by Four Dissenting Commissioners, in NAT'L BANKR. REVIEW COMM'N, BANKRUPTCY: THE NEXT TWENTY YEARS, ch. 5, at 2 (1997).
28. See Dickerson, supra note 3, at nn.78-84 (collecting accounts of bankruptcy reform that rely on public-choice theory to show the influence of the credit industry in enactment of legislation); Jensen, supra note 12, at 498-99 (describing efforts of the Bankruptcy Issues Council, the Consumer Bankruptcy Reform Coalition, and the American Financial Services Association in lobbying for restricting bankruptcy relief).
29. See Edith H. Jones & James I. Shepard, Additional Dissent to Recommendations for Reform of Consumer Bankruptcy Law, in NAT'L BANKR. REVIEW COMM'N, supra note 18, at ch. 5, 6, 11, 26.
30. 144 CONG. REC. 21,643 (1998) (statement of Sen. Grassley) ("The fact is that some people use bankruptcy as a convenient financial planning tool to skip out on debts they could repay.").
31. National Bankruptcy Review Commission Report: Hearing Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the Judiciary, 105th Cong. 3 (1997) (statement of Rep. Gekas, Chairman, Subcomm. on Commercial and Administrative Law of the H. Comm. on the Judiciary).
32. See generally Elizabeth Warren, The Phantom $400, 13 J. BANKR. L. & PRAC. 77 (2004) (chronicling the history of the $400 bankruptcy-tax figure and its role in lobbying efforts for bankruptcy reform).
33. Mann, supra note 1, at 376. ("In particular, the debates often focused on . . . the concern that the skyrocketing bankruptcy filing rates indicate that consumers are using the bankruptcy system for financial planning purposes.").
34. 145 CONG. REC. 8579 (1999) (statement of Rep. Hyde).
35. Dickerson, supra note 3, at 1876.
36. Id.; see also Mann, supra note 1, at 376 ("For the most part, the proponents relied on moral arguments - how shameful it is that Americans walk away so easily from their debts.").
37. Jensen, supra note 12, at 520 ("Members who opposed the legislation argued that the increase in bankruptcy filings was due to the credit card industry itself, which, they claimed, 'actively solicits unsuspecting consumers through the mail with terms of easy credit . . . . addicting debtors to this financial crack.'" (alteration in original) (quoting Bankruptcy Reform Act of 1999 (Part I): Hearing on H.R. 833 Before the Subcomm. on Commercial and Administrative Law of the H. Comm. on the Judiciary, 106th Cong. 8 (1999) (statement of Rep. Jackson Lee) (opposing a 1999 bankruptcy-reform bill))).
38. Opponents complained that various versions of the legislation were too complicated, would be too costly to implement, were unfair to women, were drafted without the input of bankruptcy experts, were technically defective and internally inconsistent, and would not halt the worst instances of abuse in the system. For a representative sampling of these critiques during the entire bankruptcy debate, see generally Jensen, supra note 12.
39. See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, §§ 1301-1306, 119 Stat. 23, 204-13 (codified as amended in scattered sections of 15 U.S.C.).
40. Id. § 1229, 119 Stat. at 200-01.
41. Id.
42. BD. OF GOVERNORS OF THE FED. RESERVE SYS., REPORT TO THE CONGRESS ON PRACTICES OF THE CONSUMER CREDIT INDUSTRY IN SOLICITING AND EXTENDING CREDIT AND THEIR EFFECTS ON CONSUMER DEBT AND INSOLVENCY (2006) [hereinafter FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT], available at http://www.federalreserve.gov/ boarddocs/rptcongress/ bankruptcy/bankruptcybillstudy200606.pdf.
43. See Pottow, supra note 9, at 415 n.47 (describing the Federal Reserve report required by section 1229 of BAPCPA as an "anticlimax"); Posting of Elizabeth Warren to TPM Café, Warren Report, Problems? What Problems? Fed Paints Happy Face on Credit Card Debt, http://tpmcafe.talkingpointsmemo.com/2006/08/08/problems_what_problems_fed_pai/ (Aug. 8, 2006, 11:59) (excerpting a long statement from Ronald Mann on weaknesses with the Federal Reserve study pursuant to section 1229 of BAPCPA). To be fair, Congress did not allocate additional funds to the Federal Reserve to conduct this study and gave it only one year to complete the report.
44. See generally Katherine Porter, The Potential and Peril of BAPCPA for Empirical Research, 71 MO. L. REV. 963, 972-76 (2006) (identifying reasons for skepticism about mandatory reports incorporated into BAPCPA).
45. FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT, supra note 33, at 3-4.
46. Id. at 26.
47. See Mann, supra note 1, at 384 (noting that for debt-based credit card issuers, the "most profitable customers are sometimes the least likely to ever repay their debts in full")
48. Remarks on Signing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 41 WEEKLY COMP. PRES. DOC. 641, 642 (Apr. 20, 2005); see also Jensen, supra note 12, at 566-67 (excerpting the statement of President Bush on the new bankruptcy law).
49. Remarks on Signing the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 41 WEEKLY COMP. PRES. DOC. 641, 642 (Apr. 20, 2005).
50. Id.
51. See WARREN & TYAGI, supra note 5, at 81 (showing that a large fraction of families with children who filed bankruptcy reported job problems, illness or injury, or a family break-up as reasons for their bankruptcy).
52. See, e.g., Robert M. Lawless, The Paradox of Consumer Credit, 2007 U. ILL. L. REV. 348, 367-68 (analyzing the relationship between consumer debt and bankruptcy);
53. Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Filings, 59 STAN. L. REV. 213, 248-50 figs.10 & 11 (2006) (charting changes in household debt using Federal Reserve data).
54. MANN, supra note 7, at 61-62.
55. See FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT, supra note 33, at 15 tbl.6;
56. Robert M. Lawless, The Relationship Between Nonbusiness Bankruptcy Filings and Various Basic Measures of Consumer Debt 5 (July 18, 2001) (unpublished manuscript, University of Illinois Law & Economics Research Paper Series), available at http://ssrn.com/ abstract=934798.
57. See MANN, supra note 7 (examining the relation between credit card debt and consumer bankruptcy using nation-level aggregate date from five countries); Lawrence M. Ausubel, Credit Card Defaults, Credit Card Profits and Bankruptcy, 71 AM. BANKR. L.J. 249 (1997) (analyzing the effect of limiting the dischargeability of credit card debt on overextended consumers);
58. Todd J. Zywicki, The Economics of Credit Cards, 3 CHAP. L. REV. 79 (2000) (developing a model of the underlying economics of credit cards and credit card use);
59. Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-Offs, and the Personal Bankruptcy Rate, BANK TRENDS (Fed. Deposit Ins. Corp., Wash., D.C.), Mar. 1998, available at http://www.fdic.gov/bank/analytical/bank/bt_9805.pdf (describing the expanding access to consumer credit and higher level of personal bankruptcies after the deregulation of consumer interest rates in the late 1970s).
60. MANN, supra note 7, at 69; see also FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT, supra note 33, at 15 ("The rate at which consumers file for bankruptcy has broadly trended up with the real value of revolving consumer credit per household.").
61. FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT, supra note 33, at 13.
62. SULLIVAN ET AL., supra note 5, at 63-71; WARREN & TYAGI, supra note 5, at 64 & tbl.4.1.
63. See Jones & Shepard, supra note 20, at 6, 13.
64. Block-Lieb & Janger, supra note 2.
65. Id. at 1486.
66. Id. at 1488.
67. Id. at 1565 ("To the extent that rationality and opportunism exist in consumer credit transactions, they both appear to exist on the lender, not the borrower, side of the equation.").
68. Id. at 1500.
69. See Mann, supra note 1, at 378-79. He prophesizes that "it is unlikely that the principal features of [BAPCPA] will have any substantial effect on the borrowing decisions of consumers." Id. at 379.
70. Mann focuses on debt-based credit card issuers, contrasting their lending products with conventional loans. Id. at 384. The share of revenue from default-driven provisions like penalty fees, late charges, and loan transaction fees for refinancing may be growing in other lending markets, such as mortgage loans and car loans, as specialized secured-loan products for subprime borrowers are developed. Whether relying on fee revenue in these broader markets will prove successful is unclear at this time.
71. Id. at 386.
72. Id.
73. Adam Goldstein, Note, Why "It Pays" to "Leave Home Without It": Examining the Legal Culpability of Credit Card Issuers Under Tort Principles of Products Liability, 2006 U. ILL. L. REV. 827, 856.
74. Mann, supra note 1, at 392-97.
75. See, e.g., Pottow, supra note 9, at 420-63.
76. Katherine Porter & Deborah Thome, The Failure of Bankruptcy's Fresh Start, 92 CORNELL L. REV. 67, 91-92 (2006) (describing financial issues facing families whose self-reported financial condition worsened after bankruptcy).
77. Id. at 87 fig.3, 88 ("More than one in three families stated that their financial situations had either stayed the same or worsened since the time of their bankruptcies.").
78. Id. at 84 fig.1 (reporting that twenty-five percent of the Chapter 7 debtors studied reported difficulty in paying bills one year after bankruptcy).
79. The conventional wisdom that credit is hard to get after bankruptcy typically is spread by nonspecialists. See, e.g., Michael Moody, Obtaining Credit After Bankruptcy: Mission Impossible, EZINE ARTICLES, Oct. 16, 2006, http://ezinearticles.com/?Obtaining-Credit- After-Bankruptcy:-Mission-Impossible&id=330141 (advising potential bankruptcy filers that they likely will not be able to get credit for at least a year or two after bankruptcy).
80. But see, e.g., Total Bankruptcy, What the Credit Industry Doesn't Want You to Know About Bankruptcy, http://www.totalbankruptcy.com/ credit_industry_secrets.htm (last visited Apr. 1, 2008) (debunking the myth that one cannot get credit after bankruptcy).
81. Selwyn Enzer, Raul de Brigard & Frederick D. Lazar, Some Considerations Concerning Bankruptcy Reform, in REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES, pt. III, at 1, 90 (1973).
82. See, e.g., Robert J. Hawkins, Truth Is Scarier than Fiction in 'Maxed Out,' PARAMUS POST, June 4, 2007, available at http://www.paramuspost.com/article.php/20070531201324776 (reporting on credit solicitations to bankruptcy debtors as the highlight of a bankruptcy documentary).
83. Caroline Mayer, Bankrupt and Swamped with Credit Offers, WASH. POST, Apr. 15, 2005, at A1.
84. Id.
85. Timothy Egan, Newly Bankrupt Raking in Piles of Credit Offers, N.Y. TIMES, Dec. 11, 2005, § 1, at 1.
86. Id. (describing different approaches reported by Bank of America and Citibank).
87. The Washington Post article reported preliminary data from the Consumer Bankruptcy Project sample that is the basis for this Article's analysis. See Mayer, supra note 68.
88. See Jean Braucher, Lawyers and Consumer Bankruptcy: One Code, Many Cultures, 67 AM. BANKR. L.J. 501, 516 (1993).
89. Id. at 503. ("The 'simple' thesis of this article is that debtors' lawyers pursue different mixes of four goals in consumer bankruptcy practice. They seek to serve their clients' and their own financial interests, and they also attempt to fulfill some version of appropriate social role playing on the part of their clients and themselves.").
90. Id. at 537.
91. Id.
92. Id. ("Most lawyers have not systematically researched these questions. It is not clear that they can obtain valid information from creditors or credit reporting agencies. All the lawyers have rough impressions about credit availability after chapter 7 and chapter 13 based on feedback from former clients, and nearly all give advice on this basis.").
93. Braucher, supra note 73, at 538.
94. See id. ("Many lawyers said that it is common for debtors to obtain credit within a year or two of a chapter 7 filing. 'It's too easy to get new credit,' said one lawyer. Another said, 'the credit industry is recycling people.' Car loans and credit cards can often be obtained quickly after filing a chapter 7 case, the lawyers in all four cities said.").
95. Id. ("Another reason some lawyers do not discuss better credit availability in general after chapter 7 as opposed to chapter 13 is that they do not want to play up the idea of getting new credit. 'You can get credit fast after chapter 7,' said one lawyer, who added quickly, 'but I don't tell them that!' This lawyer has his clients cut up their credit cards in his office. He and other lawyers said that they try to get clients to focus on living within their means in the future and on saving rather than borrowing.").
96. Id. at 538-39.
97. Id. The motivation to have clients choose Chapter 13 is driven largely by the ability to recover fees in installments through a debtor's plan. See id. at 548-50. Attorneys may also prefer Chapter 13 because most districts approve higher attorneys' fees for Chapter 13 cases than Chapter 7 cases. See id. at 546. Finally, some attorneys believe that Chapter 13's repayment scheme has moral or educational benefits for their clients. See id. at 567-69.
98. Braucher, supra note 73, at 540.
99. Id. ("Most lawyers in the study acknowledge that better credit availability after chapter 13 is a myth, but it is one that many clients believe and that can be used to manipulate them into choosing chapter 13.").
100. Michael E. Staten, The Impact of Post-Bankruptcy Credit on the Number of Personal Bankruptcies 12 (Credit Research Ctr., Purdue Univ., Working Paper No. 58, 1993), available at http://www.gwu.edu/~business/research/ centers/fsrp/pdf/WP58.pdf.
101. See Block-Lieb & Janger, supra note 2, at 1514 ("Credit scoring and risk-based pricing have permitted financial institutions and other consumer lenders to open up entirely new markets for their products, including the market for subprime lending."); see also JOINT CTR. FOR HOUS. STUDIES OF HARVARD UNIV., STATE OF THE NATION'S HOUSING 2005 REPORT, EXECUTIVE SUMMARY 17 & fig.20 (2005), available at http://www.jchs.harvard.edu/ publications/markets/son2005/son2005.pdf (showing the recent increase in subprime lending).
102. See MANN, supra note 7, at 53 (noting a "major increase in total consumer debt"); Lawless, supra note 42, at 364 figs.1.A & 1.B (showing an increasing rate of nonmortgage short-term and long-term consumer credit).
103. These findings are very important for testing how families respond to bankruptcy discharge and are useful for testing the fresh-start theory against the realities of postbankruptcy life. Staten's principal findings are reported in several useful figures. See Staten, supra note 85, at 26 exhibit 8, 28 exhibit 11.
104. Id. at 15 tbl.4. Note, however, that only 16.2% of all debtors had accepted any new credit at the one-year postbankruptcy mark. Id. at 13.
105. Id. at 16.
106. David K. Musto, What Happens When Information Leaves a Market? Evidence from Postbankruptcy Consumers, 77 J. BUS. 725, 726 (2004). The relevant federal law is the Fair Credit Reporting Act. See 15 U.S.C. § 1681c(a)(1) (2000).
107. Musto, supra note 91, at 735.
108. Id. at 737 (estimating one extra card is obtained per four consumers in the tenth year following bankruptcy).
109. I served as Project Director of CBP III during its first six months of data collection. My responsibilities included pretesting the data instruments, overseeing the distribution and collection of the written questionnaires, and helping to design the court record coding protocols. Phase IV of the Consumer Bankruptcy Project ("CBP IV") began in January 2007 to study post-BAPCPA debtors. I am an investigator in CBP IV, but no data in this Article come from that study.
110. Additional descriptions of the methodology used in CBP III have appeared in numerous articles presenting data from the study. See WARREN & TYAGI, supra note 5, at 181-88; David U. Himmelstein et al., Market Watch: Illness and Injury as Contributors to Bankruptcy, HEALTH AFF., Feb. 2, 2005, at W5-64 to -66, http://content.healthaffairs.org/cgi/reprint/hlthaff.w5.63v1.pdf; Porter & Thorne, supra note 62, at 125-28.
111. The CBP III sample was collected in the following five judicial districts: Eastern District of Pennsylvania; Northern District of Illinois; Middle District of Tennessee; Northern District of Texas; and Central District of California.
112. See 11 U.S.C. § 341 (2000 & Supp. V 2005).
113. A copy of the questionnaire is publicly available. See Elizabeth Warren, Bankrupt Children, 86 MINN. L. REV. 1003, 1028-32 (2002).
114. See infra notes 108-09 and accompanying text for an analysis of the issue of respondent bias.
115. See infra notes 180-85 and accompanying text.
116. These differences were significant at the .05 level. The differences between the sex of the primary petitioners and the families' total liabilities at the time of filing were not significant. Details on the demographics of Chapter 7 debtors are presented in the main text.
117. See infra Part II.E (analyzing a sample consisting of Chapter 13 debtors in the core sample who completed the first telephone interview).
118. Some debtors could not be contacted at the contact information that they provided because the debtors had apparently moved or provided incorrect information. In anticipation of this problem, we asked debtors to provide us with two alternative contacts, which increased the response rate. Nevertheless, some debtors gave only their own information, and sometimes the alternative contacts could not be located. We were unable to complete interviews with these debtors. This nonparticipation may have skewed the data to overrepresent the economic stability of the postbankruptcy population. That is, those who could not be located for interviews may be those facing the most severe financial distress, considering that they either moved and/or changed telephone numbers in the immediate aftermath of their bankruptcy.
119. See SULLIVAN ET AL., supra note 5, at 27-74; WARREN & TYAGI, supra note 5, at 7; Elizabeth Warren, The New Economics of the American Family, 12 AM. BANKR. INST. L. REV. 1, 26-29 (2004).
120. Warren, supra note 17, at 121 (2003) (concluding that 2001 bankruptcy debtors were middle class and similar to debtors who filed in 1991).
121. Id. at 125 (citing U.S. Census Bureau data for median household income in 2001 at $42,228 and comparing that figure with the median bankrupt debtor's income of $24,108 in 2001).
122. See SULLIVAN ET AL., supra note 5, at 64-65; Warren, supra note 17, at 155.
123. See EARL BABBIE, THE PRACTICE OF SOCIAL RESEARCH 187-90 (10th ed. 2004).
124. Porter & Thorne, supra note 62, app. at 127-28 (reporting detailed respondent and nonrespondent data for a subsample of 359 Chapter 7 bankruptcy cases from CBP III).
125. I compared Chapter 7 respondents who completed the first-round interviews with the respondents who completed the second-round interviews along several variables: total assets at bankruptcy, total liabilities at bankruptcy, total unsecured debt at bankruptcy, income at bankruptcy, sex, homeownership, employment status, marital status, and age. Tests of each group showed no significant differences for any of these factors.
126. Again, these data reflect respondents from the Chapter 7 core sample who completed the first round of telephone interviews. Data on Chapter 13 families are presented in Part II.E, infra.
127. See supra note 65 and accompanying text.
128. A modest fraction of families in addition to the twenty-five percent shown in Figure 1 may have had access to credit after bankruptcy despite avoiding new postbankruptcy credit. These families may have had a prebankruptcy credit line that was reaffirmed in their bankruptcy and remained available for their use after bankruptcy.
129. See Margaret Howard, A Theory of Discharge in Consumer Bankruptcy, 48 OHIO ST. L.J. 1047, 1062 (1987) (identifying participation in the open credit economy through borrowing as one of the principal definitions of rehabilitation for bankrupt debtors).
130. Analysis of respondents' answers to the question asking them to report the number of credit offers that they received in a month revealed two responses of 300 offers per month (corresponding to ten per day in a thirty-day month). These two outliers were removed before these data were analyzed, and the findings on credit offers do not include these two individuals.
131. Researchers interested in understanding how debtors choose between the two types of bankruptcy relief could fruitfully explore the role of credit expectation in the chapter-choice decision.
132. Telephone Interview by Consumer Bankr. Project III with Respondent TX-07-067 (one year postbankruptcy).
133. A Tennessean claimed that "[p]eople have been running over me to get me to buy a car." Telephone Interview by Consumer Bankr. Project III with Respondent TN-07-062 (one year postbankruptcy). Another debtor stated that he got frequent offers to refinance his mortgage and was mailed "live" checks. Telephone Interview by Consumer Bankr. Project III with Respondent PA-07-015 (one year postbankruptcy). He told his interviewer, "If I don't get at least one or two in a week, it is not a good week." Id.
134. Telephone Interview by Consumer Bankr. Project III with Respondent TN-07-133 (three years postbankruptcy).
135. Telephone Interview by Consumer Bankr. Project III with Respondent IL-07-038 (one year postbankruptcy).
136. See Andrew Becker, The Battle over "Share of Wallet," FRONTLINE: SECRET HISTORY OF THE CREDIT CARD, Nov. 23, 2004, http://www.pbs.org/wgbh/pages/ frontline/shows/credit/more/battle.html (citing research conducted by Synovate, a private research firm). The overall response rate on credit card solicitations is very low and has dropped significantly in recent years.
137. See FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT, supra note 33, at 20 tbl.11 (showing that in 2004, the industry mailed 5.23 billion credit card solicitations that returned a 0.4% response rate);
138. David Enrich, Card Firms Curb Mailings - a Bit, WALL ST. J., July 26, 2006, at D3 (reporting that data from the marketing firm Synovate show that more than six billion credit card offers sent in 2005 generated a response rate of only three per one-thousand offers).
139. In telephone interviews approximately one year after bankruptcy, debtors were asked to report how many credit offers they received each month. Because these data are self-reported, there is potential for reporting bias or cognitive error to skew the data. It is unclear whether the data on the number of solicitations sent to the general population, cited supra note 121, comes from self-reporting or from private industry data. Thus, I cannot determine if a similar potential for bias exists for that figure.
140. Telephone Interview by Consumer Bankr. Project III with Respondent TN-07-041 (three years postbankruptcy).
141. Telephone Interview by Consumer Bankr. Project III with Respondent PA-07-132 (one year postbankruptcy).
142. See Robert Bemer, Cap One's Credit Trap, BUS. WK., Nov. 6, 2006, at 34, 34 (quoting a consumer with six Capital One credit cards who believed that Capital One was "nuts" for being "willing to give me another credit card" when he "owe[d] these people that much damn money");
143. Bob Sullivan, Deluged with Credit Card Mail? Help Is on the Way, MSNBC.COM, Aug. 8, 2005, http://www.msnbc.msn.com/id/8827007/ (documenting the number of solicitations some families receive each month and describing the law allowing consumers to opt out of prescreened solicitations).
144. FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT, supra note 33, at 12-13.
145. Fair Credit Reporting Act § 604, 15 U.S.C. § 1681b(e) (2000 & Supp. V 2005); see also BD. OF GOVERNORS OF THE FED. RESERVE SYS., REPORT TO THE CONGRESS ON FURTHER RESTRICTIONS ON UNSOLICITED WRITTEN OFFERS OF CREDIT AND INSURANCE 11-12 (2004) [hereinafter FED. RESERVE, REPORT ON UNSOLICITED WRITTEN OFFERS], available at http://www.federalreserve.gov/boarddocs/rptcongress/ UnsolicitedCreditOffers2004.pdf.
146. See Angela Littwin, Beyond Usury: A Study of Credit-Card Use and Preference Among Low-Income Consumers, 86 TEX. L. REV. 451, 481-84 (2008) (developing recommendations to improve the opt-out law to provide users with more control over the type of solicitations received).
147. FED. RESERVE, REPORT ON UNSOLICITED WRITTEN OFFERS, supra note 127, at 17 (stating that only six percent of people with credit records choose to opt out).
148. Telephone Interview by Consumer Bankr. Project III with Respondent CA-07-187 (one year postbankruptcy).
149. Telephone Interview by Consumer Bankr. Project III with Respondent CA-07-149 (three years postbankruptcy).
150. Telephone Interview by Consumer Bankr. Project III with Respondent TX-07-057 (one year postbankruptcy).
151. See Littwin, supra note 128, at 485 (finding that low-income women would like the law to require credit card companies to give consumers the option of setting their own credit card limits or require consumer approval before increasing credit limits).
152. See Porter & Thorne, supra note 62, at 74 (describing how bankruptcy's rehabilitative purpose includes enabling future borrowing); see also KAREN GROSS, FAILURE AND FORGIVENESS: REBALANCING THE BANKRUPTCY SYSTEM 99-103 (1999).
153. Egan, supra note 70 (reporting that a Bank of America spokeswoman said that the bank does not give credit cards to people who file bankruptcy but that a delay between the bankruptcy petition and credit reporting could cause the bank to still send an offer to someone who filed bankruptcy).
154. See FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT, supra note 33, at 19 (noting the existence of "varied product offerings" that allow creditors "to tailor incentives and products to specific segments of the market and to price them in a way that reflects the underlying risk of each segment").
155. ADMIN. OFFICE OF THE U.S. COURTS, BANKRUPTCY STATISTICS, http://www.uscourts.gov/bnkrpctystats/ Bk2002_1990Calendar.pdf (providing the number of filings per calendar year between 1990 and 2002).
156. See Becker, supra note 121.
157. See FED. RESERVE, REPORT ON SOLICITING AND EXTENDING CREDIT, supra note 33, at 19. The report states: Lender ratings of potential borrowers have become increasingly sophisticated and automated over the past decade. Lenders have extensive information on borrowers available from credit reporting agencies and from proprietary databases. This information is combined with new quantitative modeling techniques - which help lenders rank prospective borrowers on the basis of historical information about borrowers with similar quantifiable characteristics - to guide the determination of which prospective borrowers in each portfolio will be extended credit and the pricing of that credit. Id.
158. Telephone Interview by Consumer Bankr. Project III with Respondent PA-07-062 (one year postbankruptcy).
159. Id.
160. Telephone Interview by Consumer Bankr. Project III with Respondent PA-07-108 (one year postbankruptcy).
161. Telephone Interview by Consumer Bankr. Project III with Respondent CA-07-016 (three years postbankruptcy).
162. 11 U.S.C. § 107(a) (Supp. V 2005).
163. Two examples include Information Technologies Inc., which provides a "Financial Hardship" database as an "excellent source for marketing leads," Information Technologies Inc., http://www.inft.net/ (last visited Apr. 1, 2008), and Discreet Research, which provides names and social security numbers for bankruptcy filers.
164. See Discreet Research, http://www.discreetresearch.com (last visited Apr. 1, 2008).
165. See infra Part III.A
166. Bankruptcy Reform: Hearing Before the S. Comm. on the Judiciary, 109th Cong. (2005) (statement of Todd J. Zywicki, Professor of Law, George Mason University), available at http://judiciary.senate.gov/testimony.cfm?id= 1381&wit_id=3997 (stating that increased bankruptcy filings were caused by a loss of "personal shame" and "social stigma" previously associated with filing for bankruptcy).
167. Porter & Thorne, supra note 62, at 94-95.
168. A. Charlene Sullivan & Debra Drecnik Worden, Bankruptcy in a Bank Credit Card Portfolio, J. RETAIL BANKING, Winter 1991-1992, at 33, 36-37.
169. MANN, supra note 7, at 23 tbl.2.2 (showing that interest charges compose sixty-five percent of U.S. card issuers' revenue).
170. Mann, supra note 1, at 391. Jay Westbrook apparently first coined the term "sweatbox" to describe the financial situation that maximizes credit card issuers' profits. See Pottow, supra note 9, at 416.
171. See Mann, supra note 1, at 385 ("The successful card lender profits from the borrowers who become financially distressed.").
172. See Marquette Nat'l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 318 (1978) (holding that the National Bank Act preempts state laws that regulate interest rates). This decision "effectively released consumer credit providers from usury limits, and thereby encouraged the creation of a national, rather than purely local, market for consumer credit." Block-Lieb & Janger, supra note 2, at 1488.
173. A number of bills have been introduced to regulate credit-industry practices, but none of these efforts have passed. See Stop Unfair Practices in Credit Cards Act, S. 1395, 110th Cong. (2007); Universal Default Reform Act, H.R. 2146, 110th Cong. (2007); Credit Card Accountability Responsibility and Disclosure Act of 2007, H.R. 1461, 110th Cong. (2007).
174. The qualitative interviews contain additional evidence of repeat lending activity. See, e.g., Telephone Interview by Consumer Bankr. Project III with Respondent IL-07-053 (three years postbankruptcy) ("The same company I had at bankruptcy sent me an application without asking.").
175. See Kenneth D. Jones & Tim Critchfield, Consolidation in the U.S. Banking Industry: Is the "Long, Strange Trip" About to End?, FDIC BANKING REV., Jan. 2006, at 31, 32-36, available at http://www.fdic.gov/bank/analytical/banking/2006jan/ article2/article2.pdf.
176. This is actually the name of a real general-purpose credit card issued by Chase. See Chase PerfectCard Credit Card Offer, http://www.firstusa.com/ cgi-bin/webcgi/webserve.cgi?partner_dir_name=cac_chase_perfectcard&page= index (last visited Apr. 1, 2008).
177. Of course, it is possible that some people think of VISA as their lender, instead of recognizing that VISA is the provider of the card processing. This could lead to an overestimation of the number of same lenders if debtors thought that a postbankruptcy offer from VISA was one from the "same creditor listed" in their bankruptcy. Several facts substantially reduce this risk. The bankruptcy schedules frequently list only the bank's name because it is the actual lender, omitting whether the card is processed by VISA. Also, VISA would not have been involved in trying to collect the debt before bankruptcy, and the lender's name or an affinity tie would probably be displayed more prominently on a credit offer than the name or logo of the card processor.
178. See Frontline: Secret History of the Credit Card (PBS television broadcast Nov. 23, 2004), available at http://www.pbs.org/wgbh/pages/ frontline/shows/credit/etc/script.html. A married man who had filed bankruptcy told the Frontline reporter of his experience: We got one yesterday from a credit card company that told me I'd never have credit with them again. One of the last times I talked with them, told them what our situation was, they said, "Well, we're canceling your card. And you are, in essence, blackballed with us for life. You'll never have a credit card from us ever again." Yesterday, [we] received a solicitation from them, zero percent for life, with up to a $50,000 line of credit. Id.
179. Telephone Interview by Consumer Bankr. Project III with Respondent CA-07-011 (three years postbankruptcy).
180. This question was posed only to the seventy-nine debtors who said that they received credit offers from the same creditors that were listed on their bankruptcy schedules. Eight of the seventy-nine debtors said these lenders asked them to repay their old debts in the new credit offers.
181. The data in the text reflect the affirmative responses to the query on repaying old debts of eight debtors among the group of seventy-nine who had received credit offers from their prebankruptcy creditors. However, at another point in the interview, all debtors were asked if a prebankruptcy creditor had contacted them after bankruptcy. Nearly four in ten debtors (thirty-nine percent) in the sample reported such contact. Apparently, creditors frequently violate the discharge injunction. However, the wording of this question did not make it clear whether "old debt" referred only to debts that were discharged or included prebankruptcy debts that were reaffirmed or debts that were nondischargeable. Thus, the data do not permit a conclusive determination of what proportion of this postbankruptcy contact by creditors violated the discharge injunction.
182. 11 U.S.C. § 524(a)(2) (2000).
183. Three years after bankruptcy, 20.8% of households reported that they or someone else had made a payment on a debt that they had at the time of their bankruptcy. This included reaffirmed debts.
184. Among the sixty-two families who made payments on at least one prebankruptcy debt, only three families cited "creditor required payment before agreeing to new credit" as one of the reasons for their voluntary repayment. This finding highlights the fact that debtors may repay discharged debts for reasons other than their own financial benefit. Understanding why one in five debtors makes a payment after bankruptcy would provide useful insights into debtors' attitudes about their prebankruptcy creditors.
185. See Ed Flynn, Gordon Bermant & Suzanne Hazard, Bankruptcy by the Numbers: Chapter 7 Asset Cases, AM. BANKR. INST. J., Dec. 2002-Jan. 2003, at 22, 22 (reporting that ninety-six percent of all Chapter 7 cases (combined business and consumer) were closed without any assets distributed);
186. see also Susan D. Kovac, Judgment-Proof Debtors in Bankruptcy, 65 AM. BANKR. L.J. 675, 677-78 (1991) (concluding that a significant segment of the bankruptcy population is composed of judgment-proof debtors who have no nonexempt assets and earn wages below garnishment limitations).
187. MANN, supra note 7, at 190.
188. Secured credit cards require consumers to pay a deposit, usually a minimum of a few hundred dollars, as a condition of the card's issuance. The issuer holds this deposit, and the consumer makes monthly payments toward any accrued charges, fees, and interest. See Card Dictionary, Definition of Secured Card, http://www1.cardtrak.com/glossary/s.html (last visited Apr. 1, 2008) (describing secured cards as credit cards that are used by people with no credit or those who are trying to rebuild their credit).
189. For an example of the marketing and terms of a secured credit card, see Wells Fargo, Wells Fargo Secured Visa Card, https://www.wellsfargo.com/ credit_cards/select_card/secured/ (last visited Apr. 1, 2008).
190. See CreditCards.com, Credit Cards for People with Bad Credit, http://www.creditcards.com/bad-credit.php (last visited Apr. 1, 2008) (providing fee and rate information on cards designed for consumers with bad credit).
191. Telephone Interview by Consumer Bankr. Project III with Respondent PA-07-074 (one year postbankruptcy).
192. Specialized marketing exists for car loans for the general nonbankrupt population, see CUNA Mut. Group, Auto Loans: Compete in the Auto Loan Market and Win, http://www.cunamutual.com/cmg/freeFormDetail/0,1248,4458,00.html (last visited Apr. 1, 2008), but data on the quantity of loans were not available.
193. See Deborah Thorne & Katherine Porter, Financial Education of Families in Bankruptcy: Attitudes and Needs, 24 J. CONSUMER EDUC. 15, 21-22 (2007) (presenting data that sixty-five percent of bankrupt debtors reported that they had difficulty paying household bills three years after bankruptcy).
194. See JOINT CTR. FOR HOUS. STUDIES OF HARVARD UNIV., supra note 86, at 17 fig.20;
195. Kathleen C. Engel & Patricia A. McCoy, A Tale of Three Markets Revisited, 82 TEX. L. REV. 439, 442-43 (2003).
196. See 151 CONG. REC. S1813 (daily ed. Mar. 1, 2005) (statement of Sen. Frist) ("Some folks have even been known to plan their bankruptcy. They buy a house or they buy a car or furniture or whatever else they need and then file a bankruptcy form. They figure they can get the big ticket items upfront, and for everything else they will use cash.").
197. A forthcoming paper presents more detailed data on families' use of credit after bankruptcy. See Katherine Porter, Borrowing After Bankruptcy (Apr. 1, 2008) (unpublished manuscript, on file with the Iowa Law Review) (providing CBP III data on actual borrowing practices of families in years after bankruptcy).
198. This number reflects only those who tried to take out a car loan. Many debtors paid cash for a car purchased after bankruptcy. These findings are discussed in detail in the next Section on use of credit.
199. Ronald J. Mann, Explaining the Pattern of Secured Credit, 110 HARV. L. REV. 625, 626 (1997) ("Granting collateral lowers the aggregate costs of a lending transaction by lowering the pre-loan perception of the risk of default.").
200. Id. at 634.
201. Cherie Berkley, Interest Rates Shake Up Subprime Lending Market, CARDS&PAYMENTS, Oct. 2006, at 34, 34-35.
202. DOUGLAS G. BAIRD, ELEMENTS OF BANKRUPTCY 34-35 (4th ed. 2006) (describing how the overwhelming majority of consumer cases are "short, uncomplicated," and result in discharge).
203. 8 COLLIER ON BANKRUPTCY ¶ 1328.01 (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev. 2007).
204. 11 U.S.C. §§ 1305(c), 1306(a)(2), 1306(b), 549(a)(2)(B) (2000).
205. See, e.g., Office of the Chapter 13 Trustee Thomas J. King, Profile, http://www.ch13oshkosh.com/profile.html#newcredit (last visited Apr. 1, 2008). The Administrative Office of the U.S. Courts includes the limitation on new credit in its public information about Chapter 13 Bankruptcy.
206. See Admin. Office of the U.S. Courts, Chapter 13 Bankruptcy Basics, http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/chapter13.html (last visited Apr. 1, 2008).
207. See Braucher, supra note 73, at 539 & n.130 (1993) (stating that "chapter 13 trustees are receptive to new credit requests").
208. Further research could yield insights on how actual credit use during a Chapter 13 case may influence Chapter 13 outcomes as measured by plan completion and discharge.
209. These data come from the Chapter 13 cases collected in the core sample in which a first-round telephone interview was completed. The same method was used for the Chapter 7 sample considered in Parts II.A-D. First-round interviews were completed by 243 families who filed Chapter 13; this figure represents 51.5% of the 470 total Chapter 13 cases in the core sample. Note that these data reflect all families who filed Chapter 13 bankruptcy, but that some portion of these families may have dismissed their Chapter 13 cases before the interview was conducted at one year postbankruptcy filing. Indeed, the completion rate for Chapter 13 is notoriously low. See Jean Braucher, An Empirical Study of Debtor Education in Bankruptcy: Impact on Chapter 13 Completion Not Shown, 9 AM. BANKR. L. REV. 557, 571-74 (2001) (summarizing variations in the Chapter 13 completion rates in various studies);
210. Scott Norberg, Debtor Discharge and Creditor Repayment in Chapter 13, 39 CREIGHTON L. REV. 473, 476 (2006) (finding that sixty-seven percent of chapter 13 filings were either dismissed or converted before completion). I do not exclude cases that were dismissed or converted to Chapter 7 bankruptcy because I am focused on creditor reaction to a debtor's bankruptcy choice, rather than how debtors use credit during the postbankruptcy period.
211. P ≤ .001.
212. P ≤ .05.
213. See 11 U.S.C. § 1322(b)(3) (2000); see also ELIZABETH WARREN & JAY LAWRENCE WESTBROOK, THE LAW OF DEBTORS AND CREDITORS 281 (5th ed. 2006).
214. SULLIVAN ET AL., supra note 5, at 205 n.27.
215. I do not make any assumption that families who chose Chapter 7 and Chapter 13 would, in fact, have the same desire for or beliefs about the availability of postbankruptcy credit. Scholars have expended considerable effort to explain why debtors chose the chapter of relief that they did, see, e.g., Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, The Persistence of Local Legal Culture: Twenty Years of Experience From the Federal Bankruptcy Courts, 17 HARV. J.L. & PUB. POL'Y 801, 814-15 (1994), but no study has extensively considered the role of the availability of postbankruptcy credit as a factor in shaping a debtor's decision. Jean Braucher's research on lawyers' role in debtors' filing decisions may be the best effort to date. See Braucher, supra note 73.
216. See 11 U.S.C. § 1307(a) (2000).
217. See Braucher, supra note 73, at 538.
218. P ≤ .001.
219. See 145 CONG. REC. 8580 (1999) (statement of Rep. DeLay) ("Mr. Chairman, the bankruptcy bill under consideration today is based on the premise that those debtors who can afford to repay their debt should do so, rather than have it forgiven. To accomplish this seemingly simple goal, an income-based means test is employed to determine if a debtor could do one of three things: have debt forgiven; reorganize and enter into a repayment plan; or refrain from filing bankruptcy at all.").
220. See, e.g., 146 CONG. REC. 60 (2000) (statement of Sen. Hatch) ("Not long ago in our Nation's past, there was an expectation that people should repay what they have borrowed. Hand in hand with this expectation was a stigma that attached to those who filed bankruptcy.");
221. see also Elizabeth Warren & Robert Lawless, The Myth of the Disappearing Business Bankruptcy, 93 CAL. L. REV. 743, 784 (2005).
222. See Block-Lieb & Janger, supra note 2, at 1483-85.
223. Id. at 1491.
224. At the time these data were gathered from 2001 through 2004, the ban on subsequent filings was six years. See 11 U.S.C. § 727(a)(8) (2000) (current version at 11 U.S.C. § 727(a)(8) (Supp. V 2005)).
225. See Part III.B, infra, for a discussion of ways in which bankruptcy law facilitates postbankruptcy credit opportunity.
226. Ausubel, supra note 45, at 253 & fig.1.
227. See sources cited supra note 166; see also WARREN & WESTBROOK, supra note 189, at 350-51.
228. See Amanda E. Dawsey & Lawrence M. Ausubel, Informal Bankruptcy 2 (April 12, 2004) (unpublished manuscript), available at http://www.ausubel.com/creditcard-papers/informal-bankruptcy.pdf (reporting that "50.7% of all charged-off [credit card] accounts (and 45.8% of credit losses in dollars) occurred without the debtor filing for bankruptcy").
229. See generally Michelle J. White, Why Don't More Households File for Bankruptcy?, 14 J.L. ECON. & ORG. 205 (1998) (exploring the reasons why many debtors default but do not file bankruptcy).
230. See Block-Lieb & Janger, supra note 2, at 1496 (describing the concern of economist William Meckling that lenders could not effectively distinguish consumers' risk of bankruptcy).
231. Bankruptcy cases in this sample were filed in 2001, and the first and second longitudinal interviews were conducted in 2002 and 2004 respectively. Bankruptcy-reform bills were introduced in each Congress during this period. See Mann, supra note 1, at 383 tbl.1.
232. I put this term in quotes because credit card issuers allegedly call people who pay off their balances in full each month "deadbeats." Those who accumulate balances and make minimal payments are termed "revolvers," a group that the top lobbyist for the American Bankers Association called the "sweet spot" of lending. See Interview by Frontline with Edward Yingling, President, Am. Bankers Ass'n (Sept. 16, 2004) [hereinafter Frontline Yingling Interview], available at http://www.pbs.org/wgbh/pages/frontline/shows/credit/interviews/yingling.html ("I think it is generally understood that those that use the revolving part of the credit card are kind of the sweet spot.").
233. See sources cited supra note 17.
234. See Frontline Yingling Interview, supra note 206.
235. See Block-Lieb & Janger, supra note 2, at 1565 ("To the extent that rationality and opportunism exist in consumer credit transactions, they both appear to exist on the lender, not the borrower, side of the equation. Those who would seek to reduce the bankruptcy filing rate should focus there as well."); Pottow, supra note 9, at 429 (noting that it takes "two to tango" with bankruptcy-causing debt and suggesting that bankruptcy lawmaking could have usefully considered ways to change creditor behavior).
236. See 11 U.S.C. § 727(a) (2000 & Supp. V 2005).
237. 11 U.S.C. § 727(a)(8) (Supp. V 2005).
238. See Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, § 312, 119 Stat. 23, 87 (codified at 11 U.S.C. § 727(a)(8) (Supp. V 2005)). The bankruptcy cases in this Article's sample were filed in 2001 when the ban on repeat Chapter 7 discharges was six years. See 11 U.S.C. § 727(a)(8) (2000).
239. TERESA A. SULLIVAN ET AL., AS WE FORGIVE OUR DEBTORS: BANKRUPTCY AND CONSUMER CREDIT IN AMERICA 192 (1989) (stating that of the 1502 petitions in their sample only eight percent were repeat filers).
240. Porter & Thorne, supra note 62, at 69-70.
241. 11 U.S.C. § 727(a)(11) (Supp. V 2005).
242. See Thorne & Porter, supra note 172, at 15, 16 (articulating how the educational needs of bankrupt families may differ from the general population for financial education).
243. Edward M. Gramlich, Governor, Fed. Reserve Bd., Remarks at the Home Ownership Summit of the Local Initiatives Support Corporation (Nov. 8, 2001), available at http://www.federalreserve.gov/boardDocs/speeches/2001/ 200111082/default.htm ("For a family, a home is generally its most significant asset and serves as its primary wealth-building vehicle.").
244. See MANN, supra note 7, at 46-47; cf. Katherine Porter, The Debt Dilemma, 106 MICH. L. REV. 1167 (2008) (reviewing CHARGING AHEAD, supra note 7, and offering empirical data identifying the complexity of the relationship between cards and financial well-being).
245. See 11 U.S.C. § 1322(b)(2) (2000).
246. Cf. Enzer, Brigard & Lazar, supra note 66, at 90 (discussing a suggestion of "a six-month prohibition of credit" after bankruptcy that was found to be "very undesirable" due to problems of "feasibility" and "interference" with debtors' lives).
247. Cf. Kathleen C. Engle & Patricia A. McCoy, A Tale of Three Markets: The Law and Economics of Predatory Lending, 80 TEX. L. REV. 1255, 1317-66 (2002) (discussing government imposition of a suitability standard as a possible solution to the problem of predatory lending).
248. Cf. Pottow, supra note 9, at 418 (calling for careful development of policy prescriptions to focus specifically on "bad" credit rather than reduce the overall amount of credit).
249. See 151 CONG. REC. H2053 (daily ed. Apr. 15, 2005) (statement of Rep. Goodlatte) ("The means test applies clear and well-defined standards to determine whether a debtor has the financial capability to pay his or her debts. The application of such objective standards will help ensure that the fresh start provisions of Chapter VII will be granted to those who need them, while debtors [who] can afford to repay some of their debts are steered toward filing [Chapter 13] bankruptcies.").
250. I do not comment on Congress's purpose in enacting bankruptcy relief. My focus is on the purpose of creditors in supporting bankruptcy reform. Actual legislative history on BAPCPA is sparse, and courts must cope with the consequences of that reality. Efforts to substitute academic commentary on BAPCPA for legitimate legislative history are inappropriate and misguided, frequently missing the possibility of a distinction between why Congress voted for the bill and why creditors lobbied for it. See Mann, supra note 1, at 379 (arguing that credit card issuers could not have expected increased payouts from bankruptcy reform but instead hoped to increase profits before bankruptcy by raising obstacles to filing).
251. The data herein concern the frequency and type of credit solicitations and debtors self-reporting difficulty in obtaining credit. More extensive research on the costs and terms of credit could show significant differences in postbankruptcy credit that favor Chapter 13 filers.
252. Block-Lieb & Janger, supra note 2, at 1556-57.
253. Pottow, supra note 9, at 414.
254. Id. at 414-17 (collecting research on profitability of possible or likely defaulting borrowers).
255. Mann, supra note 1, at 392 ("If we imagine borrowers who limp along, carrying [balances] for decades - neither discharging them in bankruptcy, nor ever paying them off entirely, perhaps making an occasional minor purchase - we can see how profitable this business model can be.").
256. See id. at 384-92.
257. See JEAN ANN FOX & ELIZABETH GUY, CONSUMER FED'N OF AM., DRIVEN INTO DEBT: CFA CAR TITLE LOAN STORE AND ONLINE SURVEY 11-14 (2005), available at http://www.consumerfed.org/pdfs/ Car_Tiue_Loan_Report_111705.pdf (describing fees for auto-tide loans);
258. Ronald J. Mann & Jim Hawkins, Just Until Payday, 54 UCLA L. REV. 855, 862 (2007) (noting that the economics of payday lending revolves around the standard fee per loan); see also Berkley, supra note 179, at 34 (noting that "[m]ost subprime lenders are relying on fees as a countermeasure" to consumers with "less-than- stellar credit").
259. Block-Lieb & Janger, supra note 2, at 1488.
260. Id.
261. See Marlena Telvick, Charge It!, FRONTUNE: SECRET HISTORY OF THE CREDIT CARD, Nov. 23, 2004, http://www.pbs.org/wgbh/pages/frontline/shows/credit/eight/responsibility. html ("'You just can't build a long-term financial relationship with someone who mismanages their personal finances.'" (quoting Edward Yingling, President, Am. Bankers Ass'n)). This statement is intriguing. First, it suggests that lenders may be seeking to maximize short-term profits from customers, dumping them if they fail to generate profits or generate significant losses. Second, the reference to mismanagement of personal finances is telling. If Mr. Yingling is correct, then the industry's interest in bankruptcy debtors must suggest that lenders do not see bankruptcy as evidence of a family's financial mismanagement but rather as the result of exogenous adverse financial events.
262. Berkley, supra note 179, at 35. Berkley writes: "They said the trick in all this is to find the guy who has bottomed out and is looking to rebuild his life, to rebuild his credit and is on the way back. You don't want to be lending money to the guy who is still sliding down . . . . So in essence they said that they go to the people who are in the worst situations but yet have procured a job - they have now been gainfully employed for some period of time and have the wherewithal to stabilize their situation to be able to pay." Id. (quoting Alan Weinberg, Managing Partner, Weltman, Weinberg & Reis Co. LPA).
263. Porter, supra note 218, at 1179 (providing data from CBP III showing that 91.44% of all debtors had at least one credit card debt when they filed bankruptcy).
264. See Mann, supra note 1, at 390 (explaining that the "worst [credit card] customers are those who accept cards and use them infrequently").
265. This response of an elderly woman from Texas to her experience with credit cards after bankruptcy is illustrative of how debtors deal with cards after bankruptcy. "I accepted one credit card to re-establish my credit. I've been offered a number of offers, but I'm leery of credit; I have been for a long, long time." Telephone Interview by Consumer Bankr. Project III with Respondent TX-07-101 (one year postbankruptcy). A married man in his thirties said that his family had accepted one new credit card from Capital One after bankruptcy. He explained his reasoning as follows: "It has a low limit - only $300. I got it to re-establish myself. I'm trying to pay as much as I can [on the balance] and make sure it's on time." Telephone Interview by Consumer Bankr. Project III with Respondent TX-07-100 (one year postbankruptcy).
266. This belief may in fact be correct. Additional research on postbankruptcy credit could usefully help families, their bankruptcy attorneys, and financial educators evaluate options for postbankruptcy financing.
267. Mann, supra note 1, at 389 (theorizing that lenders face difficulty in attracting nonbankrupt customers that could be vulnerable to distress without offering them unprofitably low initial interest rates).
268. MANN, supra note 7, at 158.
269. See Porter & Thorne, supra note 62, at 95-96.
270. Block-Lieb & Janger, supra note 2, at 1540-43 (collecting evidence of consumers' cognitive-estimation bias in estimating future income); cf. Lawrence M. Ausubel, The Failure of Competition in the Credit Card Market, AM. ECON. REV., Mar. 1991, at 50, 70-71 (describing how consumers underestimate current and future borrowing).
271. See Pottow, supra note 9, at 455 ("Much hand wringing occurred in Congress regarding the death of personal responsibility that practically made bankruptcy reform a moral imperative. . . . [T]here was no concomitant call for personal responsibility of lenders." (internal citations omitted)).
272. See id. at 412-13 (summarizing likely externalities but noting that evidence is more "intuitive than empirical at this juncture").
273. Mann, supra note 177, at 649 n.89.