With the approach of the fifth birthday of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the American Bankruptcy Institute sponsored a teleconference between bankruptcy attorneys, law professors and judges to discuss the legislation's impact. Many regard the 2005 amendments either as a response to reports of abuse of the bankruptcy system or to lobbying efforts of the banking industry and other special-interest groups. The amendments have, however, had unintended consequences - and not all of them are positive.

Business Restructuring More Difficult

One Chapter 11 attorney says the amendments placed tremendous restraints on companies' liquidity when they file for protection. The act increased the number of creditors who must be paid in full prior to discharge. Adding to an already expensive process means that some small- and medium-sized corporations can no longer afford to file for bankruptcy. Chapter 11 costs already may include fees for lawyers, financial advisers, accountants and investment bankers, and smaller companies cannot bear the cost of more high-priority claims.

Another bankruptcy lawyer says that the amended Chapter 11 offers judges less flexibility in the process. The new law took away some of the discretion judges had to consider the individual circumstances of each debtor, also making it harder on insolvent businesses.

Difficult Interpretation

Bankruptcy Judge Pamela Pepper says judges have had difficulty deciphering the new law's unclear language. She also says that some provisions create unfairness to one involved party under any of the plausible interpretations. She refers to a "somewhat fascinating level of frustration expressed by judges over the unworkability or at least the unwieldiness of certain provisions of BAPCPA."

Businesses and individuals considering filing for protection under the new bankruptcy laws should speak with an attorney about bankruptcy and bankruptcy alternatives.