The "reform" of the bankruptcy act in 2005 is now looking more like it was less of a reform and more of a return to a creation of virtual poor houses, where debtors who have a low enough income are rendered insolvent to such a degree that they are unable to file for a bankruptcy.
The 1985 Bankruptcy Act was passed by a partisan Congress in an effort to stem what was viewed by creditors as "abuse" of the process by debtors. Of course, the Congress had the foresight to reduce access to the relief and "fresh start" promised by the bankruptcy code only a few short years before the beginning of the worst financial crisis in American history since the Great Depression.
These tightened restrictions, including raising the cost of filing, requiring credit counseling courses and the use of a means test to determine eligibility for Chapter 7, have put bankruptcy out of reach for those who cannot afford these new requirements.
With a terrible job market and flat or declining wages, the inability to file for bankruptcy leaves many workers insolvent, perpetually struggling to pay bills that they can no long afford and with high interest rate, they may wind up falling further and further behind with every passing month.
Ironically, a study noted by The Economist found that "bankruptcy reform" appears to be tied to a 23 percent increase in mortgage defaults. Those who could not afford to file bankruptcy also experienced lower incomes as compared to filers.
The job market and real wages seem unlikely to improve for the foreseeable future. Congress needs to revisit the "reforms" of the last decade and offer genuine relief for those trapped in permanent insolvency.
Economist.com, "A fresh start," March 14, 2015