A University of Iowa law professor says recent reforms to bankruptcy laws have not had the intended effect. Katie Porter is one of six collaborators on the Consumer Bankruptcy Project. Proponents of the 2005 reforms wanted to force high income filers to repay some debt.
Porter says the vast majority of families who declare bankruptcy are still low income but, the paperwork required to prove it is far more burdensome.
"The result of this is attorney’s fees have doubled," Porter said. "For a typical family nationwide, the cost of filing Chapter 7, attorney’s fees alone are about 15-thousand dollars. If you wanted to file a Chapter 13 bankruptcy, to save your home from foreclosure, those attorney’s fees usually top $3,000. We’re talking about a set of families who earn about $30,000 a year."
The Consumer Bankruptcy Project’s study also found that low income families are filing bankruptcy today with huge debt loads, but credit is being used to cover rising health care and other costs. "Half of all people who file for bankruptcy have a medical problem," Porter said. "The health problem might not be the only reason they file for bankruptcy, but it was one of the reasons."
Porter says the study also found families in bankruptcy today are carrying more debt than they were 20 years ago. She says that’s because incomes haven’t kept up with the rising costs of housing, health care and college tuition and families are using credit to close the gap. Porter was a guest this week on Iowa Public Radio’s Talk at Twelve program.