SC Lawyer, July 2005, #1. You say you want a revolution: the Bankruptcy Reform Act and its effect on consumer debtors in South Carolina.

• Author: By Helen Elizabeth Burris, Jody Bedenbaugh and George B. Cauthen

South Carolina Lawyer

2005.

SC Lawyer, July 2005, #1.

You say you want a revolution: the Bankruptcy Reform Act and its effect on consumer debtors in South Carolina

South Carolina LawyerJuly 2005You say you want a revolution: the Bankruptcy Reform Act and its effect on consumer debtors in South CarolinaBy Helen Elizabeth Burris, Jody Bedenbaugh and George B. CauthenOn April 20, 2005, President Bush signed into law the bankruptcy reform bill, officially titled the "The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" (hereinafter "the Reform Act" or "the Act"), S. 256, 109th Cong. (2005), thereby enacting sweeping changes to the bankruptcy code, 11 U.S.C. § 101 et seq. The Act provides that the amendments are effective 180 days after enactment, except as otherwise specifically provided in the Act. This article discusses the impact of the Act on consumer debtors in South Carolina by surveying the current status of consumer bankruptcy in our state and discussing particular aspects of the Reform Act aimed at preventing abuse and increasing accountability among consumer debtors and their attorneys.

1. Can't buy me love: the state of consumer bankruptcies in South Carolina

   When South Carolinians think of bankruptcy these days, they likely think of the well-publicized Carolina Investors or Homegold cases and the unfortunate investors in those businesses. Those cases, however, are a very small part of the bankruptcy court system and practice in our state, and those business cases certainly are not a fair representation of what the bankruptcy court in South Carolina is all about. In fact, Chapter 11 business reorganization cases comprised less than one percent of the bankruptcy cases filed in South Carolina in 2004, according to clerk of court's office. Simply put, bankruptcy in South Carolina is largely "about" financially over-extended consumers.

   Consumer debtors seek bankruptcy protection under either Chapter 7 or Chapter 13 of the bankruptcy code. Nationally, most choose Chapter 7 - sometimes referred to as "straight liquidation" - in which unsecured creditors rarely receive any money, and a debtor is usually discharged from those debts without repayment. South Carolina does not follow this national trend. As discussed in more detail below, in our state, a majority of consumer cases are filed under Chapter 13 repayment plans. Chapter 13 allows individuals to reorganize their debts and selectively retain essential property while repaying creditors over time. Often Chapter 13 is necessary for individuals who have lost a job or experienced a costly family illness and can afford the basics such as a house and transportation, but can no longer service the debt load incurred prior to the setback. Experience tells us that most Chapter 13 debtors file bankruptcy to save a house from imminent foreclosure, and they purport to repay the amounts of the mortgage delinquency through the Chapter 13 plan while paying a compromised amount to unsecured creditors (anywhere from one percent to 100 percent of the debt owed, depending on equity in property and income level).

   The remaining chapters of the bankruptcy code, namely Chapters 9 (applicable to certain governmental units), 11 (reorganization) and 12 (family farmers), are either not applicable to or are infrequently utilized by consumers and thus are beyond the scope of this article, though these chapter do not remain unscathed by the Reform Act. In addition, the Reform Act adds a new chapter, Chapter 15, which applies to certain cross-border and ancillary cases. See S. 256 § 801.

   For a number of years, the...