Bankruptcy is too complex, making it costly and difficult for people to file under either Chapter 7 or Chapter 13. We need to make it as simple as filing a 1040EZ tax return, and demand greater levels of documentation for more complex cases.
So says Columbia Law School professor Ronald Mann (he’s the guy in the center of the picture above) in an op-ed piece in the New York Times.
We’ve discussed the concept of legal fees in bankruptcy cases in the past, and I’ve written on the topic of the level of documentation needed to get a bankruptcy case rolling. What concerns me about Professor Mann’s piece, however, is that he presupposes that people who need to file for bankruptcy in New York (I can’t speak for the rest of the country) will pay lower legal fees just because the output of documents is simpler.
Professor Mann is off base. And before you get upset, I want to tell you exactly why.
Regardless of the forms that need to be filed with the U.S. Bankruptcy Court to get a case filed, the same information needs to be digested by the lawyer. Whether you make a lot of money or a little money, I still need your paystubs for the past six months. Your credit card bills need to be reviewed whether you owe $100,000 or $10,000.
Sure, I don’t need to see the title to your car if you don’t have one. But if you don’t have a car then I don’t complete that part of the bankruptcy schedules anyway. My time isn’t spent there, and I don’t need to do that work.
Ideally, I would be charging less money in legal fees for those sorts of cases. Less work means lower fees, right?
Maybe. But maybe not.
You see, we bankruptcy lawyers still need to do an unholy level of work just to figure out how to get you qualified for Chapter 7. And if you don’t qualify, we need to do a ton of work on figuring out your Chapter 13 Plan payment and Plan duration. It’s called the means test, and it forces us to put every single client through a meat grinder of 6-month averaged income for the entire household, asset levels, and expense deductions that have no earthly connection to the real world.
You want to make the bankruptcy laws simpler? I’ve got a fix for you – get rid of the means test and let the consumer come to the court with a statement of income and expenses. The judge can decide if those expenses are realistic or over-inflated, and the decision to allow a Chapter 7 discharge can be based on that rather than arbitrary figures.
The forms are largely generated by sophisticated software programs, not hand-typed. We press a button and they get spit out of the printer. The legal fees involved in filing for bankruptcy have to do with the level of legal analysis that needs to be done, and that has very little to do with drafting documents.
Professor Mann, your pro-consumer intentions are good but your anger is misplaced.
Photo courtesy of Center for American Progress.
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