How will President Trump affect personal bankruptcy?
Over the past several days, many people have asked me for my opinion on how Donald Trump’s administration might affect the world of personal bankruptcy.
One might assume that Trump, having utilized the bankruptcy code to his advantage on more than one occasion, would be a friend to personal bankruptcy during his presidency. This would be a mistake.
It is true that four of Donald Trump’s companies filed for Chapter 11 bankruptcy. However, the world of corporate bankruptcy is very, very different from the realm of personal bankruptcy. And we can’t expect that Donald Trump’s administration will support the bankruptcy system. Rather, it is much more likely that Trump will seek to undermine personal bankruptcy.
The prevailing thought in conservative circles is that by and large, personal bankruptcy is bad for business, and what is bad for business is bad for our country. Many conservatives believe that bankruptcy is overused, that too many people are allowed to eliminate their debt in bankruptcy, and that the bankruptcy system is still being abused. While Donald Trump is anything but predictable, knowing that Donald Trump’s cabinet selections have a combined net worth of $14 billion dollars, and predominately hail from the world of big business, we can surmise that Donald Trump’s governance will also reflect the ideals of banks and other large corporations whose interests are in opposition to personal bankruptcy. Also, Trump’s first executive order which increased mortgage insurance rates on FHA mortgage loans suggests that he will not necessarily be a President who supports the interests of consumers.
This is not to say that I believe Donald Trump will prioritize a dramatic change in the law of personal bankruptcy, although with a Republican-controlled Congress, anything is possible. In fact, the law was changed not that long ago, in 2005, with the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which was spearheaded by the consumer credit industry (banks, auto finance, etc.). But Donald Trump’s administration can have a impact on the world of bankruptcy, favoring creditors, without going so far as to change the law.
The United States Trustee has the role of overseeing the bankruptcy process., and is part of the Justice Department. When a consumer Chapter 7 bankruptcy case is challenged, often the opponent of the Debtor (filer) is the US Trustee. The US Trustee has the ability to make a bankruptcy filer’s life miserable. For example, the US Trustee might argue that the Debtor has the ability to pay his/her creditors and oppose the Debtor’s attempt to eliminate debt. The UST can investigate the Debtor’s financial circumstance through discovery, compel the production of financial records and conduct an oral examination of the Debtor. The cost of defending against such an action can be very expensive.
The US Trustee reports to the US Attorney General, who is head of the Justice Dept. The Attorney General selected by the President and reports to the President. So, the conduct of the US Trustee is most likely going to reflect the ideology of the President of the United States. Those of us who practiced bankruptcy law during the conservative Bush administration know that the US Trustee was far more active in challenging personal bankruptcy cases during the Bush era than it was under the centrist Democrat Obama.
So, the change we can expect in the short term is a more aggressive United States Trustee. The UST will have an increased presence and will undoubtedly oppose the Debtor in more cases. What does this mean to you if you are considering personal bankruptcy? If your income puts you near the cutoff between Chapter 7 and Chapter 13, you may want to file Chapter 7 sooner rather than later. It may take some time for the changes of the new administration to take effect, but when they do, filing bankruptcy could very well become more difficult and expensive.