Debt Consolidation and Credit Card Counseling

Personal bankruptcy filings continue, but at a much lower rate than in years past.

The new Bankruptcy Abuse and Consumer Protection Act has long been promoted as an overdue restructuring of the Federal code relating to personal debt. Supporters claim that it will free up the courts from frivolous filings that have clogged them up in the past, as drug users, compulsive shoppers and compulsive gamblers tried to get out of paying their debts. Detractors say that the law unfairly hurts those who have had personal misfortune thrust upon them, particularly as a result of disaster, illness, or job loss.

Whether the new law has a net good effect or a net bad effect, the law has had a definite impact upon bankruptcy filings.

In the months leading up to the implementation of the new law, which took effect in October, 2005, filings were up substantially. Two weeks before the new law took effect, 125,000 people filed nationally. One week later, the number nearly quadrupled, to 475,000, as people desperately tried to beat the deadline. Failure to do so would result in higher filing fees, more strenuous repayment plans, and increased difficulty in hiring a bankruptcy attorney.

In a recent week, a mere 3600 people filed, suggesting that the new laws have scared people away. On the other hand, perhaps the numbers have been skewed by the large number of people who filed in early October, many of whom may have had only a marginal need. Only so many people are likely to file in a given year; if most of them file at one time then there will be fewer to file later.

Still, the numbers now are 90% lower than they were during this time last year, an astonishing drop. Experts predict that the drop in filers won’t last long, however. Heating bills are much higher for many people this winter than they have been in years past, with some people reporting that their bills have increased fourfold since last winter. Another factor is the increase in minimum credit card payments, which, for those with high amounts of credit card debt, may be enough to force them into bankruptcy. Many people will be adversely affected by both factors, and that may lead to a huge increase in filings in the summer of 2006.

Some problems associated with the surge of new filers last fall will still persist, particularly the problem of hiring a lawyer. It’s true that many attorneys are charging higher rates than they were a year ago, but that’s almost irrelevant, as most of them are simply too busy dealing with existing cases to accept any new clients. This could result in what those in the financial sector consider the worst scenario of all - tens of thousands of people who neither pay nor declare themselves insolvent, but simply stop paying and do their best to disappear.

The nation is best served when those who need help with the legal and court system can get that help when they need it. We may be seeing that unusual set of circumstances that lead to a worst-case scenario, and that could lead to higher costs for all consumers when it comes to borrowing money.

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