Personal bankruptcy attorneys warn of clogged courts as deadline approaches

The Bankruptcy Abuse and Consumer Protection Act, passed by Congress and signed into law by President Bush in April 2005, promises to completely change debt law as we know it. Including sweeping changes in law that have long been sought by the lending industry, this bill creates the greatest change in debt elimination law in more than twenty five years. The greatest changes will affect individual consumers with personal debt problems, making it harder than ever to have those obligations wiped out by the courts. Recent trends indicate that anyone contemplating a personal bankruptcy filing should not wait to do so, as the line of filers is already getting quite long.

The Act will make it harder for the average debt-laden consumer to file for protection under Chapter 7 of the Federal bankruptcy code, which permits the courts to wipe out debt and give the debtor a new start. Chapter 7 filings will still be permitted, but anyone considering such a filing will first be subjected to a “means test.” Should his or her income exceed the mean income for their respective state, a Chapter 13 filing will be required instead. A Chapter 13 filing is a much more complicated process, which requires a repayment plan of up to five years in duration and substantially more paperwork. It is difficult, if not impossible, to file under Chapter 13 without the assistance of a competent bankruptcy attorney.

Current indications suggest that bankruptcy filings are about 25% ahead of the same time last year, an even higher rate than anticipated. Some bankruptcy attorneys say that their business has nearly doubled. Most say that their telephones are ringing constantly, as consumers who are worried about their financial situation are eager to make a decision before the new law takes effect. A component of the new law holds attorneys legally liable for the accuracy of the information filed in court by their clients; this has led to an increase in the rates charged by bankruptcy attorneys. Worse, some lawyers have discontinued offering services in such cases. For many lawyers, debt cases represent a small portion of their overall practice, and the additional liability under the new law has persuaded them to stop handling such cases altogether.

A further complication is the implementation of a 2003 Federal law that requires the credit card companies to establish a repayment schedule that allows their customers to repay their balances in a reasonable amount of time. This has resulted in most of the major credit card companies increasing their minimum payment from 2% of the outstanding balance to 4%. For the average household with $10,000 in credit card debt, this increases the minimum payment from $200 to $400 each month, a sum many consumers cannot afford.

The deadline for filing under existing law is October 14, 2005. The forthcoming changes in law, combined with changes in credit card policies and defections from bankruptcy practice by many attorneys, is making it difficult for consumers with problem debt to file for protection under the courts. It will only get more difficult as the deadline approaches, so anyone who may be considering filing for bankruptcy should not wait to do so.

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