CHICAGO – File bankruptcy now – before the law changes!
That’s the message – or exhortation – that attorneys are making across the country, in TV commercials, print ads and mailings, urging Americans to seek bankruptcy court protection before a new law makes it harder for them to walk away from their debts.
Debtors are responding.
Counting down toward the Oct. 17 effective date for the biggest reform in U.S. bankruptcy law in a generation, personal bankruptcy filings have jumped this month to the highest on record. Filings averaged more than 9,000 per day, up about 50 percent from last year’s average daily volume, during the first two weeks of September.
The number is expected to keep climbing, reflecting a growing sense of urgency as the deadline nears.
Lawyer Melvin James Kaplan, who runs a consumer bankruptcy practice in Chicago, hasn’t seen a rush this big in his 48 years in the business. The volume of calls to his office has been increasing all month and have tripled in the past week.
“It’s just getting insane,” Kaplan said. “The information has been out there for months. I guess people are just waiting until the last minute.”
The intensified interest comes from the bankruptcy law makeover signed by President Bush on April 20, a 501-page bill that bears the markings of the Republican-dominated Congress that passed it after an eight-year campaign headed by the banking, credit card and retailing industries.
Among the most noteworthy of the changes are new limitations on filing for personal bankruptcy, including barring those with above-average income from Chapter 7 – where debts can be wiped out entirely – except under special circumstances. Those deemed by a “means test” to have at least $100 a month left over after paying certain debts and expenses will have to file a 5-year repayment plan under the more restrictive Chapter 13 instead.
People also will be required to get professional credit counseling before being allowed to file.
Proponents welcome what they say is a long-needed crackdown on those who rack up credit card debts recklessly only to shed them in Chapter 7. They maintain that abuse of the bankruptcy process results in higher interest rates for everyone else, a “tax” averaging $400 per family per year.
“We’ve got greater fairness now” under the new law, said Wayne Abernathy, executive director for financial institutions policy at the American Bankers Association, an industry group representing banks and credit card issuers. “Where people have the means to pay, they’re going to have to pay something.”
Opponents, however, contend it will unfairly box in people who become buried in debt after unexpectedly losing their jobs or suffering serious health problems. They say it rewards and encourages the tactics of card issuers and other lenders enticing consumers into easy debt.
Travis Plunkett, legislative director of the Consumer Federation of America, called the law “harmful and mean-spirited.” While it will halt some abuse by high-fliers who shouldn’t be filing for bankruptcy, he said, it also will trap people and businesses that got into financial trouble through little or no fault of their own and block people’s realistic chances at starting over.
And some economists say that taking away the traditional “fresh start” option from those middle-income people will be harmful to the U.S. economy, which has benefited greatly from entrepreneurial and other risk-taking.
About 1.24 million bankruptcy filings had been made nationwide this year through Sept. 17, reflecting a 9.2 percent increase over last year and closing in on the record of 1.62 million filings in 2003, said Lundquist Consulting.
Lately, it takes three trustees to handle the daily crush at the U.S. Trustee Program, the agency that enforces bankruptcy laws. Ron Peterson, a Chicago attorney who also is retained by the program as a Chapter 7 trustee, is scheduled to hear 66 cases in a single day later this month.
“I’m seeing cases that wouldn’t have been filed a year ago,” he said. “Mostly poor people, but also somebody with a $4 million house in Kenilworth,” a wealthy Chicago suburb.
Single parents and those overwhelmed by medical bills are among those that opponents of the bankruptcy law revisions claim will be hurt most. Expensive illnesses lead to about half of all personal bankruptcies, according to a Harvard University study released in February. Consumers Union found separately that single mothers trying to make ends meet comprise a large portion of the filers.
Kenneth Klee, a UCLA law professor and former Republican staffer for the House Judiciary Committee who helped draft the last bankruptcy law overhaul in the 1970s, predicts the new law will have “a profound negative effect” that extends well beyond the debtors.
“If debtors aren’t going to be able to get a fresh start, not only is it bad for our economy but it’s bad for the nonbankrupt sector,” he said. “You’re going to have people going into the underground economy, not paying their taxes; they’ll be dispirited and there will be more crime.”
Hurricane Katrina victims may face especially tricky barriers to bankruptcy because of the new law’s requirements for more extensive documentation and stricter deadlines. House and Senate Democrats are pushing for Congress to delay the effective date and ease some requirements.
Associated Press
Attorney Melvin James Kaplan, who runs a consumer bankruptcy practice, holds some of the credit cards clients seeking bankruptcy protection have left with him at his office in Chicago.
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