Reduction in Bankruptcy Filings Since Reform
An interesting article from the Concord Monitor:
New law reduces bankruptcy filings
Only 28 cases since law changed Oct. 17
By JOELLE FARRELL
Monitor staff
More than 1,700 state residents filed for bankruptcy in the two weeks before October 17, when new federal legislation making it harder and more expensive to file became effective.
Since then, only 28 bankruptcy cases have been filed in U.S. Bankruptcy Court in Manchester, down from 73 cases during the same time period last year.
Some lawyers said fewer people are filing now because they rushed to file before the October deadline. Filings likely will increase after the holiday season, when credit card debt and heating costs can become overwhelming, lawyers interviewed yesterday said.
But even if the number of bankruptcy filings continue to decrease, it may not mean that the system, or people's financial troubles, are fixed. While some may be able to find an alternative to filing bankruptcy, others who face financial hardship from illness or divorce may struggle to pay the extra costs associated with the new law, said Mark Cornell, a Concord attorney.
"They can't afford to pay their bills and they can't afford to file bankruptcy," Cornell said. "Bankruptcy is a symptom of a financial disease. Changing the laws doesn't change the course of the disease -people are still going to get divorced, people are still going to lose their jobs."
The new law says that those who earn more than the state median income - $50,411 for a single earner - cannot file for Chapter 7 bankruptcy, which allows people to write off large, unsecured debt, like unpaid credit card and medical bills. Instead, people will be required to file under Chapter 13, which requires them to pay back their debt within five years.
It cheaper to file for Chapter 13 bankruptcy. In Manchester court, the cost to file Chapter 13 bankruptcy decreased from $194 to $189. But it costs $274 to file Chapter 7 bankruptcy, up from $209.
The banking and consumer finance industries pushed for the new legislation to prevent people from abusing bankruptcy to escape credit card debts with few consequences.
But several local lawyers interviewed yesterday say that most people who file Chapter 7 bankruptcy aren't trying to take advantage of the system. And most Chapter 13 bankruptcies fail because people can't keep up the payments, said Dan Proctor, a Concord lawyer who works for both debtors and creditors.
"They're living close to the edge," Proctor said. "A Chapter 13 plan gets carried out for three to five years, and what may look good in year one, one heart attack ... and suddenly you can't make those payments."
Cornell said most of his clients already consider bankruptcy a last resort, and now, it's a more expensive choice. Several lawyers said they've doubled their fees for bankruptcy cases because they have become more costly and complex under the new law. Cornell said he used to charge about $500 for a typical case. Now, he charges $800 or more.
People who file bankruptcy are also required to attend a financial planning and counseling sessions before and after the filing, which adds additional costs. While the sessions may help some people learn how to budget better, it doesn't help a man who is in debt for medical bills from cancer treatment, Cornell said.
"He doesn't need to learn how to manage a checkbook," he said. "I think painting everybody with this broad brush is not necessarily a good thing."
By JOELLE FARRELL
