The Bankruptcy Lawyers Blog

Still, the bottom line for many people who find themselves in dire financial
straits - often because of job loss or big medical bills - is that they simply
cannot afford to file for bankruptcy.

That's just one of myriad headaches consumer lawyers say are being generated by
the act. They call it ill-conceived and badly written. Some provisions refer to
sections that don't exist, some amendments contradict others and some sentences
simply don't make sense, they say.

While lawyers don't know if all of these changes will reduce bankruptcy abuse,
they say there are two things the new rules will do: double their workloads and
hit cash-strapped debtors with more bills.

T.J. Mullin, a lawyer from Clayton, said the act "just seems like a lot of
unnecessary work."

Many St. Louis area lawyers said bankruptcy abuse was not an issue here.
Instead, they said, many of their clients had been unexpectedly hit with job
loss or medical bills.

That was the case for Linda, 41, a single mother. She lost a customer service
job at a mortgage company this summer when her department was cut as part of a
downsizing.

Linda, of St. Louis County, who asked not to be identified by last name, said
she desperately looked for another job; the bills had to be paid, and no cash
was coming in. She recently found work, but at a much lower salary - too low to
cover expenses. No longer able to pay the rent on her apartment, she is moving
in with relatives.

Filing for bankruptcy sounded pretty ugly, but she thought it might be an
option. After all, she figured, bankruptcy is designed to help people in deep
financial trouble get a fresh start.

But when she checked around for legal advice, she said lawyers wanted $400 or
$500 up front, and she didn't have it. She tried to find pro bono advice with
no luck.

"I've never been through anything like this before," she said. "I really don't
know what to do."

Roadblocks to filing

The difficulty in finding lawyers to handle bankruptcies pro bono has become a
big national problem, said Henry Sommer, president of the National Association
of Consumer Bankruptcy Attorneys.

"More people won't be able to afford to file," said Sommer, a lawyer from
Philadelphia. He pointed out that pro bono bankruptcy services were no longer
available in most areas of the country.

The St. Louis region is no exception.

"We have no staff lawyers to handle bankruptcies, and there is no one to refer
them to," said Genevieve Frank, who recently left her job as head of volunteers
at Legal Services of Eastern Missouri. The agency provides legal help to
low-income people on non-criminal matters.

"Unfortunately, we just can't help right now" with bankruptcy work, she said.

Mueller said that he used to take some pro bono cases but that it would be an
unusual situation for him to take one now. "I can't say I won't," he said, "but
I would be leaning away from taking one."

Michael Korybut, a law professor at St. Louis University, said that he didn't
want to judge the new law but that the resulting higher filing and legal costs
would be prohibitive to some people who have an honest need for bankruptcy
protection.

"Is that a good thing? Overall, no," Korybut said.

Out of options

Lawyers nationwide have raised fees substantially, because so much work is
involved in meeting the demands of the complex new rules, Sommer said. "It's
just a question of how much," he said.

And it's not just the money. There also are new hoops the law sets up for
debtors.

One of the more controversial provisions demands that they take a credit
counseling course within the 180 days before filing for bankruptcy. The course
must be taken from an agency that the U.S. Trustee Program has approved.

A recent check showed 10 approved sites for eastern Missouri and eight for
Southern Illinois; the closest are in Springfield, Mo., and a Detroit suburb,
respectively. More are expected to be approved.

Because none is in the St. Louis region, the counseling for area debtors often
takes place by telephone or over the Internet. The cost is usually about $50
but can be waived for debtors who are deemed unable to pay.

One of the biggest concerns for consumer bankruptcy lawyers is that some of
these credit counseling agencies will discourage debtors from seeking
bankruptcy and instead urge them to work out a debt-management plan.

Under such a plan, a consumer can manage debts by sending a monthly payment to
an agency that then distributes the money to creditors.

"Counselors (who are) used to debt-management plans have a jaundiced view of
what bankruptcy is about. Their goal is to pay off credit card debt," said
lawyer Wendell Sherk of Richmond Heights, of the Sherk & Swope law firm.

A client who could avoid home foreclosure by filing for Chapter 13 could be
talked out of bankruptcy by a credit counselor, he said. "They'll sign up for
debt management to solve their credit card debt, then they'll realize they made
a mistake," Sherk said.

In Belleville, Mueller said he recently listened in on a phone counseling
session involving a client. He said the counselor berated his client, gave
incorrect information and told the client to pay off his credit card debt
monthly instead of filing a bankruptcy repayment plan that could have allowed
him to keep his car.

Mullin also questioned why debtors should have to spend the time and money to
take the classes. He said bankruptcy lawyers screened clients to make sure they
qualified.

"We only want to file bankruptcy cases for people who are good candidates," he
said. "I've already pre-screened them. I know there is no way these people can
pay their bills."

James Brown of the Castle Law Office of St. Louis was more optimistic. He said
he had been concerned that counselors would try to discourage clients from
filing bankruptcy, but "that hasn't happened ... They haven't tried to convert
clients."

For example, Bob, a construction worker from Troy, Mo., who was one of the
first to file a Chapter 13 in St. Louis under the new law, said that he had
taken the course and that no one had tried to talk him out of filing bankruptcy.

Bob, who asked that his last name not be used, said he had taken the action to
stop foreclosure on the house he shares with his wife and six children.

Although he was worried about having to file under the new bankruptcy code, he
said he was out of options.

"It was the only thing I could do ... that or be homeless," he said. "Actually,
it relieved a lot of the stress I had. It's getting us through the tough times."

Chapter 7 vs. Chapter 13

Bankruptcy is a federal court process used by individuals and businesses to
eliminate or repay debts. Most individuals seeking bankruptcy protection file
for Chapter 7 or Chapter 13.

Chapter 7: A liquidation of assets. In exchange for eliminating
debt, the person's property is sold to pay creditors. A debtor can keep certain
property that is specified as exempt.

Chapter 13: A reorganization of finances. This is geared toward
individuals with regular income who are temporarily unable to pay debts but can
do so over time. A debtor files a plan with the court to repay creditors, in
full or in part, over three to five years. Chapter 13 permits the debtor to
keep his property and to stop foreclosure or repossession by making payments
through the plan.