New Bankruptcy Laws aren't that Bad
By Rodney Tanaka, Staff Writer
Inland Valley Daily Bulletin
WEST COVINA - New bankruptcy laws went into effect on Oct. 17, prompting an unprecedented surge in filings as people worried they wouldn't qualify under the new regulations. But contrary to popular belief the new laws don't eliminate bankruptcy as an option, said M. Erik Clark, a partner with the West Covina law firm of Borowitz, Lozano & Clark. "Bankruptcy is an option once we clear the hurdles," he said Wednesday. The Bankruptcy Abuse Prevention and Consumer Protection Act went into effect on Oct. 17. More than 600,000 bankruptcies were filed nationwide in October 2005 to beat the deadline, compared to about 130,000 filed in October 2004, according to the American Bankruptcy Institute. Advanced publicity about the new law suggested the new regulations were much less debtor friendly and restricted access to Chapter 7 of the bankruptcy code, said Samuel Gerdano, executive director of the American Bankruptcy Institute. Some even believed that bankruptcy would not be available after Oct. 17. "So that kind of panic environment caused a stampede to file, a rush that courts are only now beginning to finish working their way through," Gerdano said. "Since Oct. 17, filings really dropped off dramatically nationwide." But most people will still be eligible to file for Chapter 7, he said. By many accounts, the new law represents the most significant revision to the United States bankruptcy code since the late 1800s, Clark said. One major change is the "means test," measuring a debtor's income against the median income of his or her home state. For example, a single Californian's average monthly income from the previous six months would be compared to California's median income. The annual median income in California is estimated at $42,012. If the debtor's average income falls below the state median, they are not affected by many of the new laws, Clark said. But even those with incomes above the state median can qualify for bankruptcy, they just need to take several additional steps, he said. Much of the burden of these new laws falls on bankruptcy attorneys and others who counsel debtors, Clark said. The laws require more receipts and paperwork, and debtors will likely pay more in bankruptcy court filing fees, Clark said. Someone planning to file for bankruptcy must also attend a U.S. Trustee-approved credit counseling program before filing. "The end result is it made it more complicated and more expensive for people facing financial problems to get relief," Clark said. Most people who file for bankruptcy are not trying to cheat the system, nor are they people who don't know how to manage their money, Clark said. They are for the most part hard-working, honest people who come across circumstances they either didn't or couldn't plan for, such as medical expenses or those going through a divorce, he said. "The bankruptcy system was set up to give people a fresh start when some sort of event made their financial situation overwhelming," Clark said.
