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Bankruptcy law still controversial 1 year later |
| By Brigitte Yuille • Bankrate.com |
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One year and one tsunami of bankruptcy filings later,
the bankruptcy law that debuted Oct. 17, 2005, is still generating
controversy.
Banking industry representatives say the low number
of filings prove the effectiveness for the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005. It is fulfilling its purpose,
they say, of weeding out abuse and wringing out payments from those
with the means to pay.
Critics say that the law has found little abuse and
made getting out of debt more expensive and cumbersome and so confusing
that many consumers aren't sure whether bankruptcy is even an option
for them anymore.
The law went into effect Oct. 17, 2005, with a court-clogging
fury, as a host of last-minute filers, aware that the law would
become tougher, filed under the old law. More than 600,000 cases
were filed in the two weeks before the law's effective date.
They had reason to rush.
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Major changes consumers now face in filing
for bankruptcy include: |
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Bankruptcy filings collapsed once the law took effect. In the first
quarter of 2006, bankruptcies totaled just 116,771. In the last
quarter of 2005, they numbered 667,431.
But filings are slowly creeping up. Filings are now
approximately 40 percent of what they were before the law. The law
encouraged Chapter 13 filings, which require debt repayment under
a court-supervised plan. Immediately after the law changed, Chapter
13 filings represented 57 percent of all filings. Now, they're only
39 percent. Chapter 7 bankruptcies -- in which debts are erased
and consumers get a fresh chance -- are back the majority, although
not as strongly as before the law.
Attorney fees and filing fees increased the law's
impact. Bankruptcy attorneys, compounded with additional paperwork,
hiked their fees. According a survey
by the National Association of Consumer Bankruptcy Attorneys, or
NACBA, of 700 U.S. bankruptcy attorneys, more than three-quarters
of bankruptcy attorneys said that the time involved in preparing
bankruptcy filing has gone up by 50 percent or more. Almost all
of those questioned pointed to the paperwork as the cause of increase
in the costs.
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| Bankruptcy: Boom, bust, rebound |
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| Like a tsunami draws all available
water, the bankruptcy law drew filings. More than 600,000
cases were filed the month the law went into effect, October
2005. After that, cases dwindled, but lately have rebounded. |
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| Source: Administrative Office
of the United States Courts |
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Consumers have not only had to find ways around their
damaged finances to pay their lawyers, but they're required to pay
a $50 fee for pre-filing credit counseling and either $299 for a
Chapter 7 or $274 for a Chapter 13 bankruptcy. Under the old law,
there was no counseling requirement, and filing fees were $209 for
a Chapter 7 and $194 for a Chapter 13 bankruptcy.
Chapter 7 filers may have to pay even more if Congress
agrees to a bill, H.R. 5585, which increases both the chapter's
filing fee and the trustees' compensation by $55.
The NACBA also issued a critical study
of the law in February. Its provocative title: "Where are all
the 'deadbeats'?"
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