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New bankruptcy laws await
Process gets tougher Oct. 17

By HANK EZELL

Cox News Service

September 18, 2005

ATLANTA — Delta Air Lines filed for bankruptcy protection before the new bankruptcy law went into effect, and debt-stressed families should pay attention to that timing.

On Oct. 17, under the Bankruptcy Abuse Prevention and Consumer Protection Act, the process will get a lot tougher.

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"For most consumers, the new law is going make it more difficult, more complicated and more expensive," said Maureen Thompson, executive director of the National Association of Consumer Bankruptcy Attorneys.

Already a rush to the courthouse has begun. Nationally, 362,481 people filed for Chapter 7 personal bankruptcy in the three months ended June 30. That's up nearly 18 percent compared with the same three months of 2004.

Chapter 7, also called straight bankruptcy, wipes out most debts. The personal bankruptcy alternative is Chapter 13, which requires at least partial repayment of debts.

"Our phones are ringing off the hook," said Carol Colliersmith, an attorney and president of the Atlanta area branch of National Association of Consumer Bankruptcy Attorneys. "I think we're going to be working way into the night."

The new law makes major changes for both business and personal bankruptcies. Many individuals and families will be barred from Chapter 7 and forced into repayment plans.

The new law was heavily backed by the credit industry, which has long felt that too many people take the easy way out when they could pay at least some of what they owe.

Opponents claim that most people seeking a Chapter 7 bankruptcy are not deadbeats but victims of job losses, expensive medical problems or other unavoidable setbacks.

Highlights of the new law:

Credit counseling. Individuals will have to go through debt counseling with an approved agency before they can file for bankruptcy.

Means tests. Most applicants will have to fill out a detailed report on their personal finances, including income, expenses and debts. Assuming you hire an attorney to do the work, this will run up the cost.

An applicant will have to total his income over the preceding six months, then subtract living expenses. Expenses will be limited to amounts established by the Internal Revenue Service.

The result is a net income figure. If it is less than $100 a month, the debtor will be eligible for Chapter 7. If he has higher disposable income, the process gets more complicated, but a debt repayment plan may be his only choice.

More paperwork. In addition to the certificate of credit counseling and the means test forms, other required documents include pay stubs, estimates of any anticipated increases in future income or expenses and, in some cases, a federal income tax return.

Lawyers' responsibilities. In effect, your lawyer will have to guarantee that your means testing was done correctly. "Attorneys have great incentive to err in favor of Chapter 13, and in close instances, will be forced to weigh their best interests against that of the clients," according to a special report from CCH, a leading tax information service.

All this means that the process will get more expensive. Colliersmith said fees for a straight Chapter 7 bankruptcy now run about $800 to $1,200 in Atlanta. "A lot of attorneys' fees will probably go up maybe an additional $500," she said.

There is still time to take advantage of the current law, but Colliersmith and others strongly suggest contacting a lawyer by the end of this month to do so.

On the web

To find a bankruptcy lawyer, nacba.com or abiworld.org

Read more "Bank on Hank" columns