Bankruptcy filings surge possible
By Brian Tumulty
Gannett News Service
WASHINGTON — Bankruptcy attorneys will soon flood the television airwaves urging people to file for bankruptcy protection, predicts one consumer advocate.
Tim Swoboda • Gannett News Service
The reason: a sweeping overhaul of the rules governing personal bankruptcies, which will make it harder for individuals to walk away from their debts, is expected to take effect in October.
Susan Morley of Manitowoc, Wis., filed for bankruptcy protection in 2002 after she was unable to pay a medical bill her ex-husband had agreed to pay. She was liable after he moved to another state.
After eight years of roadblocks, impasses and a veto by President Clinton in 2000, legislation sought by the credit card industry and opposed by consumer groups is expected to become law later this month.
The House is expected to vote next week on a Senate-passed bill that can be sent directly to President Bush for his signature.
Because the law won't take effect until 180 days after Bush signs it, Kathryn Crumpton, manager of Consumer Credit Counseling Service of greater Milwaukee, said she's worried.
"Part of me is concerned we'll see an awful lot of attorneys on TV saying, 'Hurry up and file before the new law takes effect,' " Crumpton said. "And then we'll have this big rush of bankruptcy filings."
Business groups that have lobbied for the bill are eager for it to become law.
"The bill is way, way overdue," said Mallory Duncan, senior vice president and general counsel of the National Retail Federation. "Bankruptcies are continuing to skyrocket."
Besides credit card issuers, department stores, appliance stores and furniture retailers that extend credit to their customers are among the beneficiaries of the legislation.
About 1.6 million Americans filed for bankruptcy protection last year, about double the number who did a decade earlier.
Most bankruptcies involve people who have high medical bills, have gone through a divorce or have lost their job.
American Bankruptcy Institute's look at the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005."
Susan Morley of Manitowoc, Wis., who filed for bankruptcy protection in 2002, said she did it because her situation was worsening with a collection agency pursuing an $8,000 medical bill that originally was $3,000. Morley's ex-husband had agreed to pay the bill as part of their divorce in 2000, but he moved to another state and she became liable for the payment.
A look at law
"You can never get out of debt when it comes to a collection agency," said Morley, who was laid off from her job several months after emerging from bankruptcy. She's now collecting unemployment checks of $270 a week, attending classes to become a certified medical assistant and hoping to begin paying off a recent hospital bill of $2,000 when she gets a job.
"My experience is that the minute you get out of bankruptcy you are a better credit risk than you were the day before because you have no debts," said Walter Dartland, president of the Consumer Federation of the Southeast based in Tallahassee, Fla.
Dartland said fewer debtors will get that fresh start under the new law.
Many filers still will be able to walk away from their debts under Chapter 7 of the bankruptcy code as long as they are willing to liquidate all but a few key possessions.
However, more will be forced into Chapter 13 where debtors must repay part of their debts in exchange for keeping a house, a recently purchased vehicle and other household property.
Most filers currently pay a $209 court filing fee and $500 to $1,500 for an attorney to represent them in the simplest cases filed under Chapter 7 of the bankruptcy code, according to Sommer. The filing fee will rise and attorney fees will increase 30 percent to 40 percent because of the extra paperwork, Sommer predicted.
