Bankruptcies Surge Despite Law Meant To Curb Them

[Purveyor]

Source: Associated Press

(04-13) 13:48 PDT Raleigh, N.C. (AP) --

The number of U.S. businesses and individuals declaring bankruptcy is rising with a vengeance amid the recession, despite a three-year-old federal law that made it much tougher for Americans to escape their debts, an Associated Press analysis found.

"There's no end in sight," said bankruptcy lawyer Bryan Elliott of Hickory, N.C., who is working seven days a week and scheduling prospective clients a month in advance. "To be doing this well and having this much business, it is depressing. It's not a laugh-a-minute job."

Nearly 1.2 million debtors filed for bankruptcy in the past 12 months, according to federal court records collected and analyzed by the AP. Last month, 130,831 sought bankruptcy protection — an increase of 46 percent over March 2008 and 81 percent over the same month in 2007.

Bob Lawless, a professor at the University of Illinois College of Law, said bankruptcies could reach 1.5 million this year and level off at 1.6 million next year — around the same time economists expect an economic recovery to begin.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/04/13/national/a134847D74.DTL

[varkam]

1. LOL @ "Bob Lawless"

:rofl:

[sfwriter]

2. Fresh from the Ironic naming department... EOM

[Hassin Bin Sober]

3. I recently walked two friends through the process and I don't believe it is too hard to file.

I think the whole meme put out there about how hard it is to file was put there by the CC companies to scare people away from legal representation.

If you are in trouble with credit cards, collections, judgments and garnishments, don't be too shy to consult an attorney. One who handles volume.

I'm in the financial services business so friends frequently ask advice on topics like this. I'm not an attorney but I walked (held hands) two friends through the process and was amazed that the Chapter 7 option was still available to them.

One of the friends had income over 70k. The other friend was around 40k.

Both were homeowners and were allowed to keep their houses and cars. Both claimed little or no equity in the homes but had equity in the cars. I was surprised at the casual nature of the home valuation process - it was based on the debtor's estimate. Not an appraisal. One would assume the court does their own legwork on that issue but I'm not sure. I have a feeling they may have gone with the estimates. I guess a problem may arise if the creditors squawk but my understanding is they almost never appear in court. The attorney also told us the creditors don't want cars because the repo lots are bulging with them - I assume the same goes for houses.

The key to the whole process was income versus the "means test". The one friend at 70k was over the limit for Chapter 7 based on the means test but the attorney was able to plug in other fixed expenses (house, car, utilities, taxes etc) and get the numbers to work. I was quite certain that person would have to file 13 but I was wrong.

Also, the "credit counseling" is a joke. Two online courses. All it does is deprive the petitioner out of 40 bucks per class.

[tomhayes]

6. me too

>One of the friends had income over 70k. The other friend was around 40k.

The 40K person was not affected by the change in the law. The law is based around the median income in the state they file. Almost every state has a median income of over 40,000.

And yearly income is based on the last 6 months of real income and then multiplying that by 2. So if you were making 200k a year 12 months ago but have been unemployed for 5 months you'll likely make it under the limit.


>One would assume the court does their own legwork on that issue but I'm not sure. I have a >feeling they may have gone with the estimates. I guess a problem may arise if the creditors >squawk but my understanding is they almost never appear in court. The attorney also told us the >creditors don't want cars because the repo lots are bulging with them - I assume the same goes >for houses.

This depends a lot of the *judge.* The process goes like this:
1)File for bankruptcy
2) Appear before a trustee and have a hearing. Creditors can (and do) appear at these hearings sometimes. And if not the creditor there is usually an attorney from the federal bankruptcy office that will ask you about you income and valuables.
3) The trustee will give his recommendations to a federal judge who can agree with them or decide to have you go through step #2 again.


Basically if you have any cash in a savings account they will want it. Also if you withdrew a bunch of cash in the months leading to the filing they will ask you about it.

If you have a Honda with a few thousand in equity they will likely leave you be. But they’ll make you sell a Ferrari ,

And the "means test" is usually based on fixed values. This is where a good bankruptcy attorney can help you.

But ultimately they recognize they can't get blood from a turnip. If you have no cash, and no real assets they usually let you file under chapter 7.

[Romulox]

7. Not exactly...

"Basically if you have any cash in a savings account they will want it."

A debtor can keep cash (or any valuable asset) so long as it is under the amount that can be protected under the applicable state or federal exemptions.

"If you have a Honda with a few thousand in equity they will likely leave you be. But they’ll make you sell a Ferrari,"

Not exactly, again. If a debtor has equity in an auto, a home, or whatever, they may keep that asset if they can match that equity up with the appropriate federal or state exemption. The reason that a debtor will have a hard time keeping a Ferrari is that the payments required to keep it will be deemed unreasonable when worked into a budget.

[Sen. Walter Sobchak]

10. the credit counseling requirement is a huge disappointment to me

Given the fact that financial illiteracy is more or less a crisis in this country I had hoped the financial education would have taken a more tangible form, financial rehabilitation if you like - but it just became another opportunity to fleece the destitute.

[RUMMYisFROSTED]

4. It was designed to curb individual, not business, bankruptcies.

[rucky]

5. You mean people really do see bankruptcy as a last resort?

and not a "get out of jail free" card?

This is a fundamental flaw with cynical policy makers. They look at the potential abuses of a program, then legislates to "reform" the program as if the abuse were the norm. Projection much? Same with welfare.

Sure there are abuses, but that's no reason to make it any more punitive for people it was designed for. The consequences are already built into the process.

[Sen. Walter Sobchak]

9. their out there

When I worked on bankruptcies I encountered alot of self-entitled assholes who I wish could have been smacked down harder, but most situations came out of a divorce, illness or career failure.

[Sen. Walter Sobchak]

8. The new bankruptcy law is not as harsh as it is made out to be

Nothing has really changed on a practical basis for most people filing for bankruptcy, if your legitimately bankrupt your legitimately bankrupt and to Chapter 7 you go, the number of Chapter 7 personal bankruptcies really has not changed in any meaningful way.

Shady bankruptcy lawyers LOVE the new bankruptcy code and all the hype around it, since Chapter 13 cases have much higher professional fees than Chapter 7 cases, they will just outright lie to a debtor and tell them they have to file for Chapter 13. Cha-Ching, Cha-Ching,

However Chapter 13 also has some real advantages for the "cash poor" who have assets they wish to preserve.