October 10, 2006

Experts Split on Merits of Bankruptcy Reform

ST. PETERSBURG -- A year ago, the debt-laden and desperate were lined up at lawyers' offices and courthouses across the country, rushing to get their bankruptcy cases filed before a new law would make it tougher.

In the months since, consumer debt soared to a record $2.3 trillion, loan delinquency rates rose, and foreclosure lawsuits jumped dramatically.

But bankruptcy filings fell off a cliff and have yet to come back.

"There was so much publicity about changes in the act that there seems to be a public perception that mid-October was the end of the world," said U.S. Bankruptcy Judge Paul Glenn in Tampa. "Now the public thinks bankruptcy is no longer available."

As bankruptcy reform heads toward its first anniversary next week, supporters and critics still argue whether it's a boon or a bomb. For bankruptcy filers themselves, the impact of the changes has been considerably less dramatic than many hoped or feared.

"For people who file, the results are not terribly different than they were before, except it's more bureaucratic and cumbersome," said Henry Sommer, editor of LexisNexis Collier on Bankruptcy and president of the National Association of Consumer Bankruptcy Attorneys.

In terms of numbers, the impact of the change has been stunning. More people filed for bankruptcy in the first two weeks of October last year than have filed in all of 2006.

Some dropoff in filings was expected after more than 2 million people filed last year, setting records across the country and taxing the court system. Many people forecast filings would decline for several months, then rebound to 2004 levels by the end of this year.

That hasn't happened: Year-todate filings are 63 percent below what they were in the same period in 2004.

"What it looks like is everybody who was going to file bankruptcy in 2006 did it under the deadline," said Patrick Smith of Debt Relief Legal Centers in Tampa.

He said his law practice cut two-thirds of its staff as business evaporated.

To some extent, bankruptcy lawyers are victims of their own advertising. A year ago, Debt Relief Legal Center's Web site warned "once the new laws become effective, your rights and benefits upon filing bankruptcy may be dramatically reduced or you may not be entitled to file at all."

Now it says "the new bankruptcy laws will have little or no effect on most people, and in some cases the new laws are even more favorable than they were before."

U.S. Bankruptcy Judge Michael Williamson said misinformation is at least partly responsible for the dropoff in filings.

"I don't think it's a sign that people are not in financial difficulties," he said. "It's just a sign that they have been scared off. From the anecdotal feedback we get, people apparently are being told by debt collectors that bankruptcy is no longer available."

Supporters of bankruptcy reform take the decline in filings as a positive sign, while acknowledging it's too early to say whether numbers will remain low.

"Rates were rising every year higher and higher. Even if we see rates fall by 10 percent (from 2004 levels), that will be a success," said Laura Fisher, spokeswoman for the American Bankers Association, which lobbied for changes. "There are signs that some of the abuse has been wrung out of the system."

The law created additional hurdles to filing that likely have contributed to the decline.

The most talked-about was a new requirement that people with above-average incomes make payments on their debts over five years if the court determines they can afford it.

Anyone above the state median income ($62,269 for a family of four in Florida) must go through an analysis of their expenses. The results determine whether they are allowed to liquidate their debts in a Chapter 7 filing or must go through a Chapter 13 repayment plan.

While this requirement got a lot of press, only about 10 percent of bankruptcy filers make more than the median income, and half those have no money left over to make debt payments.

Glenn said only about 5 percent of the people filing Chapter 13 repayment plans this year appear to be making that choice based on income requirements. Most Chapter 13 filers are setting up a repayment plan to save a house from foreclosure, he said.

Other hurdles under the new law include increased filing costs and documentation requirements, although judges point out that fee waivers and installment plans are available. Some lawyers also have raised their fees because the process has become more time-consuming.

The law also controversially required debtors to undergo credit counseling and education at the beginning and again at the end of the bankruptcy process. Ninety percent of the prefiling sessions take place over the Internet or telephone, and bankruptcy lawyers question its value.

"Some people find it helpful, but there ought to be a lot more discretion to waive it when it's not necessary or appropriate," lawyer Sommer said. "It's adding more to burdens and the cost of filing for everybody."

Agencies that provide the counseling also are troubled, saying it's costing them more than they collect in fees and taxing their resources.

"This funding gap threatens our long-term ability to provide the needed services, especially if bankruptcy levels rise," said Susan Keating, president of the National Foundation for Credit Counseling.

Some new rules that initially appeared to favor creditors turned out to be debtor-friendly.

For example, many debtors owe more on a car than the vehicle is worth. The new law says that if a car was purchased in the 910 days before filing bankruptcy, the court can't reduce the debt to the market value of the car.

Although that sounds tough, judges and lawyers say most lenders are willing to settle for less because they don't want the car back. In some jurisdictions, courts have ruled that lenders who take back a car must credit the borrower with full repayment of the loan.

In another surprise, unsecured creditors such as credit card issuers are recovering less than they used to, at least in the Tampa bankruptcy district.

"We used to require them to pay 20 percent of unsecured debt if they filed under Chapter 13," Glenn said. "The new rules set out priorities and there may not be anything left for unsecured creditors."


June 23, 2006

Herzog said he plans to re-open Shannon Gipson’s case and refer her for criminal charges because she replied under oath “no” when asked if she had any pending court cases that would bring her money.

Gipson filed for bankruptcy in May 2005.

Four months earlier the City Council had approved a $2 million settlement for her family for the 1998 wrongful arrest of her son.

Full story: 


June 15, 2006

IRS Outlines Steps for Prompt Determination of Bankruptcy Estate's Unpaid Tax Liability

On May 30th, the IRS published in Internal Revenue Bulletin No. 2006-22, Revenue Procedure 2006-24 which provides steps a bankruptcy trustee or a debtor in possession must follow to obtain a prompt determination of any unpaid tax liability of the estate.

A prompt determination of any unpaid liability of the estate is requested by filing a signed written request, in duplicate, with the Centralized Insolvency Operation, P.O. Box 21126, Philadelphia, Pa. 19114; the request must be marked "Request for Prompt Determination," and must be accompanied by an exact copy of the return (or returns) for a completed taxable period filed by the trustee with the service.

The request must also contain the following information:

* the name of the debtor;
* the name and location of the office where the return was filed;
* the debtor's Social Security number, taxpayer identification number and/or entity identification number;
* the type of bankruptcy estate;
* the tax years/periods sought;
* the bankruptcy case number; and
* the court where the bankruptcy is pending.

Within 60 days of receipt of the request, IRS will notify the trustee whether the return filed by the trustee is being selected for examination or is being accepted as filed.

David Goch
Washington Legislative Counsel
Commercial Law League of America

June 14 2006

Personal Bankruptcy Cases Rise Despite Reforms

By John Poirier

WASHINGTON (Reuters) - A new law to deter consumers from seeking bankruptcy protection made filings plunge to a 20-year low in the first-quarter of 2006, but a rapid rise in new cases since then raises questions about whether the law is working as expected.

The 2005 bankruptcy reform law was pushed through Congress by banks and credit card companies that sought to prevent abuse by individuals trying to wipe their financial slates clean from runaway debt.

By making it more difficult to file for personal bankruptcy, the companies reasoned that consumers would be more likely to negotiate a repayment plan.

"I think the law so far is working as it was intended," said James Chessen, chief economist for the Washington-based American Bankers Association trade group. "Some of the abuses have been wrung out of the system."

But credit card companies and banks are keeping an eye on the recent increase in filings.

The law took effect October 17, 2005, prompting a surge of 619,322 personal bankruptcy filings for that month as debt-laden consumers rushed to court.

New cases plunged to 13,758 in November, then rose to 21,636 in December, 27,235 in January, 35,352 in February and 49,977 in March, according to the Administrative Office of the U.S. Courts.


Bankruptcy filings soaring again.
by Liz Pulliam Weston

Consumer bankruptcy cases plunged to a 20-year low in the first three months of 2006, reflecting the passage of a tough new bankruptcy law last year. But the pace of new filings is already on the rise. more...

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Sometimes, a fresh start makes sense -- if you can get past what you think you know. Here's how bankruptcy affects your credit, your possessions and your karma. more...

Life Goes on after Bankruptcy Reform Goes into Effect
by PR Web

The new bankruptcy laws are not as drastic as first believed. Most consumer debtors are still able to get relief they need. The Chicago banruptcy attorneys at the law firm of Leeders & Associates, Ltd. have seen a recent rise in consumer interest in filing for bankruptcy relief in Chicago.  more..

June 14 2006

Before You File for Personal Bankruptcy: Information About Credit Counseling and Debtor Education 

By U.S. Federal Trade Commission ( FTC) June 12, 2006 Produced in cooperation with the Department of Justice’s U.S. Trustee Program

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 launched a new era: With limited exceptions, people who plan to file for bankruptcy protection must get credit counseling from a government-approved organization within six months before they file. They also must complete a debtor education course to have their debts discharged.  more...




American consumers are in a dour mood these days.

America's Research Group founder and CEO Britt Beemer said his surveys show that 27 percent of consumers plan to cut back on spending because of the pressure they're feeling from credit card bills. Just 16 percent said that a year ago.

Beemer told a Florida retail group that only 28 percent of shoppers feel "really confident" today, compared with 36 percent two months ago and 54 percent a year ago.

Full story:

June 20, 2006

BY Steve Patterson

More trouble hit the mother of a boy wrongly accused in the Ryan Harris murder case Monday as a bankruptcy trustee said he plans to seek criminal charges against her for allegedly failing to disclose a pending $2 million settlement when she filed for bankruptcy.

"What she's done is bankruptcy fraud," David Herzog said. "I'd be remiss if I didn't report this to the U.S. attorney's office."