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Bankruptcy cases flooding court dockets, attorneys
By Dennis Quick
Senior Staff Writer
Bankruptcy attorneys will remember 2005 as the year of the flood. The floodwaters gradually rose to tsunami status as the calendar approached Oct. 17—the day the nation’s new bankruptcy law took effect.
Debt-plagued individuals rushed to bankruptcy courts while there was still time to file under the existing law, under which bankruptcy filing was easier.
During the week ending Oct. 8, U.S. bankruptcy courts reported 102,803 personal bankruptcy filings, exceeding the record high of 68,387 from the previous week, according to Burlingame, Calif.-based Lundquist Consulting, which compiles bankruptcy statistics.
As of Oct. 14, more than 1.47 million personal bankruptcies were filed year-to-date compared with 1.23 million during the same period in 2004.
Between the beginning of January to the end of August, 9,813 bankruptcies were filed in South Carolina. From Sept. 1 through Oct. 16, 5,124 cases were filed, according to U.S. Bankruptcy Court District of South Carolina figures.
Nearly 700 personal bankruptcies were filed in Charleston County in October.
“We didn’t see it coming, but we should have,” said North Charleston-based attorney Michael Drose.
The rush to file has continued beyond October.
“Usually, we average about eight cases a month,” said bankruptcy attorney Kevin Campbell of his Mount Pleasant-based law firm. Campbell Law Firm’s personal bankruptcy cases for November tallied 40 by Nov. 16.
Campbell expects the number of cases to decrease by about one-half in December and to dwindle in January.
Bankruptcy burden
More than 1.6 million bankruptcies were filed in the United States last year, costing the average American consumer an additional $400 in bankruptcy expenses passed down from creditors, retailers and service providers.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which President Bush signed in April, makes bankruptcy filing more difficult for people seeking a way to avoid paying their debts.
U.S. financial institutions and other creditors support the new law, saying it will help limit the loss of money owed them and subsequently save consumers from paying higher interest rates and increased costs for goods.
The new law takes aim at Chapter 7 bankruptcy, which eliminates the debt because the filer has no assets to repay it, and promotes Chapter 13 bankruptcy, which requires part of the debt to be repaid through a court-ordered repayment plan.
Bankruptcy filers must now take a “means” test to determine if they have enough money to repay at least some of their debt. The test compares the filer’s income with the average income in the filer’s state.
If a person filing for bankruptcy has an income higher than the state average, the law requires that person to pay back part of the debt through a payment system.
Additionally, the law requires that people considering filing for bankruptcy enroll in bankruptcy education
to learn bankruptcy’s financial repercussions, including the impact it has on the filer’s credit rating. Financial institutions will provide the education.
Campbell, who says the new law does not make bankruptcy filing that much harder, praised the legislation. It helps prevent fraudulent bankruptcy filings, makes lawyers work harder rather than passing the workload on to their paralegals and forces more people to file Chapter 13, he said.
However, Drose said he thinks the new law will help “certain groups of creditors,” such as automobile lenders, hurt people who suffer catastrophic financial losses due to illness or sudden unemployment.
Debt discipline
Both lawyers agree that the new legislation forces people in debt to confront their financial problems and change their money-handling habits.
Some people considering bankruptcy filing might have more of an income problem than a debt problem, Drose pointed out. In some cases,
Drose has steered clients away from bankruptcy filing and toward additional sources of income, such as a part-time job.
Financial problems also would be limited if people saved money to have cash on hand for things like car-repair payments and other services rather than paying with a credit card, Drose said.
The new law shows the “importance of living on a budget, maintaining a good relationship with your bank and monitoring and reading your credit reports,” Campbell said.
For some debtors, the new law could be a blessing in disguise, Campbell noted.
“It could be a springboard to a successful financial future,” he said.
Dennis Quick is senior staff writer for the Business Journal. E-mail him at dquick@charlestonbusiness.com.
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