A New Chapter: Bankruptcy reform is here
Well, its official. October 17th brings the new bankruptcy reform into effect. Over the last 10 years I have maintained a fairly heavy load of Chapter 7 bankruptcy cases. I do not do Chapter 13’s because the hearings for those are in Indianapolis, and I cannot compete with the Indy attorneys on fees, billing my clients for the 3 hour round trip to Indy.
Chapter 7 hearings are held locally in Richmond, so the economics have worked out, at least so far. Now, Congress caved in to pressure from large creditor groups in tighten Chapter 7 up. The reform will indeed make it harder to file Chapter 7.
The details on the reform can be found at the Indy Star today. They have a nice Q & A up on the reform.
The means testing and limitation on disposable earnings will force people with means to file a Chapter 13 (and repay something), but my read on the limitations is that they are nothing new. In looking back over the hundreds of Chapter 7 cases I have filed over the last 10 years, I cannot think of a single case that would not meet the new limits. We, over here in Eastern Indiana, just do not see that many poor folks who make $50,000 per year, and no one, regardless of how much money they make, has disposable earnings. Heck, that’s why they are in debt.
The debtors also have to go through “debt counselling.” Why Congress felt impelled to force poor people into that dead end is beyond me. I have had several people come in after working with one of those agencies, and beyond paying the agency’s fees, I could see very little good. Most people called the number they got off the TV commercials, only to get scammed out of some cash. I know that some agencies do good work and are well intentioned, but the fact that the IRS is considering yanking the nonprofit status of several of the agencies is not a good sign. (link to NYT piece).
The biggest threat in the reform law to folks seeking protection under Chapter 7, though, will be finding an attorney. That’s right, in addition to imposing means testing and debt counselling, Congress has attempted to stem the tide of Chapter 7 filings by boiling attorneys out of the market.
How? Well, now when an attorney signs a Chapter 7 petition they are certifying that the attorney has “performed a reasonable investigation” and determined that the signed documents are well grounded in fact, do not constitute an abuse under Section 707(b), and that “the attorney has no knowledge after inquiry that the information in the schedules filed with [the] petition is incorrect.” (Section 707(b)(4)(C & D)).
Now, I have never signed a petition in my life that I thought was bogus. That was not a smart thing to do, even before the reform. But by putting that clause into the code, they are obligating the attorney to investigate the debtor’s situation and basically certify that it checks out. For me, this is no big change. I always require debtors to document what they tell me, and if they were unclear on their debts, I charged them to run a credit report. No big deal, just solid legal work.
But by putting that requirement into the code, Congress has scared off most local attorneys I have talked to about it. I intend to continue to do this work, but the decision will probably be made not by me, but by my malpractice insurance provider, who may have a problem with me signing such a clause. We’ll see.
