You may have heard that bankruptcy has become a lot more difficult to file ever since the federal Bankruptcy Code was changed back in 2005. Some people (i.e., debt collectors) are telling consumers that bankruptcy is no longer available to most people, and we have seen “consumer rights” web sites that incorrectly state that once you file bankruptcy it will follow you around forever.
What is the truth about the current state of the United States Bankruptcy Code and are you still eligible to file?
The truth of the matter is that personal bankruptcy did become more difficult to file as of October 17, 2005. On that date, a major revision of the Bankruptcy Code called BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act of 2005) went into effect that changed the rules dramatically. And back in 2005 there was a lot of confusion about how provisions of the “new law” would be applied. Many parts of BAPCPA were poorly drafted and neither judges nor bankruptcy trustees had procedures in place to manage some of the new requirements.
Perhaps the biggest change to the law was the introduction of a “means test” designed to limit Chapter 7 protection to those below a certain income level. BAPCPA also put strict new limits on serial filers – debtors who filed case after case to delay foreclosure or other creditor action.
In the nine + years that BAPCPA has been in force, most of the uncertainties have been ironed out. Bankruptcy petition software programs have been released to streamline case preparation and many of the unknowns in the law have been litigated.
Perhaps the best proof that both attorneys and court personnel have recovered from BAPCPA may be seen in the case filing numbers.
In 2005 (the last year where the old, more debtor friendly law applied), 50, 948 people filed bankruptcy in the Northern District of Georgia. In 2006 (the first year of BAPCPA), the number of filings dropped by more than half to 24,326. Since 2006, bankruptcy filings in the Northern District of Georgia have gone up and down. Currently, filings are trending downwards, most likely because consumer credit has been tight. In 2014 the number of filings dropped to 34,294 and we expect fewer in 2015. Experts expect a pick up in filings in 2016 as consumer debt grows.
BAPCPA has added some complexity and paperwork to the process, but its main effect is to formalize existing informal limitations on who could file.
The factors that drive bankruptcy filings – overdue credit card debt, medical expenses, delinquent car payments and mortgage problems – continue to result in bankruptcy filings and if you are facing any of these issues, you may find yourself in the market for bankruptcy advice.
Chapter 7 remains a difficult option – especially for those with household earnings of more than $70,000 annually. More people will end up in Chapter 13 where they have to pay back some of their debts. But bankruptcy relief is very much available, if slightly more painful than it was before.
Fewer Lawyers Available to Represent You in Consumer Bankruptcy Cases
The biggest change that we have seen here at Ginsberg Law Offices relates to a reduction in the number of lawyers who handle bankruptcy matters. Prior to 2005, preparing a bankruptcy petition was a somewhat informal process. It could be filed manually and most of the rules arose from common sense. We used to see a lot of old time family lawyers and general practitioners who dabbled in bankruptcy, filing one or two cases per year.
Now, the process has become much more formalized. The courts require paperless petition submissions and an attorney almost has to have access to a petition preparation program – most of which cost more than $1,000 + annual updates. Currently, in the Atlanta area, there are three or four high volume “bankruptcy mill” firms who prepare and file 100, 200, even 500 cases per month. Lawyer “face time” at these firms is kept to a minimum and many of the lawyers involved in the process are brand new, recently graduated from law school. When you go to court your lawyer will “sound” for you by yelling out your name during breaks and you will have very little opportunity to interact directly with the lawyer who may be presenting an argument on your behalf to your judge.
Bankruptcy mill firms can offer their services cheaper than a firm like Ginsberg Law Offices and for simple, straightforward cases, these firms do fine.
In addition to the bankruptcy mill firms, there are a few “bankruptcy boutique” firms like Ginsberg Law Offices who offer direct interaction with the same lawyer throughout the process and on-going access with a lawyer rather than a legal assistant or paralegal.
Ginsberg Law Offices does charge a couple of hundred dollars more than a bankruptcy mill firm, and our fees are substantially less than the 200 attorney downtown law firms who occasionally handle personal bankruptcy matters for friends or relatives of corporate clients.
Ginsberg Law Offices currently files between 10 and 15 cases per month and before your petition is filed, you will likely spend 2 to 5 hours meeting with and speak to your personal bankruptcy lawyer.
BAPCPA requires debtors to file extensive paperwork with each petition – including copies of pay stubs, tax returns and other requirements. We feel that the bankruptcy process has become more attorney focused rather than paralegal focused and we are available to counsel and advise you about your financial situation and the bankruptcy process as practiced here in the Atlanta area.