Thousands File for Bankruptcy as Clock Counts Down on Old Rules

Monday, October 17, 2005

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Thousands File for Bankruptcy as Clock Counts Down on Old Rules

From Staff and Wire Service Reports

Thousands of Americans, including 8,000 in the Central District of California, filed for bankruptcy protection Friday in advance of today’s changes in the U.S. Bankruptcy Code.

“It’s like a zoo here,” Central District Chief Bankruptcy Judge Barry Russell told the MetNews.

The onslaught of filings has gone on for more than a week, Russell said, noting that about 1,500 cases were filed last Friday. Michael Rotberg, chief deputy bankruptcy clerk, said there had been about 4,000 filings on Thursday and higher-than-average filings every day this week.

An average day brings 230 filings, Rotberg—who returned a reporter’s phone call late Friday but warned in advance he could only speak for five minutes before going back to work processing petitions—said.

It was a scene played out around the country.

Residents arrived before dawn at U.S. Bankruptcy Court in Denver and a line of more than 300 stretched outside the building before noon, The Associated Press reported.

Scene Repeated Elsewhere

The bankruptcy court in Atlanta was so crowded that only people with bankruptcy paperwork were being allowed on the floor where the court is. A federal court clerk in New York City said several hundred people have shown up, filling three or four court rooms.

Across the nation, about 100,000 petitions were filed in the first three days this week, according to Burlingame-based Lundquist Consulting, which compiles bankruptcy statistics. The firm said 102,863 were filed last week, a record expected to fall.

Recent years have scene filings nationwide reach a level of more than 1.6 million annually.

The law that takes effect today is the most sweeping reform of the code in decades, setting new limits on personal bankruptcy filing and requiring people to get professional credit counseling before they may file petitions. It will prohibit most filers with above-average income from filing Chapter 7 petitions that allow debts to wiped out.

Instead, people deemed by a “means test” to have at least $100 a month left over after paying certain debts and expenses will have to submit a five-year repayment plan under the more restrictive Chapter 13.

Russell said the court regretted the long lines that greeted filers on Friday, but “we are really short of staff.” Every available person, including his own law clerk as well as student externs and some attorney volunteers, was put to work in intake at the end of last week, the chief judge commented, noting that the court has lost half of its staff positions in the last five years because of budget cutbacks.

Pro Per Filers

Most of the late filers—over 90 percent in Russell’s estimation—were representing themselves. About 80 percent of Chapter 7 petitions by represented debtors are filed electronically, the chief judge said, although efforts were being made to accommodate attorneys as well.

The court, which had originally planned to stop accepting electronic filings Friday, announced late Friday that the eFile system, as well as the drop box at the court’s Los Angeles location, would be available until 6 p.m. yesterday.

It remains to be seen, Russell said, whether those who rushed to take advantage of the new law, particularly those who may have read or heard about it and gone ahead without legal advice, needed to beat the deadline or will turn out to have been unaffected by it because they do not meet the means test.

An irony of the new law, an attorney opined, is that changes in the law—designed to deter marginal filers—may have had the opposite effect, pushing people who would otherwise have tried to work out their debts to file ahead of today’s deadline.

“I think that the people who pushed for this, mostly credit card companies, will actually be sorry they did,” Jayne Kaplan commented. Kaplan formerly worked for Bank of America, but now has a private practice that includes representing debtors.

Particularly impacted this week were the bankruptcy courts in Louisiana, where hundreds hit by hurricanes Katrina and Rita flocked to file.

In the New Orleans-based Eastern District of Louisiana, 439 claims were processed on Wednesday, making 1,554 since Oct. 1. That’s a tenfold increase from last year.

“Unfortunately, it’s been especially busy in the last two weeks,” Baton Rouge lawyer Bruce Deuhne said. “A lot of these people are so confused. We’re still seeing people show up they’re hit with huge losses from the hurricane, and then with huge losses from the financial consequences.”

Louisiana’s three district bankruptcy offices have processed 28,604 bankruptcy filings since Jan. 1, which is more than all of 2004.

“The debtor lawyers that I know, and I know most in the state, are very, very busy,” said David Rubin, who chairs the Baton Rouge Bar Association’s bankruptcy law section.

Rubin said the situation is complicated by the fact that many people and businesses still do not know what they will get from insurance.

Last week, the U.S. House killed a bill by U.S. Sen. Mary Landrieu, D-La., to postpone the new portions of the bankruptcy law for areas hit by Katrina and Rita. The Office of U.S. Trustees, which oversees bankruptcy cases for 48 states, said it would allow for special circumstances on a case-by-case basis for people affected by natural disasters.

“The law won’t change, but how it’s implemented will,” said Louisiana State University law professor Jason Kilborn. “Not only each region, but each individual trustee that administers each case will have a different approach. It’s an enormous problem in bankruptcy in the U.S.”