Bankruptcy queries on rise
Advice: With sweeping changes about to happen in the nation's
bankruptcy system, the phones of some experts are ringing off the hook.
By Eileen Ambrose
Sun Staff
Posted May 11 2005
Like many Baltimore-area lawyers, Robert N. Grossbart is fielding more
calls about the new bankruptcy law.
The most sweeping changes in decades to the nation's bankruptcy system are
set to take place in about five months, making it more difficult for
consumers to wipe out debt. That has left many wondering whether they
should be filing sooner rather than later and seeking advice from experts.
"They are feeler calls - they are not turning into filings right now,"
said Grossbart, a bankruptcy lawyer whose calls are up 15 to 20 percent so
far. "People who are on the fence are window shopping."
After years of lobbying by credit-card companies, Congress passed the
legislation this year. President Bush signed it into law three weeks ago,
and although some aspects took effect immediately, the brunt of changes
affecting consumers kicks in Oct. 17.
Business already is heating up for some bankruptcy lawyers across the
country, with some extending their hours. Others are handling more
telephone calls - Grossbart said they are taking a half-hour more of his
day so far. And some are advertising to make sure consumers are aware of
the impending changes.
Filings are beginning to tick up. But the expectation is that lawyers will
get even busier during the summer months when filings typically drop.
"There is going to be a scramble - a mad dash to the finish line," said
Jeffrey Sirody, a bankruptcy lawyer in Pikesville who said his calls are
up 20 percent to 30 percent recently. "You will see probably in September
and early- to mid-October record filings."
Jodi and Shawn Wagner of Raleigh, N.C., aren't waiting any longer. They
thought about filing for bankruptcy for a year, trying to get over the
guilt, but this week they filed for protection from creditors under
Chapter 7.
The couple started accruing credit-card debt when Shawn Wagner launched a
medical business a couple of years ago. The oldest of their three children
also has a medical condition and some of the growing health care bills are
paid out of pocket, said Jodi Wagner, a stay-at-home mother who followed
the bankruptcy debate on television.
Her husband now works two full-time jobs as a physician's assistant in
emergency rooms, and the couple was concerned that they wouldn't qualify
for a Chapter 7 under the new law's means test, Wagner said.
After October, filers who earn more than the median income for their state
would have to pass a means test to file under Chapter 7, where almost all
debt is erased. If the test determines their income is too high, they
would have to file under Chapter 13, and repay debt over five years.
"I know there are people who abuse it," Wagner said. "But for people who
can't help their lot in life, this [law] makes it bad."
In Maryland, filings have nudged upward. During March and April, when it
was clear change to the law was coming, Chapter 7 filings in Maryland
reached a total of 4,536 - up 242 cases from the year before, according to
the U.S. Bankruptcy Court, District of Maryland. Filings in the state
typically start off slow and peak in March.
Besides means testing, other major changes in the new law will require
individuals to undergo credit counseling before filing and to take a
financial education course later before their debts are discharged. And
instead of every six years, debtors can only get debts discharged under
Chapter 7 every eight years.
But debtors shouldn't file out of fear of the new law, said Laura Fisher,
a spokeswoman with the American Bankers Association, which lobbied for the
bankruptcy changes.
"It's a serious decision. It is going to cause a lot of consequences. You
shouldn't be falling prey to scare tactics when you are making this huge
decision," Fisher said. "The system will be there for people in six
months. ... The majority of people will have the same protections that
they had under the old system."
Once the filing rush is over, some lawyers expect their bankruptcy
business to slow. Others point to added responsibilities placed on lawyers
under the new bankruptcy system and are re-evaluating their practices.
Some see new opportunities.
Brian J. Sunderland of Oregon and Victoria Wright of North Carolina, for
instance, each plan to discontinue their bankruptcy work to launch
separate nonprofits that would provide credit counseling and debtor
education over the Internet.
Grossbart, too, is considering expanding into other areas of consumer law.
"We are in the process of reinventing ourselves," he said.
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