Bankruptcy Filing Restrictions Tighten Monday
STEVE INSKEEP, host:
On Fridays, we focus on your money at this time in the program, and today we preview a new bankruptcy law that takes effect on Monday. That's prompted a wave of filings as consumers and businesses try to get in ahead of the new rules. The new law will make it harder to erase debts in bankruptcy. It will increase filing costs. Backers say it will cut down on abuses, while critics say it will simply punish those who find themselves in trouble. NPR's Jack Speer reports.
JACK SPEER reporting:
John Lilly(ph), a bankruptcy attorney in Fairfax, Virginia, first began receiving inquiries about the new bankruptcy law over the summer. However, he says it wasn't until several weeks ago that increased numbers of people began coming into his law office. While their reasons for filing for bankruptcy--medical bills, job losses or divorce--were fairly standard, he's noticed a heightened sense of urgency.
Mr. JOHN LILLY (Bankruptcy Attorney): Well, they're afraid. They're scared, and most of them are uninformed as to the implications as well as the facts of the new law.
SPEER: Under the new law, individuals will face what is called a means test. A person's income will be used to determine whether they'll have their debts erased in one kind of bankruptcy, Chapter 7, or be placed in another type of bankruptcy, Chapter 13, that requires partial repayment of debt. Steve Bartlett is president of the Financial Services Roundtable. His group represents the credit card and auto finance industries, both key backers of the new law.
Mr. STEVE BARTLETT (President, Financial Services Roundtable): The goal here is for all sides--consumers, creditors and the legal system--to take some responsibility.
SPEER: But consumer groups say lenders bear some of the responsibility for people getting into financial trouble in the first place. Travis Plunkett is legislative director with the Consumer Federation of America. He says the new law does nothing to address that issue.
Mr. TRAVIS PLUNKETT (Consumer Federation of America): This bill lets off the hook the creditors, whose sometimes reckless and aggressive lending have contributed to the rise in bankruptcy. There is not a single restriction in this bill on abusive lending, and that makes no sense to us if the real goal of this new law is to bring the bankruptcy rate down.
SPEER: Consumer groups say another provision of the law requires people to attend mandatory credit counseling before filing for bankruptcy. They say while that's inherently not a bad idea, it's too little too late. And they say extra paperwork under the new law will also make it more expensive to file for bankruptcy now. John Penn is president of the non-partisan American Bankruptcy Institute.
Mr. JOHN PENN (President, American Bankruptcy Institute): For the consumers, these will increase by 75 to 100 percent because of the additional requirements.
SPEER: Fairfax bankruptcy lawyer John Lilly says that means the average bankruptcy filing in northern Virginia, anywhere from 1 to $2,000, will rise sharply. As for his own business, he expects to file five more bankruptcy cases this weekend. After that, he says, it's not clear what will happen.
Mr. LILLY: It may have pushed a few people to file a little earlier than they would have. I have had an increase in business. Now what's going to happen after the 17th of October is anybody's guess.
SPEER: Bankruptcy filings have been rising sharply ahead of the new law. Lundquist Consulting Inc., a firm that tracks consumer bankruptcies, says filings last week nationally were averaging more than 20,000 a day, a new record. For the year to date, bankruptcy filings were up more than 19 percent. Jack Speer, NPR News, Washington.
INSKEEP: This is MORNING EDITION from NPR News. I'm Steve Inskeep.