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Now, on Friday's we focus on your money, and today we'll focus on those who've run out of it. It's been almost a year since sweeping changes took effect in the nation's bankruptcy laws.
Since then, the number of people filing for bankruptcy has dropped off dramatically. But neither creditors nor bankruptcy attorneys expect the numbers to stay down. NPR's Scott Horsley explains.
SCOTT HORSLEY: One of the goals of the year-old bankruptcy law was to weed out abuse and make sure debtors who could afford to pay some of their bills actually did so.
Would-be filers who make more than the median income are now supposed to be steered in some cases into payment plans. But Mark Miller, one of San Diego's busiest bankruptcy attorneys, says the new payment plan net actually catches very few fish. Most of his clients still end up having their debts erased altogether.
Mr. MARK MILLER (Bankruptcy Attorney, San Diego): What we're finding is that about 90-plus percent of the people who cold qualify under the old law can still qualify under the new law. So there is a perception that bankruptcy is no longer available. That's a false perception. People in fact can still file.
HORSLEY: But filing for bankruptcy is not as easy as it used to be. Personal filings in the first six months of this year were down nearly 70 percent from a year ago.
Law Professor David Skeel, who's a scholar in residence at the American Bankruptcy Institute, says extra conditions imposed by the law have discouraged many people from seeking bankruptcy protection. But that doesn't necessarily mean they're paying their bills. Skeel says many are stuck in a kind of financial limbo.
Professor DAVID SKEEL (American Bankruptcy Institute): The principle effect of this legislation has not been to induce more people to repay. The principle effect is really just to increase the cost of filing for bankruptcy and the hassle of the bankruptcy process. And that's something I think is unfortunate.
HORSLEY: A big reason for the higher cost is that bankruptcy attorneys are now required to verify their clients' financial claims, and that means more work. Supporters say the verification requirement helps prevent fraud, but Skeel says a bankruptcy case that cost $1,000 before the new law took effect might be twice as expensive today.
Prof. SKEEL: One of the great ironies is you can be too poor to file for bankruptcy.
HORSLEY: Would-be filers also have to go through financial counseling first. Skeel says such counseling probably comes too late to help most people, once they've reached the point of even considering bankruptcy. But Laura Fisher, of the American Bankers Association, says even if it doesn't prevent filings, counseling is still a good idea.
Ms. LAURA FISHER (American Bankers Association): Even if people go to counseling and they still declare bankruptcy, it sets them up to be more successful in the future. They're going back to their same expenses, and in some cases the same bad habits, and, you know, the counseling is going to help them avoid some of the missteps they may have taken in the past.
HORSLEY: Fisher, who represents banks and credit card companies, expects the number of bankruptcy filings will rebound over time. But ultimately, she says, if filings drop even a little bit from the level they were at before the new law that could be sign that abuse has been wrung out of the system.
On the other hand, Miller, the bankruptcy attorney, notes that credit card companies and other lenders are still pushing easy money. He thinks that will lead to even more bankruptcies down the road.
Mr. MILLER: I mean I saw an ad in the newspaper where VISA was marketing - they needed salespeople to market credit cards to people who had credit problems. So, as long as interest rates stay low, the credit industry will be aggressive in their marketing of credit. And that means people will be at my door.
HORSLEY: Miller expects his caseload will be back to its 2005 level within six months to a year.
Scott Horsley, NPR News, San Diego.
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