Guess what, the latest reports doing the rounds is that bankruptcy filings have fallen way below normal. That’s what figures say but some bankruptcy lawyers seem to be telling another tale altogether. They claim to be seeing more people filing for bankruptcy than ever before! First-quarter bankruptcy petitions are supposed to have dropped nationwide to the lowest level in 20 years. This is supposed to be thanks to the much-stricter law that requires consumers to complete credit counseling before being eligible for bankruptcy.
In Greater Sacramento, which seems to be following the same pattern as the nation, bankruptcy filings dropped 76 percent in the first quarter and Chapter 7 liquidations fell 80 percent. And, believe it or not, bankruptcy lawyers seem to be feeling the pinch. By some estimates, as many as three out of every 10 bankruptcy lawyers in this area are shifting to other practice areas or leaving the field.
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There seem to be conflicting reports coming from the bankruptcy sector. While some lawyers say that they are seeing more people filing for bankruptcy than ever before, actual figures seem to speak another language altogether. First-quarter bankruptcy petitions are supposed to have dropped nationwide to the lowest level in 20 years. This is supposed to be thanks to the much-stricter law that requires consumers to complete credit counseling before being eligible for bankruptcy.
In Greater Sacramento, which seems to be following the same pattern as the nation, bankruptcy filings dropped 76 percent in the first quarter and Chapter 7 liquidations fell 80 percent. And, believe it or not, bankruptcy lawyers seem to be feeling the pinch. By some estimates, as many as three out of every 10 bankruptcy lawyers in this area are shifting to other practice areas or leaving the field. Sacramento.bizjournals.com reports:
“Congress hoped the new law would reduce the number of new consumer bankruptcies and the latest figures reflect that intention, though there are still many families under financial stress,” Samuel J. Gerdano, executive director of the American Bankruptcy Institute in Alexandria, Va., said in a statement.
Read more: New law slows bankruptcy filings by 71 percent
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June 8th, 2006 at 9:31 am
“This is supposed to be thanks to the much-stricter law that requires consumers to complete credit counseling before being eligible for bankruptcy.”
All indications are that the “stricter” requirements are not the reason for the decline in bankruptcy filings. If in fact the new requirements were preventing people from filing for bankruptcy, we could expect that the drop-off that occurred post-October 17 would have endured. However, statistics across the country indicate that while bankruptcy filings are still considerably lower than they were during the comparable period last year, filings are steadily climbing each month.
The most likely reasons for the drop-off immediately after the law change are the rush to file before the law change and misinformation provided to consumers.
Since approximately half a million consumers filed for bankruptcy protection in the weeks leading up to the law change–approximately one-third the number who had filed in the entire preceding YEAR–the pool of people in a position to need to consider bankruptcy was substantially but temporarily depleted. Many consumers who would normally have held on and attempted other solutions first feared that their opportunity to file bankruptcy was slipping away and jumped to file before the law change.
That consumer fear was largely rooted in misinformation. The credit counseling requirement was publicized as a significant hurdle, when in fact it’s turning out that fewer than 5% of people who obtain credit counseling in contemplation of bankruptcy are even eligible for any other option. In other words, the credit counseling agencies are recommending bankruptcy for more than 95% of those completing pre-filing counseling.
The pre-filing means test was also held up as a menacing development, but it has likewise turned out to create hurdles for a very small percentage of those filing for bankruptcy protection. And even those few who are precluded by the means test from pursuing a Chapter 7 bankruptcy may still be able to file under Chapter 13.
As the effects of the pre-law-change rush age and the misinformation that led many people post-October 17 to believe that they could no longer file for bankruptcy is being corrected, the numbers are climbing steadily–and there’s no reason to believe that they won’t continue to do so.
http://blog.totalbankruptcy.com