Living with the New Bankruptcy Code

Nice article in the Birmingham News this morning about the practical effect of the changes to the bankruptcy code that took effect last month. The article quotes bankruptcy lawyer Brad Botes to the effect that the much-discussed “means test” (designed to make it difficult or impossible for wealthy filers to receive complete discharge in bankruptcy) is less of a challenge than originally thought. The kicker, he says, is in the paperwork.

In the article, Botes calls the means test a “red herring” and says that 90% of his clients filing bankruptcy meet it (and would therefore be able to request a complete discharge in bankruptcy). Instead, says Botes, the problem is the credit counseling requirement (required across the board in all cases, even those having nothing to do with profligate spending), the requirement to attach tax returns, and the copious new paperwork now required.

In addition, the means test is based on historical wages. So a worker who has just lost a job may need to wait to allow his or her six-month history to catch up with current reality.

The article also includes a discussion with Birmingham bankruptcy lawyer Ted Stuckenschneider about the effect of the new law on fees. I have assumed and others have expected that the legal fees for a bankiruptcy filing would increase, because of the more onerous requirements that lawyers must now satisfy. Stuckenschneider says in the article, however, that this has not yet happened. Instead, he says, bankruptcy lawyers are carefully measuring the additional steps they must take with each case to find out what they will need to charge.