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.

One thought on “Living with the New Bankruptcy Code”

  1. Credit Cards and Bankruptcy do seem to go hand in hand.

    I was pleasantly surprised by this article. I truly hope that the new bankruptcy laws don’t cause an increase in fees, but honestly I don’t believe that to be the case. While they may not have increased yet, I think we will see a raising in cost soon.

    The reason for this is not just because of the amount of paperwork now having to be submitted but because the attorney’s themselves are now going to be held responsibile, so I see them doing quite a bit research on their clients which will result in higher attorney fees for the clients.

    Agreeably the means test is a “red herring” but I don’t think one should fully discount it. I think that people will find that this will be a hinderance in filing and get the relief that they need.

    In a survey of the bankruptcies filed for 2004 for, 50% of this were medium-income families earning 50,000-100,000 or more a year in income. The reason for the bankruptcies was because of unplanned and high medical costs. These were not deadbeats they were buying everything under the sun, but responsible people that had fallen on hard times due to medical circumstances.

    I think it is way to early to really be listening to any experts. There will need to be a time of watching and learning to see what happens. Everything until that time will be specualtion.

    Best to all,

    Jae Burnham
    Senior Debt Consultant

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