My post from 9/14/05 mentioned that some members of Congress were pushing for a bill that would extend the effective date of the Bankruptcy Abuse and Consumer Protection Act (BACPA) for hurricane victims. Alas, it appears Congress has again disappointed. This proposed relief was defeated in committee.

The Associated Press reported that Representative F. James Sensenbrenner Jr. of Wisconsin, the chairman of the House Judiciary Committee, rejected the notion of reopening the legislation, saying it already included provisions that would ensure that people left “down and out” by the storm would still be able to shed most of their debts. Lawmakers who lost the long fight over the law, he said, “ought to get over it.” A White House spokesman, Trent Duffy, said the administration “doesn’t see a lot of merit” in delaying the effective date of the legislation, but was considering making allowances for hurricane victims.

Now hurricane victims find themselves in a Catch-22 because most of them can’t even find local bankruptcy lawyers and lawyers may not have the records, thus making it impossible for them to get their case filed under the current laws. The current law, of course, does not require credit counseling prior to filing, it does not require a financial management course after filing, and it does not require means testing.

Since most of these victims can’t sign paperwork, get in touch with their attorney, have the means to come back to Louisiana for required court hearings, or have to file in their new “residence” after 90 days, many of them will be forced to file under the new legislation. Under the new legislation, hurricane victims will have to provide more paperwork to their attorneys. The new law puts more onus on debtor attorneys to verify information because the attorney now has personal liability if his client lies to him and he didn’t “investigate” his/her clients’ assertions sufficiently. Unfortunately, the flooding caused by the hurricane has decimated any records they may have had. While duplicates can be ordered from banks, the IRS, etc… there is still a burden placed upon victims to obtain the information and would delay potential relief because it takes time to get copies of these documents.

The new legislation also does not make exceptions to the credit counseling requirements. Even for victims of a natural disaster that are looking to file for bankruptcy because of the major, unplanned and unavoidable event and not because of any financial mis-management. The credit counseling requirement must be fulfilled no matter the cause of the need for relief. Of course, even people who need bankruptcy because of major medical issues and not financial mis-management would also have to fulfill the credit counseling requirement before filing. I think the hurricane and medical issues illustrate a problem with the legislation.

With the deadline for the major provisions of the Bankruptcy Abuse and Consumer Protection Act quickly approaching, a lot of my clients and potential clients are panicking because they think that if they can’t beat the deadline, that relief won’t be available. This is not true.

The most recent estimate from the Director of the American Bankruptcy Institute (ABI) is that only 2-3% of all debtors would not have the same relief available to them under the new legislation as under current legislation. This means that 97% of everyone who is considering bankruptcy relief now will still qualify after the new law goes into effect in October!

It is true that some of the rules that are changing are going to effect everybody. But, those rules are just putting up obstacles, not eliminating relief. Bankruptcy after October 17 is still going to be a very powerful tool to get out of debt for 97-98% of people who could use that tool now. Even for the 2-3% of people that might have to file under a different provision of the law than they would have before October 17, 2005, bankruptcy is still going to be a more attractive option to get them out of debt than any other reasonable option.

Keep in mind that the intent of the legislation is to force people who have “means” to repay their debt into a repayment plan under Chapter 13. For the 2-3% that may have been able to file for Chapter 7 under current rules that would be forced into a Chapter 13 plan under the new rules, they are still getting relief from their debt. Chapter 13 merely requires the debtor to pay what the debtor can afford. It doesn’t require the debtor to sell property or pay every penny of the debt owed.

It is true that everyone will have to get credit counseling before they are eligible to file, but in my experience many people have already discussed that option with credit counseling agencies anyway. The people who haven’t, can easily go online or make a phone call and run through a 30 minute conversation to obtain the needed Certification. It is also true that the new law requires debtors to attend a financial management course after filing. Of course, the US Trustee must approve some providers before the requirement goes into effect and my latest review of the US Trustee’s website does not list any approved providers. Some jurisdictions have already been conducting these “courses” for a few years.

It is also true that generally debtors will have to provide more documentation to their attorneys, but the documents should be things that are easily obtainable and in many jurisdictions across the country have been required for several years already. Plus, a good attorney can help you through these obstacles and make compliance easy for you!

The message for today is not to panic, bankruptcy is not going away. The rules of the game are changing, but it isn’t anything that should be overly burdensome or odious. Even if you are sure you can’t get anything done before October 17, don’t give up! Relief is still available under the new legislation. The worst thing you could do is to not try to seek bankruptcy options if you are having financial problems. Bankruptcy will remain, after October 17, a powerful and accessible tool to get you out of debt!

I’ve received several email questions relating to the deadline for filing a bankruptcy case before the new bankruptcy laws take effect. Officially, the new law takes effect on October 17, 2005. October 17th is a Monday. Thus, cases can be filed up until midnight on October 16, 2005 under current law.

Yes, it is possible to file on Sunday. Most clerks’ offices throughout the country allow electronic, online, filing. This allows the attorney to file his/her own paperwork any time, 24 hours per day, 7 days per week via the internet.

However, I caution you not to wait until the weekend before the law changes to come into an attorney’s office and expect to be able to get your case filed before 10/17/05. Most law firms are going to set internal deadlines after which they either stop taking any new cases at all, or only take new cases to be filed under the new law.

The reason for this is simple. If I allowed anyone to walk into my office on Saturday before the law changes and expect to get the case filed before Monday, there wouldn’t be enough hours in the day for me to physically complete all the paperwork for all my clients. Of course, if this was my only client that would be one thing, but most firms who do bankruptcy work these days handle many cases. There are numerous press reports out there that have discussed the fact that bankruptcy courts across the country have already been seeing increases in filings of 8-10% compared to the same time period last year and most courts expect this number to increase further as October 17 approaches. My firm has seen an increase of close to 20% in inquiries since April and it has intensified even more within the last month. Such a short-term increase like this necessitates setting deadlines in order for the law firm to fulfill its obligations to you and to the court. Most firms are going to do an analysis of their caseloads and their new appointments compared with their personnel and make their own decisions about deadlines to get paperwork and fees paid in order to be able to complete all the paperwork and get cases filed in time.

Some of you may not know, but at least two appellate courts in this country have ruled that a bankruptcy attorney’s fee is discharged in a Chapter 7 case. Those courts have ordered bankruptcy attorneys who have collected balances on their fee contracts after bankruptcy to refund all fees collected. Since most lawyers aren’t going to want to jeopardize their livelihood, they require that all fees for Chapter 7 cases be paid in full before the case can be filed. Thus, you’re likely going to have to pay all fees in full and provide all paperwork needed for the case well before October 17, 2005.

I’ve heard reports from some of my associates indicating that many law firms have already stopped taking new appointments for clients who want their cases filed before October 17, 2005. Many more will be reaching their deadlines soon. I urge you not to delay contacting an attorney if you’re still sitting on the fence!

All of us have heard the news reports about the horrible damage, displacement, death, and destruction caused by Hurricane Katrina. Most of us have heard the news reports about the damage estimates and about how this hurricane could be the “costliest” natural disaster in US history. I read a report that estimated the damage at $200 billion! As a bankruptcy attorney concentrating my practice in representing consumer debtors, I can’t help but think about the financial problems that each one of the millions of victims will have to face.

Most people living in the affected areas of Mississippi, Louisiana, and Alabama have lost their jobs, their houses, their cars, their furniture, their family heirlooms, and all of their financial papers. I read a report that says roughly 400,000 new unemployment claims were filed in Louisiana. How are these people going to rebuild their lives? Just because their house was destroyed doesn’t mean the mortgage was extinguished with it? Just because their car is destroyed doesn’t mean the debt goes away?!

Yes, hopefully most of the victims had insurance to cover their property losses, but no one had insurance to make sure they had a job to return to. Insurance doesn’t always cover all losses and sometimes there are high deductibles. Then think about people who had no insurance, they’ve lost everything except their debt!

While some financial institutions are granting 90 day forebearances on payments, issuing low-interest loans, and forgiving late charges, the fact is that many of the victims no longer have jobs. Even if they are able to find work quickly in another location, they will have to use their new wages to find an apartment, buy furniture, clothes, groceries, and other necessities. They aren’t likely to be able to start paying on credit card debt for many months.

I also read a report that showed that credit card usage among the displaced is skyrocketing. I can’t help but wonder how this debt is going to get paid. In many cases I’m sure people will struggle through it and if historical figures mean anything most will find a way to pay it off. But, what about those who can’t? They’re going to need to file bankruptcy.

Then, on October 17, 2005, the new bankruptcy legislation takes effect. Talk about a double-whammy! Unfortunately for the victims of Hurricane Katrina, most of the courthouses and attorney offices aren’t even open for them to try to rush in and beat the new law change.

Luckily, John Conyers (D-MI) introduced legislation on September 8, 2005 that would delay the applicability of some of the new bankruptcy reform provisions to victims of Katrina for a year. This would give victims time to file for bankruptcy before some of the onerous provisions of the new law make it more expensive and burdensome for them to get out of debt. Rueters ran a story around the 1st of September describing this problem.

Remember, there are plenty of “middle-class” individuals who lost their job after Katrina. These “middle-class” people may not qualify to file Chapter 7 under the new means test (see my discussion of the means test ) because their average income over the last six months would exceed the state’s median income and they may not be able to pass the means test. Thus, they could be left without any options since they can’t fund a Chapter 13 plan until they find other work and they can’t file a Chapter 7 because their average income over the last six months exceeded the state’s median income. These debtors would be relying on the Courts to take into account the situation and rule in their favor. I’m sure plenty of courts would allow these debtors to get relief, but I also am certain there would be plenty of costly litigation from creditors who may try to seek to enforce the means test against these victims. This costly litigation may not be affordable for people trying to get back on their feet.

I can only hope that both sides of the aisle in Congress can come together and give victims of Katrina a reprieve from the provisions of this new legislation. We’ll have to wait and see. Perhaps you could write your Congressperson and/or Senator and urge him/her to support Mr. Conyer’s proposals.