Congress recently passed the most sweeping bankruptcy legislation in more than twenty five years. The Bankruptcy Abuse prevention and Consumer Protection Act was written to make it harder for most personal bankruptcy filers to have their debt swept away through a Chapter 7 filing. The new law will require that potential bankruptcy filers pass a “means test” and most will not qualify for the Chapter 7 filing.
Instead, they will have to file under Chapter 13, which requires a court-defined repayment schedule of up to five years. This legislation, considered by its detractors to be a “wet, sloppy kiss” to the credit card companies, has many people justifiably concerned about how to approach their problem debt. Once concern that has largely not been addressed is the fact that it may be considerably more difficult to hire a bankruptcy attorney once the new legislation takes effect in October 2005.
The existing bankruptcy law makes a personal filing a fairly simple and routine procedure. Most personal filers file under Chapter 7. The court eliminates their obligation to repay their debt, and the debtor is allowed to make a fresh start.
This does not come without cost; the bankruptcy filing will stay on the debtor’s credit report for a period of ten years. Legal costs for hiring an attorney for a Chapter 7 filing will vary from state to state, but the process typically involves just a few hours of billing time.
The new law, which will require most bankruptcy filers to apply under Chapter 13, is different. Not only is the filing procedure more complicated, resulting in two to three times the legal fees, but the new legislation holds attorneys liable if incorrect financial information is filed on the part of a client. This leaves lawyers vulnerable to lawsuits from their clients as well as the bankruptcy trustees involved in the case.
For the average consumer, this means that it will become both more difficult and more expensive to find a competent attorney to handle their bankruptcy case. Many attorneys who handle bankruptcy cases on a part-time basis, including those in small towns who handle a variety of cases, may simply decide not to handle bankruptcy anymore. For them, the risk of a lawsuit may mean that it simply isn’t worth their while to handle such cases.
Attorneys who specialize in bankruptcy law will undoubtedly raise their rates, partly because of the increased demand caused by fewer lawyers doing such work, and partly because of the increased liability.
Anyone who has problem debt now and is considering filing for bankruptcy should probably do so as soon as possible. It would be far better to hire an attorney now, when you might not need one, then to try to hire one later, when one may not be available. It is better to be safe than sorry.
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Article Added on Monday, February 27, 2006
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