Angela Acree, attorney, city judge and co-owner, The Bankruptcy Clinic LLC

There is an initial test of whether or not the filer is above or below the median income for the state. If the filer is below the median income, then they probably qualify for a Chapter 7. If the filer is above the median income, then there is a means test where their case is further evaluated to see which bankruptcy they will file. The means test takes the average of their last 6 months income, subtracts allowable deductions (Internal Revenue Service standards, not actual expenses – this is a big change) and if they have more than $166.67, and they do not file a Chapter 13, then it is presumed abusive. If they have less than $99.99, it is not presumed abusive if they don’t file a Chapter 13. So, the bottom line is if you have $100 or more left after you subtract IRS allowable deductions from your income, then you have to file a Chapter 13. Before, we used the filer’s actual living expenses. Now the IRS gets to determine what the filer should spend for housing, food, clothing, etc.

What is the role of bankruptcy in consumer finance?

One of the key roles is to keep consumers consuming. Many of the people I see have been struggling just to make ends meet for a very long time. When an income earner gets sick, laid off or their hours are cut back, that sends most people’s finances into a tailspin. Many people these days are living paycheck to paycheck, and when one of the paychecks stops, for any reason, they spiral downward. Once the credit card companies start charging over-limit fees, late charges and bump their interest rates up to 30 percent, these already financially stressed individuals have to make very difficult decisions about where their limited money can be spent. Most of the people in bankruptcy have stopped consuming anything and are just paying credit card companies outrageous interest. By stopping the bleed, these folks can regroup, downsize their lives, get back on their feet and become participating individuals. Bankruptcy has always been, for the vast majority of people who file, the last resort. They get second mortgages, spend their retirement money, borrow from friends and family, get second, sometimes third jobs if they can work at all – and sometimes it just isn’t enough. These are the people I see.

How will the new law affect that?

It will keep people from consuming. By forcing people who cannot afford to pay into a Chapter 13 repayment plan, we are forcing already financially stressed people into long-term financial crisis. Instead of helping them to get back on their feet, we are forcibly holding them down for five very long years.

Does Chapter 13 bankruptcy offer any protection from creditor harrassment?

Yes. There is an automatic stay that is in effect that prevents creditor harassment, whether in a Chapter 7 or Chapter 13.

One goal of the new act is to make consumers more responsible for their debts. Is the typical debtor irresponsible? How did they come to file for bankruptcy protection?

One of the biggest myths of bankruptcy is that the typical debtor is irresponsible. In my practice, it is far from that. An example of a typical debtor in my practice is someone who has had an illness such as cancer or severe heart trouble and has not been able to work. Others of my clients have moved here in hopes of finding a better economy and greater job opportunities only to find out there aren’t any jobs here either. Still other clients, after years of the stress of difficult financial circumstances, are getting divorced and cannot afford all of the debt alone that the couple acquired. Can I tell you that I have not had an irresponsible client? No, I cannot tell you that. But, what I can tell you is that they are, by far, the exception rather than the rule.

The new law will require credit counseling within 180 days of filing. Do you think that is a good idea? Have you ever referred clients to credit counseling before moving ahead with the bankruptcy to determine if there’s a way that it can be avoided?

Yes, it is correct that the new law requires credit counseling. Initially, filers will have to get certified for bankruptcy by a credit counselor. And then again, sometime before their discharge, they must get credit counseling. In the past, I have referred clients to credit counseling. If they can afford a Chapter 13, they can afford credit counseling. But, usually, there are legal reasons, such as house foreclosures or repossessions in progress that make credit counseling a bad option. I think credit counseling is a good idea for the very few of my clients who have gotten themselves into trouble because they overused their credit cards. But someone needs to tell me how credit counseling is going to help someone with $760,000 of medical bills, no insurance and no job, who is uninsurable and unemployable.

You have told us in the past that the new law could discourage would-be entrepreneurs. Why do you think that’s so?

Entrepreneurs are inherently risk takers. They usually don’t think that they are going to fail when they start their business, or else they would not start their business. Some of my clients were small-business entrepreneurs whose businesses failed. Their ideas were great ideas that should have been profitable, except the economy tanked and so did their business. They put all their blood, sweat, tears and money into trying to get their business to succeed, but through no fault of their own, it did not. They need a fresh start. Under the new law, they can still get a fresh start – it will just take five years of making payments into a repayment plan. After five years of payments to a trustee, I am not sure they will have the same entrepreneurial spirit.

Is the approaching date that the act goes into effect having any impact on your practice? What happens to your practice after the new law goes into effect?

We are swamped. Most of my fellow bankruptcy attorneys are swamped. People are trying to get in to file under the old law, and there just isn’t enough time in the day to get everyone in that wants to be seen. After the law goes into effect, many bankruptcy attorneys are not going to file bankruptcies because they didn’t do Chapter 13s in the first place. Our firm was around well before the law changed, doing both Chapter 7s and Chapter 13s, and we will be around long after the law changes.

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