Bankruptcies may rise before legislation passes

After a record-breaking year of bankruptcy filings, the lagging economy and changes in legislation could make filings in 2003 even higher.

The Branson law firm of Farris & Associates Inc. reports that data from the Administrative Office of the U.S. Courts shows bankruptcies rose 5.7 percent in 2002 to a total of 1,577,651. That compares to 1,492,129 in 2001.

During the last three months of 2002 alone, the number of bankruptcies filed increased 8.3 percent, from 364,921 to 395,129, compared to the same period in 2001. In the Western Missouri District, bankruptcies rose 15.8 percent, or nearly three times the national average. Eric Farris of Farris & Associates said he has seen an increase in the firm's bankruptcy practice during the past two years.

Lee Viorel, member of Husch & Eppenberger law firm, said he expects to see a higher number of filings this year, based on the fact that the economy is slipping. Another change for filers may come as soon as August if the U.S. Congress approves a bill raising the bar on bankruptcy claims.

Proposed legislation would "make it more difficult for consumers to file for Chapter 7 bankruptcy, which lets them discharge credit card debt and other unsecured loans," Farris said.

Viorel said the legislation would require people to at least attempt a Chapter 13 repayment plan over a three- to five-year period.

"I think there is a need in the U.S. for bankruptcy, but we've got to set the threshold a little higher," Viorel said. "It's got to be what it was intended to be, and that is a last resort."

More bankruptcy filings could impact business, said Daniel Nelson of Lathrop & Gage LC. "If more people are filing bankruptcy, it means they are not paying their debts or at least not paying them in full. Beyond the credit cards and medical bills, most people who do file (Chapter 7) have other debts as well that won't be paid, and there will be a ripple effect on business as a result of that," Nelson said.

Legislators have tried to pass the bankruptcy bill several years in a row, but the most recent stumbling block was a provision about abortion protestors. The provision would prohibit people who illegally restricted access to abortion clinics from discharging debts incurred as a result of lawsuits against them. That provision has now been removed from the legislation, which Viorel said should make it easier for Congress to pass the bill this year.