Bankruptcy Explosion

Personnel are working overtime, in the evenings and on weekends, and new staff members have been hired and existing staff reassigned.

It’s all because of the changes to bankruptcy law, effective Oct. 18. The law establishes a test to determine whether a debtor is able to pay off his debts, which could push a number of potential Chapter 7 liquidations into filing Chapter 13 repayment plans.

Many potential filers are trying to get in under the wire.

The bankruptcy caseload at Reynolds, Gold & Grosser is triple the norm in recent weeks, according to bankruptcy assistant Amy Slavin.

“We’ve hired one additional staff person for our bankruptcy department, which now has four full-time staff,” said Ken Reynolds, partner with the firm.

“In addition we have other paralegal support that are helping with the bankruptcy section, that don’t typically work with bankruptcies,” he said.

Groce & DeArmon has seen a dramatic increase in its bankruptcy caseload as well; partner Shari DeArmon has been working seven days a week for the last few weeks, even though the firm set a Sept. 15 deadline for clients wishing to file before the law changes.

Reynolds, Gold & Grosser stopped taking new cases Sept. 23.

Springfield Business Journal’s On the Record section this week lists 288 bankruptcies filed in Springfield and Joplin courts Sept. 19–23. The weekly total usually averages about 130, meaning the courts also are feeling a strain.

“We’ve had this big surge of filings,” said John Cisternino, chief deputy clerk for the U.S. Bankruptcy Court’s Western District of Missouri, pointing to the 2,100 cases processed in August 2005, up 50 percent from August 2004.

Not all of the new filers are making the best financial decisions by rushing to see bankruptcy attorneys, Reynolds said.

“We have had some people that think they want to file a bankruptcy because of this law change, and we’re telling them, ‘Don’t file; you don’t need to file,’” he said. “They need more credit counseling than they do bankruptcy.”

Though law firms have experienced a significant increase in clients, and therefore in revenue, that probably won’t continue. Reynolds, for example, said his office already has stopped taking new clients who want to file under the current law, saying there’s just not enough time to get the work done.

Most attorneys expect the number of filers to drop significantly after Oct. 17.

“We anticipate bankruptcy filing numbers to be down significantly after the 17th, for our office, and I’d assume all attorneys would be the same way,” Reynolds said. “On the other hand, we also anticipate, starting in the late winter or early spring, the numbers will pick up again,” climbing back toward historical averages.

Filing rules are not the only things changing.

Bankruptcy clerk Cisternino said that court fees also will change – filing Chapter 13 will cost $5 less, while filing Chapter 7 will cost $45 more.

“I don’t think the fee has anything to do with trying to drive people in any direction,” Cisternino said.

“It’s just an opportunity, as long as they’re changing everything else, to get back some of the costs of running these programs,” he added.[[In-content Ad]]