Bankruptcy reform to make filing Chap. 7 more difficult

A bill before the U.S. Congress could make it more difficult for consumers filing for bankruptcy to make a fresh start.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 passed in the U.S. Senate 74-25 March 10, and was referred to the Committee on the Judiciary and the Committee on Financial Services March 15.
If signed by President Bush, the bill would change the system that in 2004 gave about 1.6 million Americans full debt forgiveness under Chapter 7 protection or established plans for partial repayment for those who filed under Chapter 13 protection.
In the western half of Missouri, 18,072 bankruptcy cases were filed in 2004, compared to 10,902 cases filed in 2000, according to John Cisternino, chief deputy bankruptcy clerk in Kansas City, where Western District bankruptcy cases are filed. In January and February this year, 440 bankruptcies have been filed, compared to 254 cases filed for the same period last year, in the southern division, comprising the counties of Greene, Christian, Polk, Dallas, Webster, Cedar, Dade, Laclede, Pulaski, Texas, Wright, Douglas, Taney, Ozark, Howell and Oregon.
Bankruptcy experts expect the number of filings will continue to rise.

Reform defined
The bill would establish an income-based test to determine a creditor’s ability to repay debts, which could push 5 percent to 10 percent of prospective Chapter 7 filers toward a Chapter 13 repayment program. The bill states that the test is a remedy to “irresponsible consumerism” caused when Chapter 7 filers are discharged from their debts, a concept Branson attorney Douglas Camacho disagrees with.
“Most of the people that I represent in bankruptcy have situations where they lose their job, they’ve had medical bills that, for some reason or other, they didn’t cover because they didn’t have insurance,” he said.
The bill also would require those in bankruptcy to pay for credit counseling, which Camacho already encourages his clients to do.
But there is a fallacy in that, said Camacho, whose business is about 30 percent bankruptcy clients. He fears that some businesses might call themselves credit-counseling agencies, when in fact they are not.
“I know there are a number of legitimate counseling services that are available, but I’ve also had a number of my clients come back to me after having gone to quacks that are supposedly credit counselors, and it ended up being for the worst,” he said. “If they’re going to do it, they would really need to be more careful in allowing people to become certified as counselors, because there are a number of people who have gotten into worse financial situations because of it.”
Mike Cherry, president and CEO of Consumer Credit Counseling Service of Springfield/Joplin/West Plains, said that by requiring consumers to receive credit counseling within 180 days of filing bankruptcy, consumers can see if there’s any other means to take care of their situation rather than bankruptcy, such as budgeting or negotiating with creditors.
Counseling wouldn’t end there. Before the bankruptcy can be discharged, the new law requires consumers to complete an instructional course on personal financial management.
“Basically, Congress is saying they need to learn from their mistakes,” Cherry said.

More business
If signed, Cherry expects the bill to make his office a busier place.
“All of our counselors are certified counselors, so we would be in the process of hiring and certifying additional counselors,” said Cherry, whose 21 credit counselors work with more than 3,000 clients each month. Client activity is steadily increasing; Cherry said about 300 new clients have been added each month this year.
He isn’t sure how many staff members he may need. “We are holding back to see what’s going to happen. A lot depends on how this law is defined as to how this has to be administered,” he said.
It depends, Cherry said, on whether credit counseling must be conducted one-on-one, in group sessions or over the phone.
Camacho anticipates the bill would send more business his way as well – at least initially. More people, he said, would file for bankruptcy between the time the president signs the legislation and the date it goes into effect.
After that, he isn’t guessing how bankruptcy will be affected. “I know it will make it more difficult and it will make bankruptcy less attractive because less people will be able to be discharged from their debt,” he said.
Preventing consumers from discharging their debt is one reason the Greater Springfield Board of Realtors supports the bill. It contains four issues that impact the real estate industry – preventing the discharge of condominium and homeowner association fees; preventing tenants from avoiding eviction through automatic stay for rental housing; modifying the amount of time shopping center tenants that declare bankruptcy have to decide whether to assume or reject their lease; and subjecting single-asset properties with a value of less than $4 million to an automatic stay from creditors for 90 days.