Posted
7/26/2005 12:18 AM
Bankruptcy
filings rise as change in laws nears
By
Matt Krantz, USA TODAY
When
it comes to personal bankruptcy, many financially strapped
people are deciding there's no better time than the present.
Sweeping
changes to bankruptcy laws take effect in October and will
make the process more onerous for consumers. That's prompting
many debtors to hurry up and put their financial house in
order.
The number of bankruptcy filings surged
12% in April, May and June from the same period last year,
according to exclusive numbers from research firm LexisNexis.
That's quite a rise, considering filings were down 2.6% during
the first three months of the year, LexisNexis says.
Consumers teetering on the edge are
taking the bankruptcy plunge now because the new law attempts
to curb the use of Chapter 7 bankruptcies and steer people
into Chapter 13 proceedings. There's a big difference: Chapter
7 forgives most debts, while Chapter 13 only extends the
amount of time to pay.
Many expect the number of Chapter
7 bankruptcies to increase even more as the Oct. 17 cutoff
nears.
"People are certainly expecting
a last-minute rush," says Henry Sommer, editor in chief of Collier on Bankruptcy, which is a guide
for bankruptcy attorneys
Who is feeling the effects?
•Credit card companies.
Since credit card debt is often the biggest obligation consumers
have that's not attached to an asset such as a home or car,
it's the first place the crunch is felt.
For instance, Citigroup, one of the
USA's largest credit card issuers, said consumers front-running
the new rules prompted a rise in bankruptcies that added
about $175 million to credit costs in its North American
credit card business in the second quarter. CFO Sallie Krawcheck
told analysts that bankruptcy rates could moderate, but that
there will "another spike up" before the law is enacted.
•Bankruptcy lawyers.
Some say they're about 10% busier. "I have four offices, and I can say there are more Chapter 7s being filed," says John Ventura, a bankruptcy attorney in southern Texas.
Others say the surge isn't as large
as might have been expected. Timothy McFarlin, a lawyer in
Irvine, Calif., says there would be even more cases if more
consumers realized they still had time.
Also, rather than filing for bankruptcy,
many consumers are tapping the equity in their homes, says
Raymond Seo, a bankruptcy attorney in Long Beach.
But filing for bankruptcy usually
isn't something that can be timed, says Maureen Thompson,
executive director of the National Association of Consumer
Bankruptcy Attorneys. "Most people end up in the bankruptcy attorney's office at the 11th hour, when
their car is about to be repossessed," she says.
