Bankruptcy Filings Plummet

Bankruptcy Law

Posted Jun 27, 2007, 12:29 pm CST
By Debra Cassens Weiss

Bankruptcy filings have dropped more than 60 percent, causing some bankruptcy court clerks to worry that the decreased workload portends staff cuts.

Fewer than 700,000 cases were filed during the 12 months ending on March 31, a drop of 61 percent from the same period the year before, according to a press release by the Administrative Office of the U.S. Courts.

The numbers are at an all-time low, according to Associated Press. Observers think the drop is attributable to sweeping changes in the Bankruptcy Code that took effect in October 2005.

Susan Thurston, the clerk for the U.S. Bankruptcy Court in Rhode Island, told AP that every bankruptcy court is concerned about staff cuts. She says cutbacks would be a mistake because the new law has created more paperwork, increasing the amount of time staffers spend on each case.

The 2005 law requires debtors to satisfy a means test before filing for Chapter 7 bankruptcy, which permits liquidation of debts. The result is that more consumers are forced into Chapter 13 repayment plans.

The change is reflected in the bankruptcy figures, which show Chapter 7 filings dropped 71 percent and Chapter 13 filings dropped 13 percent.

Another change in the law, which requires attorneys to verify the truth of their clients’ financial information, appears to be having an impact.

Joseph R. Prochaska, a lawyer in Nashville, Tenn., who chairs the Consumer Bankruptcy Committee in the ABA Section of Business Law, told the January 2007 ABA Journal in “Strange New World” that many lawyers have stopped handling bankruptcy matters because of the changes.

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