Bankruptcy filings in March jumped nearly 60 percent from February, according to Cardweb.com, a Frederick, Md.-based firm that tracks the credit and debit card industries.
Compared with last March, filings rose 8.5 percent, which Cardweb.com said was a change from January and February, when filings fell compared with year-earlier periods.
"It's going to be a madhouse this summer," said Anand Jerome Menezes, a bankruptcy attorney for Macey & Chern in Chicago, which has hired additional staff to brace for the onslaught.
That's not unexpected, say industry insiders. The law, which takes effect Oct. 17, will make it more difficult to have most debts erased in bankruptcy court.
The changes have dredged up anxiety among financially burdened consumers who may choose to bite the bullet now.
"It's causing people on the brink of bankruptcy to consider it sooner rather than later," said Travis Plunkett, spokesman for the Consumer Federation of America.
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First, if looks like consumers got the message about the new bankruptcy bill -- it's pro-business, not pro-consumer. As a result, now is the best time to file.
Secondly, considering the record levels of debt in the economy right now, a rush to bankruptcy filings might start a slow reaction through the economy, slowing it down. As more consumers declare bankruptcy, lenders are forced to increase their loan loss reserves and delinquent account numbers. As these approach certain levels, lender's loan activity will decrease.
Much of the buzz centers on a means test used to determine if consumers can file for Chapter 7 bankruptcy or Chapter 13. Overhaul supporters claim that reckless spending has too many debt-laden consumers seeking shelter in Chapter 7, which absolves them of nearly all financial obligations. They argue that they should be filing under Chapter 13, which establishes a repayment plan.
"Up until now, there has been a presumption of relief, and now that is shifting to a presumption of abuse and you have to disprove that," said Albin Renauer, author of "How to File for Chapter 7 Bankruptcy."
Afraid of a shutout
So consumers afraid of being shut out of Chapter 7 are trying to get protection under that status before the new law takes effect.
"There are some Chapter 7 cases I see now that definitely would not be able to do Chapter 7 after the new law takes effect because of the means test," Wu said.
Under previous law, the bankruptcy judge had far more discretion. Now, bankruptcy is more of a cookie-cutter operation. If you are above a line, you can't do this. But beloe it, it's ok. I realize it is in vogue now to dislike judges, but the majority are very fair minded people. They want to be there. As a judge, they are making far less money than they could in private practice.
Get ready for more news along these lines as the date of the laws going into effect gets closer.
