One Year Later, Bankruptcy Law Change Creates Hurdles, Expense, but Little Substantive Change – Most Consumers Can Still File for Bankruptcy

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One year after bankruptcy reforms touted as an overhaul of the consumer bankruptcy process took effect, the vast majority of people who could have filed bankruptcy under the old law are still eligible to file—and increasing filings across the country indicate that consumers are beginning to realize the option is still available. The most significant changes noted have more to do with increased costs and increased paperwork than with any substantive change. In the end, it seems, consumers are paying more, consumer bankruptcy attorneys are working harder, Trustees are reviewing more paperwork, credit counseling agencies are backed up and often providing services at a loss…but the end result has changed very little. Total Bankruptcy provides information about the law change, eligibility for Chapter 7 and Chapter 13 bankruptcy, and the opportunity to arrange a free consultation with a consumer bankruptcy attorney at

Before the Bankruptcy Abuse Prevention and Consumer Protection Act took effect on October 17, 2005, a landslide of advertising, media reporting, and rumor combined to create the impression that after October 17, many people would no longer be able to file for bankruptcy protection.

The message got out; hundreds of thousands of people filed for bankruptcy in the last few weeks leading up to the bankruptcy law change. But when the dust settled, it turned out that nearly everyone who could have filed for bankruptcy protection before the law change still could.

After the law change took effect there was, indeed, an abrupt drop-off in bankruptcy filings. In November, 2005 there were only 5,460 consumer Chapter 7 bankruptcy filings across the country. Briefly, it appeared that the changes in the law had “worked” and the “bankruptcy problem” was at an end.

But Congress overlooked a few things in addressing the bankruptcy problem: increasing interest rates, a growing number of adults without adequate medical insurance coverage, skyrocketing energy prices, and the simple fact that most bankruptcies had always been triggered by catastrophic life events like divorce, death in the family, or huge medical expenses.

The major changes that actually took place with the bankruptcy law change are:

1. Consumers must now complete a credit counseling briefing with an approved agency before filing bankruptcy and a debtor education course before receiving a discharge. Early reports from credit counseling agencies indicated that fewer than 4% of prospective bankruptcy filers were found to have any other realistic options.

2. Consumers face increased costs in the form of higher filing fees, higher attorney fees triggered by additional paperwork and investigation required under the new law, credit counseling fees and debtor education course fees.

3. Attorneys and Trustees have more paperwork to review, and attorneys have greater responsibility to verify information provided by clients.

The highly publicized Chapter 7 means test that would disqualify “abusive” filers turned out to have very little impact at all, since most Chapter 7 filers have incomes below their state medians.

So, after nearly ten years of lobbying by the consumer credit industry and then a year of observing the new law in action, consumer bankruptcy has very nearly come full circle.

The vast majority of people hoping to file for Chapter 7 bankruptcy still can. The vast majority of debts that were dischargeable one year ago are still dischargeable today. And the economic difficulties that pushed consumers into bankruptcy before the law change are still with us. Filings are climbing every month, and most experts predict approximately one million consumer bankruptcy filings by the end of 2006.

Consumers can find information about the bankruptcy law change, the Chapter 7 means test, recent filing statistics, and arrange a free consultation with a local bankruptcy attorney at Information about the required Credit Counseling Briefing and Debtor Education Course is available at


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Tiffany Sanders
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