By Eileen Ambrose
Sun Staff
Posted May 11 2005
Like many Baltimore-area lawyers, Robert N. Grossbart is fielding
more calls about the new bankruptcy law.
The most sweeping changes in decades to the nation's bankruptcy
system are set to take place in about five months, making it more
difficult for consumers to wipe out debt. That has left many
wondering whether they should be filing sooner rather than later and
seeking advice from experts.
"They are feeler calls - they are not turning into filings right
now," said Grossbart, a bankruptcy lawyer whose calls are up 15 to
20 percent so far. "People who are on the fence are window
shopping."
After years of lobbying by credit-card companies, Congress passed
the legislation this year. President Bush signed it into law three
weeks ago, and although some aspects took effect immediately, the
brunt of changes affecting consumers kicks in Oct. 17.
Business already is heating up for some bankruptcy lawyers across
the country, with some extending their hours. Others are handling
more telephone calls - Grossbart said they are taking a half-hour
more of his day so far. And some are advertising to make sure
consumers are aware of the impending changes.
Filings are beginning to tick up. But the expectation is that
lawyers will get even busier during the summer months when filings
typically drop.
"There is going to be a scramble - a mad dash to the finish line,"
said Jeffrey Sirody, a bankruptcy lawyer in Pikesville who said his
calls are up 20 percent to 30 percent recently. "You will see
probably in September and early- to mid-October record filings."
Jodi and Shawn Wagner of Raleigh, N.C., aren't waiting any longer.
They thought about filing for bankruptcy for a year, trying to get
over the guilt, but this week they filed for protection from
creditors under Chapter 7.
The couple started accruing credit-card debt when Shawn Wagner
launched a medical business a couple of years ago. The oldest of
their three children also has a medical condition and some of the
growing health care bills are paid out of pocket, said Jodi Wagner,
a stay-at-home mother who followed the bankruptcy debate on
television.
Her husband now works two full-time jobs as a physician's assistant
in emergency rooms, and the couple was concerned that they wouldn't
qualify for a Chapter 7 under the new law's means test, Wagner said.
After October, filers who earn more than the median income for their
state would have to pass a means test to file under Chapter 7, where
almost all debt is erased. If the test determines their income is
too high, they would have to file under Chapter 13, and repay debt
over five years.
"I know there are people who abuse it," Wagner said. "But for people
who can't help their lot in life, this [law] makes it bad."
In Maryland, filings have nudged upward. During March and April,
when it was clear change to the law was coming, Chapter 7 filings in
Maryland reached a total of 4,536 - up 242 cases from the year
before, according to the U.S. Bankruptcy Court, District of
Maryland. Filings in the state typically start off slow and peak in
March.
Besides means testing, other major changes in the new law will
require individuals to undergo credit counseling before filing and
to take a financial education course later before their debts are
discharged. And instead of every six years, debtors can only get
debts discharged under Chapter 7 every eight years.
But debtors shouldn't file out of fear of the new law, said Laura
Fisher, a spokeswoman with the American Bankers Association, which
lobbied for the bankruptcy changes.
"It's a serious decision. It is going to cause a lot of
consequences. You shouldn't be falling prey to scare tactics when
you are making this huge decision," Fisher said. "The system will be
there for people in six months. ... The majority of people will have
the same protections that they had under the old system."
Once the filing rush is over, some lawyers expect their bankruptcy
business to slow. Others point to added responsibilities placed on
lawyers under the new bankruptcy system and are re-evaluating their
practices. Some see new opportunities.
Brian J. Sunderland of Oregon and Victoria Wright of North Carolina,
for instance, each plan to discontinue their bankruptcy work to
launch separate nonprofits that would provide credit counseling and
debtor education over the Internet.
Grossbart, too, is considering expanding into other areas of
consumer law.
"We are in the process of reinventing ourselves," he said.
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