The 2005 Bankruptcy Act: Bankruptcy Filings Are Increasing

There was a lot of hoopla about the reasoning behind the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. When it was first enacted, some thought that bankruptcy was going to be nearly impossible for consumers. And, at first, bankruptcy filings were slow as noted by my colleague and fellow blogger, Peter Orville of New York. But recently, guest blogger, , Professor Robert Lawless over at Credit Slips, posted the statistics on the most recently bankruptcy filings. In his blog entitled, “Bankruptcy Rate Filings From April 2006 to March 2008“, Mr. Lawless notes that the March 2008 statistics demonstrate that bankruptcy filings are increasing. In a recent post by my colleague, Susanne Robicsek of North Carolina, she pointed out the Washington Post predicted a rise in bankruptcy filings. Another colleague, Chip Parker of Florida, wrote about the increase seen in Florida.

Interestingly enough, Mr. Lawless notes two areas of the country where the filings have remarkably increased: one predictable, the other not. One area is those states/populations which were affected by Hurricane Katrina. Not surprising. The other area is the New England/mid-Atlantic states where the general income is higher for debtors. So, the lower income debtors in the Katrina affected area (or folks whose income was lowered by Katrina) and the higher income debtors are filing for bankruptcy protection. One might wonder about the middle income debtors and whether they continue to struggle along in debt management plans.

I know that in my personal law practice, I am seeing low income debtors and an increasing number of middle income debtors. The middle income debtors, nearly without exception have paid money to debt management companies in an attempt to pay their debts on their own. And without exception, despite the promises made by the credit card industry lobbyists at the time of the passage of the 2005 Act, that credit card companies would, in fact, work with folks—these folks found no cooperation in trying to pay their debts outside bankruptcy. Instead, they paid good money to the debt management companies for their fees in “negotiating” lower terms/balances and ended up being sued by one or more of the credit card companies for failing to pay the card pursuant to the terms of the contract.