The new bankruptcy laws
In October the significant change to the bankruptcy laws of the United States that was formulated over the last several years and passed this spring will go into effect. While much has been written about those changes, we have seen little discussion of what those changes would do the to the court system and how it will, or will not operate.
In short, the bankruptcy law changes will require each CH 7 (total liquidation) filer to go through a means testing to see if they would or could qualify for a CH 13 (3 to 5 year payment plan). The question being asked is, “Does the filer have enough income to make a reasonable payment plan to the debtors?” If not, there will be no real change for the filer; if so, the filer will be required to make some payments to their debtors over a 3 to 5 year time period.
The other major change is that the attorney representing the filer will have to “certify”: the accuracy of the bankruptcy petition. What exactly certify means is still a bit amorphous.
So what will these changes do to the bankruptcy process, the attorneys and the courts? We have spoken to several practitioners across the county and come to some conclusions.
1. The new legislation has no effect on those who really need CH 7.
2. The $500 to $1,500 bankruptcy mills run by attorneys are going to go away.
3. The cost of the bankruptcy petition will probably go from $1,000 in attorneys fees to $2,500.
4. Do-It-Yourself Bankruptcy Forms mills will explode and the courts will be inundated with proper filings. The courts will slow to a crawl.
5. Malpractice insurance has already jumped for this area and will go even higher, if the attorneys will be able to get it at all. Bankruptcy attorneys most likely will not insure against malpractice, and mis- and malfeasance.
6. Bankruptcy attorneys will be the new big boom crowd for asset planning. The other question we asked is whether the banks, whose lobby forced many of these changes, will be able to collect more money from creditors? On the surface many think so. Our opinion? We don’t believe so, since most banks sell their non-performing loans to 3rd parties whose business it is to try to collect on them.