Bankruptcy practice, specifically Chapter 7 bankruptcy practice, has changed a lot with the new bankruptcy legislation; bankruptcy lawyers do things differently now. It is approaching the two year anniversary since the new bankruptcy legislation (BAPCPA) went into effect. Has it changed how the typical consumer debtor files for bankruptcy or whether chapter 7 bankruptcy is an option? I am asked this question every day, so I decided to write a post covering those two basic questions.
I will answer the second question first, because it is asked most often and has the shortest answer. Filing chapter 7 bankruptcy is still available for most consumers. Before BAPCPA was passed and since then, most people seem to think that chapter 7 bankruptcy is not an option any longer. This is absolutely untrue. Most people who were eligible to file chapter 7 bankruptcy under the old law are still eligible to file under the new bankruptcy law. Since the new law was passed, I have met with only one person who was unable to file under the new bankruptcy law, but would have been able to file under the old bankruptcy law.
The first question requires a slightly longer answer. How the typical consumer files for chapter 7 bankruptcy has changed dramatically in the following ways:
1. It’s more expensive; it takes bankruptcy lawyers more time to handle the typical chapter 7 bankruptcy case, thus they are having to charge more for their services. In addition, the filing fees have dramatically increased from $209.00 under the old bankruptcy law to $299.00 under the new bankruptcy law. Finally, all debtors must undergo pre-filing credit counseling and a pre-discharge financial management course; these two courses usually cost the debtor an additional $50-$100. Thus, the cost for filing chapter 7 bankruptcy has increased about 50% due to the new bankruptcy laws.
2. The potential bankruptcy client must collect an enormous amount of information to give to his or her attorney, including the following: a) tax returns from the previous year (sometimes the previous four years), b) pay-stubs from the previous eight weeks prior to filing the bankruptcy petition, c) recent credit reports are not mandated by the new law, but are essential to bankruptcy attorney’s requirement of “due diligence”, d) similar to credit reports, recent statements from creditors, debt collectors and/or collection attorneys are vital to adequate preparation of proper schedules. Thus, the amount of documentation the consumer debtor must bring to their attorney has increased dramatically,
3. As mentioned earlier, the potential consumer debtor preparing to file a bankruptcy petition must first receive credit counseling from an approved credit counselor. In most instances, the bankruptcy attorney assists the client with this process. Also, after filing the bankruptcy case, but before being discharged, the consumer debtor must complete a financial management course from an approved agency. Again, typically the bankruptcy attorney assists the consumer debtor with this process. Nevertheless, this adds additional time, expense and burden to the consumer debtor, while adding little to no value to their “bankruptcy experience”.
In brief, filing for chapter 7 bankruptcy is still available to most consumer debtors, but it is more expensive and requires much more time and preparation, thus it is imperative for the person contemplating bankruptcy to begin gathering the required information, even if they have not fully decided whether to file for bankruptcy or not, because the bankruptcy attorney will need that information in order to determine if bankruptcy is an option, and if so, if it is the best option.