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A dash for old bankruptcy rules

People are filing for bankruptcy protection in record numbers before qualifications change on Monday.

By HELEN HUNTLEY
Published October 14, 2005

Bankruptcy filings are setting records in Tampa and across the country as debt-burdened consumers petition for relief before changes in the law take effect Monday.

"Every day is beating the day before," said Chuck Kilcoyne, deputy clerk in charge of the Tampa/Fort Myers Division, which handles bankruptcy filings along the west coast of Florida from Hernando to Lee County.

A typical day brings about 120 filings, he said. Tuesday there were 648 and Wednesday 921. The counts for Thursday and today likely will be higher.

And then there's the weekend. The clerk's office will be accepting electronic and fax filings right up until midnight Sunday.

"We'll have people coming in over the weekend to make sure there's plenty of paper in the machine," Kilcoyne said.

The big rush is to get in under Chapter 7, which allows filers to wipe out most unsecured debts such as credit cards and medical bills.

The new law will make it more difficult for people who make more than the median income ($59,798 for a family of four in Florida) to qualify for Chapter 7 relief. If a means test determines they have at least $100 a month they could devote to debt repayment, they will be forced into a five-year repayment plan under Chapter 13.

Lawyers say most of the last-minute filers have incomes below the median and could still file Chapter 7 if they waited until next week. By filing before then they avoid an increase in the filing fee from $209 to $274 and credit counseling and financial education requirements that kick in with the new law.

"A lot of people had been thinking about filing and just needed a little extra incentive to do it," said Richard Feinberg, managing partner for Tampa-based Debt Relief Legal Centers.

The law firm, which usually files 80 to 100 cases a week, expects to file about 700 this week.

"We have this set up like an assembly line," Feinberg said. "Our offices are going strong until 2 in the morning. We'll be filing cases literally until midnight on the 16th."

Until August, bankruptcy filings were running about 6 percent behind last year in the Middle District of Florida, which includes Tampa, Orlando and Jacksonville.

By the end of September, they were 10 percent ahead of last year. October's filings will push the number higher, although the surge is expected to come to an abrupt halt Monday.

Nationally, 103,000 people filed for bankruptcy last week, triple the typical number, according to Lundquist Consulting, a financial services advisory firm. The previous weekly record was 68,287.

There also have been some notable business bankruptcies in recent weeks as companies such as Delta and Northwest airlines and auto-parts maker Delphi filed their cases under the old law.

The new law gives companies less discretion in handling of their reorganization plans.

A new video conferencing system linking the Debt Relief Center's 10 branches with its Tampa headquarters has been a key factor in the firm's ability to handle the surge in cases, Feinberg said. Clients who come into one of the branches meet a paralegal in person, but see their lawyer via a television screen, with communication carried over a high-speed internet line. He said clients are hesitant at first, but most warm up to the concept after it is explained.

"Within five minutes, they're talking back and forth with you just like you're in the room," he said. "Some of my elderly clients are a little bit less receptive than others, but most of the people are very intrigued by it."

Feinberg said the system, which involved a $100,000 investment, will allow the law firm to expand across the state.

The crush of filings will reverberate throughout the bankruptcy court system as cases work their way through. It will mean more work for the clerk's office, for judges and for bankruptcy trustees, who supervise the administration of bankruptcy cases, collecting money and property and distributing it to creditors. The trustees are expected to schedule extra hearings to fulfill the requirement to meet with consumers within 20 to 40 days of their filing.

"The surge of filings will certainly tax the court's resources," Bankruptcy Judge Michael Williamson said. "However, we'll have plenty of time to catch up on the days following Oct. 17, as we expect filings to drop off to a very low number, at least initially."

Feinberg said Debt Relief's offices will be closed Monday and Tuesday so exhausted employees can get some rest.

Once they start filing cases under the new law, it will take some time for lawyers to get comfortable with new requirements, forms and procedures, Williamson said.

Feinberg said lawyers will be required to do more work under the new law and legal fees eventually could rise as a result. He said his firm has no immediate plan to raise its fees, which average about $1,000.

Bankruptcy lawyers generally were opposed to the changes in the law, so there could be legal challenges to its constitutionality once it takes effect.

Information from Knight Ridder news service was used in this report. Helen Huntley can be reached at hhuntley@sptimes.com or 727 893-8230.

A tougher law takes effect on Monday.

Need to file for bankruptcy? It may not be too late. Some lawyers still are taking cases today, but be prepared for a long wait. Bring along your tax returns, W2 forms, lists of assets and debts (with names and addresses of creditors.)

Do-it-yourself filing is possible, though it is not recommended. Forms are available at www.uscourts.gov/bkforms The Tampa clerk's office will accept faxed filings this weekend until midnight Sunday call (813 301-5112) so long as original forms and filing fees are delivered by noon Monday.

If you make less than the median income, waiting to file makes Chapter 7 more expensive and requires credit counseling, but you'll still be able to wipe out your debts. People with higher incomes may be forced into a five-year debt repayment plan under Chapter 13.

Read more about bankruptcy at the American Bankruptcy Institute Web site at www.abiworld.org Click on "Consumer Education Center."

[Last modified October 14, 2005, 01:59:55]