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The price of going broke may be going up

Congress is considering raising Chapter 7 filing fees again. Lawyers say that puts courts out of reach for the poor.

By WILLIAM R. LEVESQUE
Published July 14, 2006

Going broke may soon be getting more expensive, and bankruptcy lawyers are crying foul.

The issue: a proposal before Congress to increase Chapter 7 personal bankruptcy filing fees for the fourth time in the past 18 months to $439, up 110 percent since early 2005.

Bankruptcy lawyers say higher costs effectively bar access to the courts to the people who can least afford it.

On Thursday, the National Association of Consumer Bankruptcy Attorneys, joining with the Consumer Federation of America, announced that it was encouraging its 3,300 members to provide free initial consultations to filers to help combat such rising costs.

In fact, many attorneys already offer free initial consultations.

"We already know it's a struggle for many consumers to scrape together the funds to pay the fees," said Texas bankruptcy lawyer Carey Ebert, vice president of the association, at a Washington news conference. "Any further increase in these fees will make people too poor to go broke. Many working families will simply be priced out of the courts."

Bankruptcy reform legislation implemented last year by Congress already raised fees and increased the workload for bankruptcy attorneys, and added new requirements for filers, such as debt counseling, the association says.

Pre-reform fees stood at about $209 for Chapter 7 filers. Subsequent increases raised that to $399. The latest proposed hike brings fees up to $439, a figure that includes the average fees for required credit counseling and debtor education, which were not required before reforms were enacted last year.

The new proposal is pushed by the National Association of Bankruptcy Trustees, the lawyers association says, and would increase payment to trustees, who administer bankruptcies for the court, from $60 to $100 for no-asset cases, which make up the majority of personal bankruptcy filings.

Representatives of the trustees group did not return calls for comment.

Tampa Bay area bankruptcy lawyers also decry the ever-increasing fees, though some say that the financially desperate nonetheless often find a way to come up with the cash. The court can, in some instances, also waive the fees, though lawyers say judges are often reluctant to do so.

"Whether they get a second job or borrow the money from their family, they do whatever it costs," said Lou Brunoforte, a Spring Hill bankruptcy lawyer. "It will just be more agony for folks who are already in a financial mess."

He noted that many bankruptcy attorneys have already increased their fees because of the additional work required by bankruptcy reform legislation.

"It's a crisis in a sense because people are not getting access to their constitutional rights," said Herbert Donica, a Tampa bankruptcy lawyer and president of the Tampa Bay Bankruptcy Bar Association. "They're turning around and beating up people at the lowest rung of the economic ladder."

Bankruptcy filings have plummeted since bankruptcy reform, down 71 percent for the first quarter of 2006 compared with first-quarter 2005 numbers.

That's the lowest level since 1985.

But a spokeswoman for the American Bankers Insurance Association said the fact some people are still filing indicates higher fees aren't an impediment. "The people who need protection are still getting protection," said spokeswoman Laura Fisher. "People are still filing."

Some trustees, however, note that their fees have not increased in years and provide poor compensation for increasingly complex cases.

Philip V. Martino, a Tampa bankruptcy lawyer who has served as a trustee in Chicago, said changes in the bankruptcy code in the past year have increased the time needed to handle cases by 20 to 30 percent. People, he said, still have access to the courts.

"That's a complete red herring," he said of charges that debtors are driven away by high fees. "If someone's got $30,000 or $40,000 in credit card debt, an increase of a few hundred dollars is not going to determine whether they file for bankruptcy."

The bankruptcy lawyers group says it does not oppose trustees getting more money. It just doesn't want to pay for it through higher fees.

"Any increase to pay trustees should not be borne by people facing financial ruin," Ebert said.

William R. Levesque can be reached at levesque@sptimes.com or 813 226-3436.

[Last modified July 14, 2006, 01:34:50]