by Bradley Parsons
Staff Writer
Bankruptcy attorneys are keeping a wary eye on Washington as Congress considers legislation that would make it far more difficult to wipe out consumer debt.
It’s still unknown what final form the changes will take as the bill is still the source of considerable debate in the Senate. Supporters say the proposed changes will clamp down on debtors who abuse the current system while opponents say the changes go too far.
Although opponents will probably succeed in watering down the current version a bit, it’s still likely that Congress will end up passing a complete overhaul of bankruptcy regulations, said local attorney Mamie Davis.
As a Chapter 13 bankruptcy trustee, Davis acts as an objective representative for the debtor’s estate, the assets they owned before filing bankruptcy.
“It certainly could make filing for bankruptcy more difficult,” said Davis. “These are less changes that they’re considering than a complete overhaul of the old system.”
The prospect of bankruptcy reform isn’t new. Davis said bankruptcy attorneys have been on the lookout for changes for the past decade. But with a solid Republican majority now backing reform in both houses of Congress, Davis said bankruptcy attorneys are aware that change is probably on the way.
Davis said the new system will present two key challenges to bankruptcy attorneys.
First, new restrictions on filing will likely mean there will be less work to go around, particularly for attorneys who do most of their work for individual debtors.
Second, the law is expected to hold attorneys accountable for their clients’ financial statements.
“The bill itself provides for the attorney to take on a lot of responsibility for the filing to the point where an attorney could be personally sanctioned for their clients’ mistakes,” said Davis.
Bankruptcy attorney Gardner Davis of Foley and Lardner does most of his work with corporate clients and says those filers won’t be as affected by the new legislation.
Davis said he’s thankful he doesn’t depend on individual filers for his business. The new laws will make it tough for those who do, he said.
“There will be less bankruptcy cases filed because bankruptcy won’t be as desirable an option for the individual,” said Davis.
And attorneys working with individuals will have to spend more time with each client verifying financial records. That will limit the number of cases attorneys can take on, said Davis.
Davis likes the idea of curbing abusive bankruptcies, those cases where filers can afford to pay but use bankruptcy to avoid it. But he would like to see Congress address the other side of the bankruptcy equation as well.
Predatory lenders often give the debtors the rope to hang themselves with, he said. Consumer lenders who make it too easy to go into debt should be placed further down the pecking order in who gets repaid, said Davis.
“It’s appropriate legislation. It’s in the best interest of society to tighten down on people who abuse the bankruptcy laws,” said Davis. “But if I was writing the law, I’d impose some penalty or sanction on consumer lenders who extend credit to people who are already drowning in debt.”