by Liz Daube
Staff Writer
Instead of preventing abuse by people who can afford to pay their debts, last year’s bankruptcy reform law is delaying those who need it most, according to a group representing bankruptcy attorneys.
A study released by the National Association of Consumer Bankruptcy Attorneys found only 3 percent of people seeking credit counseling could repay their debts. In addition, the study said four out of five debtors were in financial trouble for reasons beyond their control, such as job loss, illness or death of a spouse - not poor spending habits.
“Contrary to the claims of proponents of bankruptcy law changes that they would zero in on the alleged legions of ‘deadbeats,’ the law is doing no measurable good,” said Brad Botes, executive director of the bankruptcy lawyers group. “Instead, (it has) put new hurdles in the path of people who are already flat on their backs due to financial crises over which they have no control.”
The study analyzed 61,335 people who have consulted credit counseling agencies. The new law, which took effect Oct. 17, requires consumers to receive financial counseling from an approved list of providers before they can file for bankruptcy. The intent is for more people to file Chapter 13 and repay all or some of their debt, rather than file Chapter 7 and erase all debt that is not backed by collateral.
Dawn Lockhart, president of Family Counseling Services Inc. in Jacksonville, said she appreciates the law’s focus on financial education, but she hasn’t seen the counseling requirement stop a bankruptcy yet.
“It’s not having the type of impact the legislation was intending,” said Lockhart. “We literally have not had anybody come in since the law went into effect Oct. 17 who changed their minds.”
Lockhart said she’s seen more clients coming in, but they’ve all decided to file for bankruptcy. Some had already hired an attorney and committed money to the decision; some were simply too deep in debt to turn things around. She said the public still needs better, earlier education on financial options.
“Early referral is always critical,” said Lockhart. “We just need to get to them before the situation gets out of hand ... but that was always the case.”
Local bankruptcy attorneys are adjusting to the law, as well. Bankruptcy filings at the United States Middle District of Florida Bankruptcy Court jumped to 4,368 before the law took effect Oct. 17, then dropped to 117 in November.
January’s filings crept up to 275, still far short of the 1,100 that Bankruptcy Court spokesman Mike Shadburn said used to be the monthly average. Nina LaFleur, a bankruptcy attorney with LaFleur Law Firm, said she expected a rush of filings, but the numbers were still “a little shocking.”
LaFleur said more people will file Chapter 7 in the next few months because of tax season and mounting holiday debt. She said most filers have legitimate reasons for bankruptcy, so it’s important for them to understand they still have options.
“It (bankruptcy) is still the safety net out there,” said LaFleur. “We have to have something to catch people so they land on their feet.”
Jay Brown, attorney with Akerman Senterfitt, said the reform law was based on “a few bad apples” who used bankruptcy unnecessarily. Brown said he expects creative individuals will find ways to manipulate the new system, as well. He added that it may take a couple of years to identify all of the law’s potential problems.
“A lot of the big issues are still being fleshed out,” said Brown. “It’s a big shift.”
LaFleur said she’s excited to have something new and different to learn about, even if it means extra work. In the end, she said she’s not too worried about the reduced filings because people will continue to need bankruptcy - and bankruptcy attorneys.
“They can pass a law,” said LaFleur, “but they can’t teach people to live within a budget.”