Smaller Recoveries In Chapter 7 And Chapter 13 Cases As A Result Of The New Bankruptcy Laws | Howeve

The recent surge in Chapter 7 and Chapter 13 bankruptcy filings slowed in November, but remained at near post-recession highs, according to new data from the Wall Street Journal.

Overall, personal bankruptcy filings fell to 114,587 in November, a 13 percent decline from October’s totals.

November Chapter 7 bankruptcy filings were 2.2 percent higher than the filings for the same period in 2009, according to the Wall Street Journal, and the total number is expected to rise to 1.6 million by the start of 2011.

“When consumers pull back, two things happen, typically,” Samuel Gerdano, executive director of the American Bankruptcy Institute, told the news provider. “The economy stalls, but longer term we do see a leveling off and then perhaps even a dip in consumer bankruptcy filings.”

Experts say the lending freeze, which coincided with the economic downturn, was one of the contributing factors to the jump in Chapter 7 bankruptcies. And, tighter lending rules also were a factor, making it difficult for borrowers to find new loans to pay down debt, creating the need for consumers to seek increased financial protection from creditors.

In fall the WSJ reported that the rising costs of filing for bankruptcy were a leading factor in the slowdown. Individuals seeking shelter from creditors under todays bankruptcy laws do so at a steep price, according to a new study from the American Bankruptcy Institute Law Review.

Consumer debtors filing for Chapter 7 and Chapter 13 protection in the years after 2005s Bankruptcy Code overhaul face costs up to 55% higher than those who filed in 2003 and 2004, the findings suggest. And debtors arent the only ones feeling the pinch: those increased costs, both in terms of time and money, are passed along to attorneys, bankruptcy trustees and even creditors, says Lois R. Lupica, the author of the study.

Theres no question in my mind that the [Bankruptcy Abuse Protection and Consumer Protection Act] costs more, Lupica said, referencing 2005s sweeping changes to the bankruptcy laws in an interview Thursday. It costs debtors more, it costs attorneys more, it costs Chapter 7 trustees more, in terms of time, and it costs Chapter 13 trustees more in terms of time and effort.

The findings by Lupica, a bankruptcy attorney with Thompson & Knight LLP and a professor at the University of Maine Law School, suggest that unsecured creditors are also seeing smaller recoveries in Chapter 7 and Chapter 13 cases as a result of the new bankruptcy laws. Theres simply less money to go around after debtors have taken on the burden of new consumer bankruptcy requirements, like credit counseling and debtor-education courses.

These types of requirements take time and money, Lupica said.

Still, she noted that its hard to draw sweeping conclusions from the study, which encompasses data from about 2,000 cases across six districts. These initial findings only represent the pilot portion of the research. Lupica intends to wrap up the full study which will survey 10,000 cases across 90 districts in 2011.

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