Blog Post

The Cost of Bankruptcy Reform

Posted by: euser
July 29, 2008
Topic: The State of the Economy

Here is an excerpt of an email I received from O. Max Gardner, regarding the cost of the Bankruptcy Reform Act. It makes you wonder if the final product of Reform was really worth the cost of getting it done!

"Since the implementation of the Bankruptcy Reform Act, there have been
increased costs to individual consumers filing for bankruptcy resulting
from higher attorney fees and filing fees, as well as new fees to meet
credit counseling and debtor education requirements. Based on a review
of legal fee disclosure forms in our random sample of Chapter 7 personal
bankruptcy filings, we estimate that the average attorney fee for a
Chapter 7 case increased from $712 in February-March 2005 to $1,078 in
February-March 2007. The proportion of Chapter 7 debtors filing without
an attorney (pro se) was about 11 percent in February-March 2005,
according to our sample estimate, as compared to 5.9 percent in calendar
year 2007, according to AOUSC data. We did not find a statistically
significant difference in the proportion of Chapter 7 debtors receiving
free legal assistance between the 2 years. For Chapter 13 cases, our
review found the standard attorney fee approved by courts (and which, in
practice, is the fee Chapter 13 attorneys typically charge their
clients) rose in nearly all the districts and divisions with such fees.
In more than half of these cases, the increase was 55 percent or more.
The act raised Chapter 7 filing fees by $65 and reduced Chapter 13
filing fees by $5. However, as a result of further changes to filing
fees made by the Deficit Reduction Act of 2005, total bankruptcy filing
fees since 2005 have risen from $209 to $299 for Chapter 7 filers and
from $194 to $274 for Chapter 13 filers. The act included a new
provision allowing these filing fees to be waived for qualified Chapter
7 debtors, and these fees were waived in 2.1 percent of Chapter 7
personal bankruptcy cases filed in fiscal year 2007. The Bankruptcy
Reform Act also included a new requirement that consumers receive credit
counseling from an approved provider before filing for bankruptcy and
complete a debtor education course before debts can be discharged. Most
consumers pay about $100 to fulfill these requirements since credit
counseling and debtor education providers typically charge about $50 per
session, according to data from the Trustee Program and other sources.
The act requires that these services be provided without regard to a
client's ability to pay, but providers vary significantly in their
policies for waiving or reducing fees. To address this variation, the
Trustee Program issued a proposed rule in February 2008 stating that a
client's inability to pay for credit counseling shall be presumed if the
client's household income is less than 150 percent of the poverty line."

O. Max Gardner III

Should you need assistance with the state of your personal finances, please contact me, Paula Greenway, or visit our website at www.GreenwayLaw.com.

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