SIKESTON -- A year after a new bankruptcy law was enacted, it continues to create confusion among debtors looking to file bankruptcy.
"One of the things confusing after the law was passed is people thought they couldn't file for bankruptcy anymore," said Rice "Pete" Burns Jr., attorney at law for Burns, Taylor, Heckemeyer and Green LLC in Sikeston.
Burns said somewhere along the way people were misguided into believing they could no longer file for bankruptcy after the Oct. 16, 2005, deadline for filing under the old version of the Bankruptcy Code.
"Folks can still file for bankruptcy, dig out of their debt and get a fresh start," Burns said.
Another misconception of the new law is that credit card debt can't be discharged.
"Ninety-nine percent of credit card debt can be discharged," Burns said. However, debt acquired in the form of cash advances over the previous totaling more than $50 within 70 days cannot be discharged, Burns noted. Debtors should also be selective in choosing an attorney, Burns suggested.
The law is new and complicated, and attorneys can help clients with comprehension, he said.
Although the new law didn't abolish the option for debtors to file, it did make the process more difficult, expensive and more time consuming.
For example, the filing fee increased from $209 to $299. Burns also attributed higher attorney fees to the significant increase in the amount of paperwork attorneys must do.
"When we meet with a client, we have to give them four disclosure statements. We're also required to give clients -- in writing -- an attorney fee agreement," Burns said.
Other time-consuming work is also required.
The new law requires means testing, which is a method used to determine a person's eligibility to file under Chapter 7 bankruptcy.
"Basically, when a client files for bankruptcy, one thing we look at is median family income," Burns said.
If someone's average income is above the median income for the state they must go through another series of tests, and may require the filing of a Chapter 13 payment plan, instead of a Chapter 7 case, where all the unsecured debts are discharged.
In Missouri, the median family income prior to Oct. 1 for one earner is $36,696 and for a family size of four the median is $64,376, according to the Census Bureau.
"Very rarely will you see an income in Southeast Missouri south of Cape Girardeau that exceeds the median," Burns said, adding that employees at large local corporations like Noranda Aluminum Inc. or Briggs and Stratton might be the exceptions.
Another requirement of the new law is to attend a bankruptcy counseling course before filing for bankruptcy and a personal financial management class after filing. The classes cost about $100 per person.
Financial Fitness Services in Sikeston is the only place in Sikeston to offer the courses.
"It has been actually surprising and I've been pleased people how have appreciated the counseling and debtor education portion of new law," said Donna Taylor, financial counselor at Financial Fitness Services.
Taylor said she's found people who are filing for bankruptcy really do need counseling and they want someone to help them through the process.
"Most everyone I see has either lost their job or have had health difficulties. They paid for living expenses after job loss and medical problems and ended up with credit card debt," Taylor said.
Those who've taken Taylor's courses range from a couple with young children to people as old 80 or 90.
The courses are packed with lots of information regarding budgeting, credit and savings, Taylor said. The main goal of the courses is to prevent debt from happening with the individual again, she said.
One year after the Bankruptcy Abuse Prevention and Consumer Protection Act, and the number of bankruptcy filings remains well below the number of filings in 2004, which was 19,357 filings.
In months leading up to the change in the bankruptcy law, thousands of people filed bankruptcy to avoid the new requirements. As a result in 2005, 26,724 bankruptcy cases were filed. But from January through Aug. 31, 2006, only 4,643 bankruptcy cases had been filed.
"The number of filings has gradually increased each month since the law went into effect," Burns said.
Burns, who is also a U.S. Panel Trustee, said prior to the law, he was hearing 60 cases a month and now the number is up to 30 or 40 a month. A year from now Burns said he anticipates the number of filings to be like they were in 2004.
But for now, he just hopes those in debt realize they always have another option.
"The bottom line is folks can still file for bankruptcy," he said.
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Source: U.S. Bankruptcy Court, Eastern District of Missouri