|
Bankruptcy Filings on Rise in Connecticut
By Attorney Donna J. Brooks
An estimated 11,500 consumers in Connecticut filed for bankruptcy in 2001. But, if numbers of bankruptcy filings is an indication, Connecticut is still faring better than the nation as a whole in the current economic downturn. Consumer bankruptcies in Connecticut went up only 10% in 2001 compared to 19.5% nationally. This is based on figures released in December by the Administrative Office of the U.S. Courts, for the first three quarters of 2001.
"Today's filing statistics confirm that we will set a new record for bankruptcies in 2001," said Samuel J. Gerdano, Executive Director of the American Bankruptcy Institute. "Hangover consumer debt from the free-spending '90s and a weakened economy today mean more families will face the need to file for protection well into next year."
Some professionals have credited at least part of the increase to a fear by many consumers that they have to do it now "before it is too late." That fear may be justified, as Congress will again consider sweeping changes to the bankruptcy laws when it returns from its recess later in January. Lobbying by the banking and credit card industry for the past three years has pushed this bill to near passage. If passed, it will go into effect 180 days after it is signed by President Bush. Once it goes into effect, it will be too late for many consumers to get the fresh start they had hoped for.
This pending federal legislation could dramatically reduce the numbers of bankruptcy filings by making Chapter 7 unavailable to those who are deemed to have enough income to pay back their credit cards, at least in part. Currently, most consumers file a Chapter 7 bankruptcy, which allows them to eliminate most of their debts and still keep a generous allotment of their property. Automobiles and homes can often be retained if the payments on them can be maintained. By contrast, Chapter 13 bankruptcy does not eliminate debt but, instead, structures the repayment of debt. Chapter 13 plans, spread out over 3 to 5 years, are most often used to save a home from foreclosure when other avenues have failed. It can also be used to rehabilitate a small business as a going concern.
The proposed law, if passed, will make it harder for debtors to file a Chapter 7 bankruptcy and will require many who would previously have qualified for Chapter 7 to repay their credit card debt under Chapter 13, even if they have no home or business. Though most debtors will already have tried desperately to repay their credit cards before resorting to bankruptcy, they will be given no credit for that effort when they eventually are forced to seek the court's protection.
The new bill may also make it more expensive to hire a lawyer to file a bankruptcy, because of increased paperwork requirements and new obligations to document and verify the accuracy and truth of the information provided to the attorney.
The result will be that fewer people will likely file for bankruptcy relief. The bottom line for consumers in trouble today is that they should seek advice about bankruptcy sooner rather than later, or they might just miss the boat.
| 
