Bankruptcy Is Still an Option Despite Changes to the Law

On October 17, 2005, amid much media attention, the final provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect. In the preceding months, the media both informed and misinformed the public of the changes to the bankruptcy law. The consensus was that if you are even considering filing bankruptcy, you should do so immediately or your chances of relief would be gone forever.

Even as a bankruptcy attorney who had researched the new law, I told all of my clients to get everything in order immediately so they would be able to file prior to the new law taking effect. I warned them that if they failed to file before the new law took effect they would have more documents to collect, credit counseling to attend, higher filing fees to pay and they might not even be eligible under the new law. And they listened. In the months before the new bankruptcy law took effect, filings skyrocketed across the nation. Then October 17, 2005 came and filings came to halt. Surely the financial situation of thousands of people could not have improved overnight. Not with the increases in gas prices, utility bills, minimum credit card payments and foreclosures. The rush to the courthouse before the new law took effect would account for some reduction in filings but clearly not the 60 to 70 percent reduction in filings reported across the country.

The only plausible explanation in the reduction in filings must be that consumers no longer believe that bankruptcy is a possible option for them due to all of the misinformation concerning the new law.

The first misconception about the new law is that a debtor must repay at least some of his or her debts. Only certain circumstances require repayment of some or all of a person's debts. These circumstances include: higher amounts of equity in real estate or personal property, an income higher than the state's median income or if a person is behind on mortgage or car payments and wishes to keep the property or vehicle. You may be surprised to learn that in Delaware, the median income based on household size is as follows: 1 person $40,264, 2 people $53,716, 3 people $63,593, and 4 people $74,444. If household income is less than the median and the debtor does not own a lot of property, under most circumstances no repayment plan will be required.

The second misunderstanding about the new law is that a debtor cannot discharge certain types of debt. The new bankruptcy law has not outlawed the discharge of credit card debt, medical debt or any other particular type of debt. As stated previously, only under certain circumstances must a person repay his or her debts. Another mistaken belief concerning the new law is that if a person has filed bankruptcy previously, that person is not permitted to file another bankruptcy. While the new law has more stringent requirements for people who have previously filed to discourage repeat filings, there is no provision of the law that bans the filing of another bankruptcy. This list of “myths” concerning the new bankruptcy law is by no means exhaustive. It is likely consumers in need of bankruptcy protection have heard other rumors concerning the new law, and have been discouraged from considering bankruptcy as an option, despite overwhelming debt.

Even with all the myths concerning the new bankruptcy law, consumers with mounting debts will begin to seek bankruptcy protection again. Even though the law has changed, for the average person in debt, bankruptcy is still a viable option, permitting those in dire financial circumstance to obtain the fresh start they need.

Tara Blakely is an attorney with the firm Doroshow, Pasquale, Krawitz & Bhaya in the Dover office. She can be reached at tarablakely@dplaw.com and 302-734-8700.