Bankruptcy filings slow to trickle; lull not expected to last...
According to the U.S. Bankruptcy Court, District of Kansas, the number of bankruptcy filings between November 2005 and February 2006 dropped 82 percent from the same period a year ago: 785 compared to 4,336 between November 2004 and February 2005.
The number of filings began their steep fall after a new federal law went into effect last October.
But Zimmerman and other bankruptcy experts don't expect the trend to last. While the rules for filing bankruptcy have changed, the conditions that caused them haven't.
That's why Zimmerman, his peers and a bankruptcy court official say the pause in filings will be short lived.
"Everybody in the business believes that by the end of summer or early fall we'll be very close to historical numbers," says Zimmerman, a partner in the law firm of Case, Moses, Zimmerman & Wilson PA.
'Need IS still there' Despite the drop in filings, Zimmerman isn't hurting for business. Nor is Ed Nazar, a bankruptcy attorney and a bankruptcy court trustee.
A rush in filings last October -- before the new law took effect -- has carried them through.
"The truth is we never really did slow down that much," Zimmerman says. "Certainly I'm getting the calls. The need is still there."
Nazar agrees and predicts a similar second quarter or third quarter return to pre-October filing levels.
"There's no question the filings are creeping up," says Nazar, a partner at law firm Redmond & Nazar LLP. "In my mind it ought to be rising more than it is."
Fred Jamison, clerk for Kansas' bankruptcy court, says activity at the front end of bankruptcy court reflects fewer filings.
"But there's a whole lot of the activity that has moved from the counter to the courtroom," Jamison says. "Our judges are real busy."
Jamison says the October rush, in which Kansas bankruptcies topped 7,252, most in the first 10 days of the month, "cleared the pipe up."
All the new law did was create a rush by people to file Chapter 7 bankruptcy before it took effect on Oct. 17, 2005, Jamison says. Nearly 80 percent of bankruptcy filings in the state are for Chapter 7, a liquidation bankruptcy that involves appointing a trustee to sell all of a debtor's assets to pay creditors.
The new law is delaying people from filing Chapter 7, Jamison says, by requiring them to first try credit counseling to clear up their debt or to enter Chapter 13 bankruptcy. Chapter 13 means people pay off their debt by arranging payment plans with their creditors.
But Jamison says that nationally, only 1 percent of bankruptcy filers have entered into credit counseling and been referred to a Chapter 13 filing.
"I think it may have been a part of the belief in building the new law that there was a substantial number of people filing bankruptcy and didn't need to file bankruptcy," Jamison says. "At this point, that's not what's been coming across in the statistics nationwide. And we're consistent with what's going on nationwide."
Nazar and Zimmerman think news of the act scared some people into filing bankruptcy early -- and led them to believe that under the new act that it would be nearly impossible to file for bankruptcy.
That was due to the credit counseling requirement and the new caps on median income for individual filers: $61,515 for a family of four to $37,795 for individuals. Nazar says according to data provided to trustees by the U.S. Bankruptcy Court, more than three-quarters of Kansans have income that fall within those limits.
Zimmerman says the factors that bring people to bankruptcy haven't changed, either. Most filers get into uncontrollable debt because of medical bills, layoffs and divorces, he says. It's not all from racking up debt on credit cards.
"There isn't anything in the bankruptcy code that changes that," Zimmerman says. "My sense is the filings are coming back up because the need is still there."
