New Bankruptcy Law triggers huge filings

Before the New Bankruptcy Law has been implemented from the 17th of this month, there has been a rush over filing for bankruptcy cases. The number of filings per day has almost doubled with the bankruptcy courts across each and every state in the US being overcrowded by filers waiting in long queues for their turn.

The changes to the law have been made with the aim to enable creditors and lenders get back at least a certain percentage of their loans and credit. Unlike the previous bankruptcy law, the new regulation makes it compulsory for every debtor to undergo credit counseling and then file for bankruptcy. This however makes filing for Chapter 7 almost impossible for most debtors. The basic aim is to shift more and more debtors towards Chapter 13 which ensures that they follow a repayment plan for 3 to 5 years and pay back a portion of their debts.

With a huge rush among the filers to escape from the hands of the new law, bankruptcy lawyers all across the US could receive a hefty amount of fees. But unable to deal with the ongoing rush since last week, several lawyers have stopped taking new clients. However, most of the bankruptcy courts in the state of New York remained open during the weekend. This is because distressed debtors have camped out from Friday on the court premises with infants in strollers, briefcases and food even braving the rains that hit the north-east of America.

In Denver, Colorado, around 300 people gathered in front of a local court before dawn on Friday to file for bankruptcy amidst heavy snowfall. A court in Atlanta was overcrowded with debtors rushing in to file banruptcy cases, and to facilitate the legal formalities of these debtors, the court denied entrance to all others.

Where debtors struggled to complete their filings before the deadline, the new law faced strong criticisms from a wide section of lawyers and even bankruptcy courts. David Houston, a bankruptcy judge in the Mississippi referred to the new law as "meat-axe approach." Houston further stated that the law would create a subculture of people who would owe a lot of money and just move away.

While debtors have made every effort for their filings, a huge section, mostly the Katrina victims in Louisiana, Mississippi and Alabama are the worst sufferers. They have been compelled to rush to the courts for their filings, since most of them have no alternative other than paying back their mortgage lenders. Although bankruptcy lawyers and consumer advocates across the nation have appealed to the US Congress for exemption of the Katrina victims from the new law, yet they could only succeed to eliminate credit counseling before one filed for bankruptcy.

bankruptcy filings in the US have been on the rise due to stringent laws preventing the disposal of individual debts. Records claim that filings which amounted to 6,079 cases per day in September, last year have increased to a higher daily average of 10,367 candidates opting for bankruptcy.