Oklahoma bankruptcy attorneys dread historic changes coming from

Journal Record, The (Oklahoma City), Mar 14, 2005 by Brian Brus

Ken Boatman is preparing himself for re-education over the next several months. Jerry Brown is expecting his business competitors to drop out of an increasingly complicated niche market.

And both men, Oklahoma City attorneys who specialize in personal bankruptcy filings, are dreading expected changes in the Federal Bankruptcy Code being passed now through the U.S. Congress.

This legislation will make bankruptcy law as much as a fringe practice as water law or tax law - general practitioners just won't touch it for fear of liability and all the time involved, said Brown, who runs a private practice for consumer bankruptcies. The bottom line is it's not going to run me out of business; there will always be people who need to file bankruptcy.- But I don't see this as being good for anyone.

From 3.5 percent to as much as 20 percent of people who file for bankruptcy each year likely will be disqualified from doing so if Senate Bill 256 in Washington passes, as is expected in following weeks, legal experts estimate. The change is the largest rewrite in bankruptcy law in nearly 30 years.

About 1.5 million Americans file for bankruptcy each year, the American Bankruptcy Institute reported. In Oklahoma, nearly one household out of 56 filed for bankruptcy last year, the nonprofit organization said.

Brown said he saw about 10,500 personal bankruptcy filings in the Western District of Oklahoma last year, 250 of which were his. He files 20-25 cases a month, nearly 70 percent in Chapter 7 (liquidation).

The bill passed the Senate Thursday by a 74-25 vote. Oklahoma's representatives, Tom Coburn and Jim Inhofe, both voted in favor of the bill. It will go to the House of Representatives next month and then to President Bush, who is expected to sign it into law.

The legislation would set up an income test for measuring a bankruptcy applicant's ability to repay debts. Those with insufficient assets or income could still file a Chapter 7 bankruptcy after the forfeiture of certain assets and have their remaining debts erased entirely. But filers with an income greater than a state's median - $35,500 in Oklahoma, according to the U.S. Census Bureau - who are able to pay at least $100 per month would instead go into Chapter 13 with a repayment plan that would include credit card charges, medical bills and various other obligations previously avoided under current law.

The legislation is backed by credit unions, banks and retailers, which have argued for years it's too easy for consumers to walk away from their responsibilities. Congressional opponents, mostly Democrats, argue the changes would hurt people buried under massive medical expenses or those who are temporarily jobless.

In passing the bill, Coburn said, Under today's bankruptcy laws those who don't play by the rules impose a hidden tax on those who do. Unmet payments and debts aren't forgiven, just passed on to other consumers. If this legislation becomes law consumers will pay lower interest rates and save hundreds of dollars every year.

But Brown said the bill's title, Bankruptcy Abuse Prevention and Consumer Protection Act, is inaccurate.

We don't think the legislation is debtor-friendly, he said. In fact, it's been promulgated for the last few years by the credit card companies who simply can't live with a low 3 percent default rate; they want everyone to pay. It's going to make it more difficult for honest-but-unfortunate debtors to discharge their debts.

Boatman, also in private practice specializing in consumer bankruptcy, agreed with Brown. He said the majority of his clients have found themselves in trouble because of catastrophic medical bills or loss of seasonal work they expected for income.

This is a banking industry driven issue, he said. And yet there's no balancing act for that same banking industry that's now sending credit cards out to high school students. There's no effort to reform predatory lending tactics.

Boatman said he's setting aside time to attend professional seminars later this year to familiarize himself with the changes.

I'll be going back to school basically, he said.

The legislation also would raise fees for Chapter 7 filings by 17 percent, to $245. Some consumer bankruptcy lawyers said the increased paperwork required by the measure would cause their fees for Chapter 7 to rise by more than 25 percent, the Associated Press reported, and the increases for the more expensive Chapter 13 filings could be even higher than that.

Even though the impending law is expected to cut back the number of cases filed, Brown and Boatman each said they would still see nearly as many potential clients come through their doors for general economic reasons.

Just look at the cost of gas itself, Brown said. Rising $2-a- gallon prices are enough to break people who are already stretching their budgets.