When Bankruptcy Becomes Personal

If you're overwhelmingly in debt, you are not alone.

If you're screening every telephone call to avoid dealing with your creditors, you are not alone.

If you've finally decided to file for bankruptcy protection, you are not alone.

On that last point, perhaps it will ease your shame to know that bankruptcy filings for the period from April 1 to June 30 of this year were the highest in history for a single quarter, up 11 percent, according to the Administrative Office of the U.S. Courts.

The overall quarterly increase was fueled by consumer Chapter 7 filings, which rose 17.7 percent, to 362,481 from 308,028, for the second quarter of 2004. Under Chapter 7, a person's assets are liquidated, except those exempted by law, and debts are wiped away. Such cases are usually simple. The average filer doesn't even appear before a judge.

This recent surge in bankruptcy petitions is largely attributable to consumers scrambling to file before the new, tougher Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 takes effect Oct. 17.

"We are having a spike in filings such as I have never seen in 23 years of practicing bankruptcy law," said Kevin C. Gleason, an attorney from Hollywood, Fla.

How tough is the new law? Debtors will be required to get credit counseling before filing. They will have to pass a means test in order to file under Chapter 7. Otherwise, they must file under Chapter 13, which requires debtors to pay back some of their debt over a five-year period. Overall, debtors will be scrutinized much more closely than before.

With the new law approaching, I thought it was appropriate to recommend for the Color of Money Book Club "Surviving Personal Bankruptcy: Your Guide to the Personal, Legal, and Financial Issues" by Nora Raum (Gotham Books, $20).

This isn't so much a how-to book but a primer on the bankruptcy process. Raum describes the ideal bankruptcy candidate and lays out alternatives to declaring yourself broke. The book also includes the latest changes in the bankruptcy law.

Remember, I told you you're not alone. Raum opens most chapters with stories of the rich and famous who have filed for bankruptcy. For example, did you know Burt Reynolds filed for bankruptcy? Milton S. Hershey, the chocolate bar king and the man responsible for my spreading hips, went bankrupt -- twice. Tammy "Stand By Your Man" Wynette filed for bankruptcy. Talk show host Larry King also filed.

"Bankruptcy is a mystery to most people," writes Raum, who has practiced law for nearly 20 years, specializing in personal bankruptcy. "They hear the word now and then, usually in connection with some huge corporation. But they have no idea what it means to people like them. They need basic information to help them decide if bankruptcy might be right for them."