A Rush to Beat Bankruptcy Deadline
Saturday, October 15, 2005
Normally sleepy bankruptcy court clerk offices around the region and the country yesterday overflowed with filers beating the deadline before tougher new bankruptcy rules take effect Monday.
In most instances, 4 p.m. yesterday was the last time that those filing paper claims, most of whom were seeking bankruptcy protection without lawyers, could do so. Over the weekend, bankruptcy courts will continue to accept filings over the Internet from lawyers with access to the court electronic case-filing system. Paper filers in Maryland may file over the weekend at a drop box at the federal building in Baltimore.
At the U.S. Bankruptcy Court clerk's office in Alexandria yesterday, 420 cases -- all of them personal bankruptcies -- were filed as of 5:30 p.m. But most were electronically filed. Charles Miller, division manager of the Alexandria court clerk's office, said the office handled 47 paper filers yesterday, much more than usual but nothing the clerk's staff couldn't handle. Before bankruptcy filings began to surge last month, the Alexandria court rarely saw more than 10 filings in a day. Similar increases were reported at the bankruptcy courts in the District and Maryland.
"We were surprised by how well prepared the filers were in general," Miller said. "They had done their homework. They just waited until the last minute."
The line of filers stretched out of the clerk's office waiting room in the late afternoon.
"It was wild . . . at least wild for us," Miller said.
The rush to file under existing bankruptcy rules was caused by passage this year of the Bankruptcy Abuse Prevention and Consumer Protection Act , which takes effect at midnight Sunday night. The law, long pushed by banks and consumer lending companies, is the most extensive change in the U.S. bankruptcy code in decades. It makes it harder for individual filers to erase debts by, among other things, requiring filers to go through credit counseling. Higher-income filers in many cases will be forced into Chapter 13 bankruptcies, which require repayment of a least a portion of debt. Consumer advocates said the changes will unnecessarily harm people under unexpected financial stress, such as costly illnesses, and generally make bankruptcy more expensive and bureaucratic.
"The biggest change is that it increases dead-weight transaction cost of doing a bankruptcy," said Robert Weed, one of the most active bankruptcy lawyers in the Alexandria court.
The new law has been a boon, at least temporarily, to Weed and other bankruptcy lawyers. Normally, he said, his firm handles about 65 cases a month. In September, it handled 135, and 65 more cases this week alone. He started turning away clients three weeks ago and had a goal of getting all his clients filed by Thursday.
A typical personal bankruptcy case takes about three months to resolution, though with the crush of filings, it may take longer to move through the system, Miller said.
"We'll be busy for months and months," Miller said.
While bankruptcy courts in the region avoided long lines, courts in New York City, Denver and other jurisdictions reported lines stretching out into streets. In Denver, 300 people were lined up to file by mid-morning.
Karen Redmond, a spokeswoman for the Administrative Office of the U.S. Courts, said that as of yesterday afternoon she had not heard of any systemic problems and that she believed that everyone who wanted to file yesterday would be able to do so.
The electronic case-filing system, which has been implemented in bankruptcy courts around the country over the past decade, handled most of the filings this week. While some observers in recent weeks worried the system could fail under the volume of filings, Alexandria's Miller said it performed "without missing a beat. . . . And if it didn't fail today, it's not going to fail over the weekend."
Miller said that, should the system fail over the weekend, the Virginia bankruptcy court had set up a backup system that should allow lawyers to e-mail filings and, as a last resort, fax them.
Burlingame, Calif.-based Lundquist Consulting Inc., which compiles bankruptcy statistics, said it expected 200,000 bankruptcy filings this week, far and away a weekly record. Typically, there are about 30,000 filings in a week.
As of 7 p.m., Washington area bankruptcy filings yesterday totaled more than 1,000: 420 in Alexandria, 529 in Greenbelt and 168 in Washington. All but a few were Chapter 7 liquidation cases filed by individuals, the form of bankruptcy used to clear debts. By comparison, on the same day last year, Alexandria had one , D.C. had two, and Greenbelt had 11.