Ok, I know I have already posted once on this topic...but I want to take a different approach this time. The law hurts consumers, but it is also aimed at attorneys that practice bankruptcy law.
The first and most important thing is a requirement that attorneys do a reasonable investigation into the circumstances leading up to the bankruptcy and that they must certify, under penalty, that the information provided is based in fact. This little turn of legalistic phrase means that attorneys are going to have to investigate their own clients and make sure to report their findings (in the petition) to the court. So much for attorney/client priviledge. Be aware, attorneys are already expected to take this one to the Supreme Court, but that will take a lot of money and clients are filing bankruptcy...
The certification that the information in the petition is based in fact is backed up by the requirement that if someone objects to information in the petition and it is later determined to be inaccurate, the ATTORNEY will have to pay the court costs and attorney fees of the person or firm that objected in the first place. In easier terms, if a person says they do not have a boat, and the petition does not list a boat, and someone objects that there IS a boat, if anyone hires someone to prove there is a boat, and it turns out there is a boat, the attorney for the debtor will have to pay for the investigation, the attorney fees and it is likely that the debtor will not get a discharge in the bankruptcy court. If the attorney charged the debtor $750 for filing the bankruptcy - but the investigation cost $1000, then the debtor's attorney will have to not only forfeit their fee, but pull $250 out of their pocket.
Here is what one malpractice insurer said about the new law and their offering of insurance: expect the 10% no-claim discount to be withdrawn immediately. Expect increases in the 15-25% range until a claims history is established. Some firms have already suggested that they will no longer offer insurance to attorneys practicing bankruptcy.
In one survey done about 4 years ago (last time the law got close) it was expected that as many as 40% of attorneys would quit working bankruptcy. Based on some informal research, the 40% number is probably right for those that will change fields, quit or retire immediately. Another 30% will probably leave after just a couple of filings under the new law, and as many as 80-90% will leave within a year of it's passage.
What might happen to an average consumer? One scenario: Couple earning 50k, renters in a medium sized metro area. Earning too much to file a chapter 7, but too little to survive a chapter 13. With few attorneys willing to file petitions, they can try to file their own - not recommended now, definitely not under the new law - or they can deal with their creditors. Within a year, two wage garnishments will be filed....one each on the couple. Now, not able to pay their bills to begin with, they lose 20% of their GROSS income to garnishments. If they fall behind on their rent, and an eviction is filed, no bankruptcy can stop it. They will have to live in their car - provided it was not repossessed.....because their credit will be so bad, no one will want to rent to them. The alternative is quitting their jobs and trying to find something under the table - good luck. (Assuming the creditors do not go after them for trying to avoid the garnishments).
Don't forget the credit counseling services: they get new customers...the agencies - paid by the credit card industry - are the only ones currently authorized to provide the mandated financial education classes required under the new law.....and do you think it will be the credit card companies that PAY for those classes? or will it be the debtors?
So, in real terms, 80-90% of the attorneys that help consumers with debt will be out of business or gone elsewhere, the only people that will be allowed to offer the mandated financial education will the agencies paid by the credit card companies, and attorneys that do file, will be required to certify the information in the petition is accurate or risk their own money...without malpractice insurance.
Can you guess what will happen to the number of bankruptcy filings? 1.5 million down to less than 100,000 in less than 2 years. But the number of foreclosures, repossessions, garnishments and evictions will grow exponentially....banks and credit card companies will own more homes, cars and furniture than they will know what to do with....and in areas where foreclosures are high (in Wisconsin over 20k last year) the effect on real estate prices will drive others into trouble.