Soon, even bankruptcy could be harder to afford.
That's one of the lesser-known but broader changes that local lawyers and trustees anticipate from changes in the federal bankruptcy laws, approved last evening in the U.S. Senate and expected to receive final passage as early as next month.
The legislation, part of the legal-system revisions desired by President Bush, passed the Senate 74-25 with support from 18 Democrats. It's the largest overhaul of bankruptcy laws in more than a quarter-century
FOR THE RECORD - An article in yesterday's editions of The Sun misspelled the name of a Dundalk bankruptcy attorney. He is Nicholas J. Del Pizzo 3rd.
The Sun regrets the error.
Overall, the changes in the law will make it more difficult for people to walk away from their debts and are expected to force more to work out partial payment plans in bankruptcy court. That's where the added cost of being broke comes in.
The payment-plan form of bankruptcy, called Chapter 13, takes more lawyer time and already costs more than the more widely used Chapter 7, the "clean start" form of bankruptcy for people without enough income and assets to make payments.
Nicholas J. Del Pizzo 3rd, a Dundalk lawyer who specializes in consumer debt cases, estimates that a typical Chapter 13 case currently entails about $1,250 in legal fees. That compares with about $600 for a Chapter 7.
The new law will force lawyers to review a new "means test," intended to keep wealthier debtors from wiping out all but a few specific types of debts, and to take more responsibility for verifying the value of clients' assets. That could tack on another $400 or $500 in legal bills, Del Pizzo added.
Maryland is a rich state - second in average household income, according to 2003 Census Bureau statistics - but it has a higher-than-average number of personal bankruptcies.
There was one consumer bankruptcy in Maryland for every 65.8 households in the year ending in March 2004, according to the American Bankruptcy Institute. That compares with a national average of one for every 72.8 households and ranks Maryland 18th among states. The number of Maryland consumer bankruptcies did fall by 12.5 percent last year, to 29,500, as the economy improved.
Chapter 7 is used in about two-thirds of personal bankruptcies nationally. In the federal bankruptcy court in Baltimore, it's used about 72 percent of the time, according to court statistics.
Estimates, both locally and nationally, vary widely on how many people who would have filed under Chapter 7 will be pushed into Chapter 13 filings under the new law. The American Bankruptcy Institute estimates between 3.5 and 20 percent nationally - putting the number between 3,675 and 210,000 people.
