Bankruptcy getting tougher
Nevada County’s unofficial “Pine Cone Tax” ” low wages in return for the privilege of living in such a scenic area ” could save most debt-saddled residents from the more onerous provisions of the new bankruptcy act.
But those who do file for bankruptcy will face higher costs, more complications, and a more difficult time finding an attorney after President Bush signs the first major revision of the federal bankruptcy code in 27 years.
“Because our job market doesn’t pay what most Californians earn, I believe that most consumers who are considering bankruptcy in Nevada County will still be able to file for Chapter 7,” said attorney George Roberts of Nevada City.
Chapter 7 has been the traditional escape hatch for people drowning in debt they can’t repay. Bankruptcy enables them to wipe out their debts and get a clean start in life.
But now debtors whose income exceeds California’s median for a family of four will be forced into Chapter 13 bankruptcy, where they will have to pay down their debt over a three- to five-year period.
The Internal Revenue Service will determine what are reasonable living expenses during that period.
The state’s median family income currently is $67,814, but Nevada County’s is $52,697.
Proponents of the federal changes ” the credit card, auto and retail industries ” believe the shifts are needed to end abuses of the bankruptcy system. They point to the rise of bankruptcy filings, from 200,000 in 1978 to 1.6 million last year, as evidence of abuses.
Roberts said most of his clients are responsible consumers and are not using the bankruptcy code to make their debts vanish.
“The changes were portrayed as stopping irresponsible use of credit cards,” he said.
“From my perspective, the most common reasons for filing for bankruptcy are the fact that so many people don’t have medical insurance, people have lost a second job … or people lose a high-paying job and the only work they find is at a substantial reduction.”
Roberts said banks issue credit cards to people who shouldn’t have them, then complain when those card holders default on the debt.
“One of the comments critics of this bill made was that instead of the bankruptcy code imposing this means test, maybe the banks should do that before they issue credit cards,” he said.
Under the new law, people considering bankruptcy will first have to attend a credit counseling course. What that will consist of, and how much it will cost, have yet to be determined.
People who end up in a Chapter 13 proceeding will have their “reasonable” living expenses determined by IRS statistics. The difference between their income and expenses will be used to pay down debt.
“Previously, courts used general guidelines of what are acceptable expenses,” Roberts said. “Under the new guidelines, the bankruptcy court is going to use Internal Revenue Service-generated tables for what the IRS considers to be reasonable costs for your household expenses.
“It doesn’t matter where you live or how much you really spend on food. It’s going to be the Internal Revenue Service that determines what’s reasonable for a family to survive on.
“If people are afraid of the bankruptcy code, they ought to be more afraid of the IRS dictating what are reasonable expenses.”
Attorneys will also have to certify they have made a reasonable investigation of the facts in the bankruptcy petition, a provision Roberts believes will drive attorneys out of the field.
“It’s scaring a lot of attorneys,” he said. “You can be sanctioned and fined if there is something inaccurate that they should have discovered. There are a lot of attorneys who say they’re not going to take that risk.”
Currently, debtors have to certify under penalty of perjury that the facts in the petition are correct.
“For some reason, that wasn’t good enough for Congress,” Roberts said. “It is intended to drive more attorneys out of the bankruptcy field and make it less accessible to people who need the help.”
But Roberts, who has practiced bankruptcy law in Nevada City since 1980 and said he handles 90 percent of the personal cases in the area, isn’t about to leave the field.
In fact, you might say it’s bred into the family. Roberts’ brother, sister (who is now a judge), and brother-in-law have all practiced bankruptcy law. Even his son, Tyler, is now practicing in Sacramento.
“The bankruptcy code is essentially pro-debtor,” he said. “It has always been designed to give people a chance to feel they can start over. … People only file when they are at the end of their rope. They feel agony, embarrassment, and a sense of personal failure.”
The president is expected to sign the bill into law soon, but most of the provisions won’t take effect for another six months. Roberts believes that now is the time to act if you are considering personal bankruptcy.
“In six months, a person may lose the opportunity to get a fresh start, even if the problems are caused by medical bills,” he said. “If anybody is considering (filing for bankruptcy), there is a very specific,
real reason to do it now.”
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