ALAN PASNIK
Weekly personal bankruptcy filings in Massachusetts dropped by 96 percent in the four weeks after tougher federal bankruptcy laws took effect, according to a study compiled by The Warren Group, Banker & Tradesman’s parent company.
There were 22,000 bankruptcy filings in 2005 through the week before the federal law took effect on Oct. 17, for an average of 537 per week. In the four weeks following the rule change, an average of 19 new cases were filed per week.
“These numbers reveal how many people are now largely avoiding bankruptcy given the stringent newer requirements,” said Alan Pasnik, a data analyst for The Warren Group and chief author of the study. “There was a sense that filings would drop, but these figures are stark and clearly demonstrate the reluctance individuals have in filing for bankruptcy. Our data indicates that many individuals accelerated bankruptcy proceedings to avoid the structures of the new law.”
Under the new law, a so-called means test has been established that requires people to file under Chapter 13 if their income exceeds the median in their state. The goal is to move people toward Chapter 13, where filers arrange a five-year debt repayment plan, and away from Chapter 7 bankruptcy, where most unsecured debts can be written off.
The new law also makes it more costly to file for bankruptcy and calls for credit counseling.
According to published reports, the Congressional Budget Office has estimated that attorney costs will rise $150 to $500 a case. Bankruptcy filings already cost between $600 and $2,000, making it more difficult for many to file for bankruptcy.
The new law spurred a wave of bankruptcy filings shortly before it took effect. In the final week before the Oct. 17 deadline when the new law took effect, more than 5,000-plus cases were filed. All told, there were a total of approximately 10,000 cases filed in the six weeks before the law change. That compares to 12,000 filed in the first eight months of 2005.
The numbers of bankruptcy filings steadily increased during the year. From January through August, approximately 335 new cases were filed per week, at a total of a little more than 12,000 cases. For the next five weeks, the volume increased to 1,000-plus cases per week, for a total of 5,000 additional cases.
Even without factoring in the sharp run-up during the last six weeks, the percentage decline was stark in the number of bankruptcy filers. Comparing the first eight months of the year versus the last four weeks still represents a 94 percent decrease in filers, according to data compiled by The Warren Group, which tracks real estate and financial data throughout New England.
