Paperwork Swells, As Do Lawyer Fees, Since 2005 OverhaulIndividuals who have filed for bankruptcy protection since Congress overhauled U.S. bankruptcy laws in 2005 have faced a more expensive process as attorneys' fees have risen by roughly half, according to a government report.
In a report issued Monday, the U.S. Government Accountability Office said attorneys' fees for individuals who file for Chapter 7 bankruptcy-court protection increased by 51% since the Bankruptcy Abuse Prevention and Consumer Protection Act took effect in October 2005.
The report attributes the increase to the heavier load of legal work that is necessary to meet the law's requirements, which experts say has created a significant hurdle for financially strapped individuals.
"We've imposed enormous costs on the system which, among other things, have been a real barrier to people filing for bankruptcy because it's so expensive," said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys.
According to the report, the average lawyer's fee for a Chapter 7 bankruptcy case -- in which an individual's assets are liquidated and debts are discharged -- climbed to $1,078 in February and March of 2007, compared with $712 for the same period in 2005.
For Chapter 13 bankruptcies, which allow individuals to develop creditor-repayment plans, the median attorney's fee rose to $3,000 in February 2008 from $2,000 just before the law was passed.
Not only do individuals face higher attorneys' fees, but the accountability office also said that the fees to file for bankruptcy rose by $90, to $299, for Chapter 7 filers and by $80, to $274, for Chapter 13 filers.
To ask people considering bankruptcy to shell out an extra several hundred dollars may be too high a burden, experts say.
"That's a significant amount of money for the average American family, let alone a family on the verge of bankruptcy," said University of Illinois law professor Robert Lawless. "It's very possible to be too poor to be in bankruptcy because you can't afford the filing."
Experts say one factor contributing to the increased costs for individuals is the centerpiece of the 2005 bankruptcy amendments: the means test. Individuals must file extra paperwork to show that, based on their income, they're eligible to file for Chapter 7 bankruptcy and have their debts discharged.
The means test requires individuals to submit pay stubs, tax records and other documents, Mr. Sommer said.
The report shows that the means-test requirement has also been costly for the government. The GAO said $42.5 million of the $72.4 million it cost the Department of Justice's U.S. Trustee Program to carry out its overhaul of the Bankruptcy Code was spent implementing the means test. The department hired 127 people to review Chapter 7 filings. According to federal court data, there were about 500,000 such filings in 2007.
By: Jacqueline Palank
Wall Street Journal; July 31, 2008
