| A bankruptcy petition queue in Los Angeles. (Reuters)
Washington, Oct. 17: More than 28,000 Americans filed for bankruptcy every day last week, crowding courthouses across the US to beat today’s deadline ahead of a new, tougher law that makes it difficult for individuals to seek protection from creditors.
The daily figure of 28,000-plus, an estimate for last week, is almost double the confirmed weekly total of 102,863 filings for the previous week or 14,694 personal bankruptcies a day, compiled by Lundquist Consulting Inc., a California firm which tracks bankruptcy statistics across America.
The new law, encouraged by the Bush administration and enacted by a Republican-majority Congress at the urging of big banks and lending companies, will make it impossible for most individuals with above-average income to file for bankruptcy under what was hitherto known as “Chapter 7”.
Until now, such filings allowed debtors a second chance by wiping off their debts after they gave up non-essential assets to creditors to pay whatever possible but not the full money owed.
The new law, on the other hand, raises the limits for personal bankruptcy filing and requires individuals to get professional credit counselling before they seek to wipe off their debts.
In many states, bankruptcy lawyers, who have seen their fees rise steeply in recent weeks, stopped taking new clients altogether last week because they simply could not cope with the avalanche of bankruptcy pleas.
In many towns in New York state, bankruptcy courts remained open during the weekend because distressed debtors were camping out from Friday on their premises with infants in strollers, food, briefcases with documents and umbrellas, braving the rains which hit America’s north-east.
In Denver, Colorado, which saw early snowfall this year, over 300 people queued up at a local court before dawn on Friday to beat the deadline.
In Atlanta, Georgia, a court building was so crowded with debtors that everyone else was barred from entering the building to facilitate the work of those who were seeking bankruptcy protection by today’s deadline.
Among those who turned up at a court in Dallas, Texas, was an 85-year-old woman, helped by her daughter and granddaughter, to complete the proceedings so that she could save her home from creditors.
The new bankruptcy legislation has been widely criticised, even by courts dealing with the issue.
Bankruptcy judge David Houston of Mississippi called changes to the law a “meat-axe approach” in an interview to a local newspaper in the state, which was recently hit hard by Hurricane Katrina.
Houston, a former president of the National Conference of Bankruptcy Judges, warned that it would create “a sub-culture of people that will owe a lot of money and just move away”.
The changes have been particularly distressing for hurricane victims in Louisiana, Mississippi and Alabama, who lost everything recently to Katrina.
Many of them never thought of seeking bankruptcy protection, but with mortgage companies demanding loan repayment on homes that no longer exist, thousands of people are approaching lawyers to help file for bankruptcy.
A national coalition of bankruptcy lawyers and consumer advocates has been lobbying the US Congress to exempt Katrina victims from the clutches of the new law.
But the US Trustee Program, which supervises America’s bankruptcy courts, has only succeeded in exempting them from credit-counselling before possible bankruptcy filing.
Bankruptcy filings have steadily rising in the US with an increase in individual debt.
According to Lundquist Consulting Inc., bankruptcy filings in September last year were 6,079 cases a day, but last month’s figures showed a vastly higher daily average of 10,367 filings.