Jay S. Jump quoted in Seattle Times
It now costs you more money to prove that you're broke
By Melissa Allison
Seattle Times business reporter
In October, when a new federal law made it more difficult to file for personal bankruptcy, it also made filing more expensive.
Since then, the cost to file for Chapter 7 bankruptcy in the Western District of Washington has jumped from $209 to $274, and filers now have to pay $40 to $50 for credit counseling before they can file.
On top of that, some bankruptcy lawyers have doubled their fees because of the additional deadlines and paperwork required by the new law.
"It takes more time, more money and more effort on the debtor's part," said Michelle Branigan, a bankruptcy and real-estate lawyer in Seattle. Her fees went up by a couple of hundred dollars.
Jay Jump, a bankruptcy lawyer in Kent, raised his Chapter 7 fee from $600 or $700 to $1,250.
Jump runs background checks on his clients now to verify certain facts because the new law holds attorneys liable for false information. In the past, only the dishonest client was held liable, Jump said.
In eight years and about 4,000 bankruptcy cases, Jump has had two clients lie to him about their financial situations.
Lawyers also have to crunch more numbers to prove that their clients qualify for Chapter 7 bankruptcy, which is the kind that wipes away many debts. Chapter 13 calls for repayment over time.
He and other attorneys said they expect bankruptcy filings to bounce back after a recent lull.
The number of Chapter 7 filings in Western Washington jumped from around 2,000 a month to 9,912 last October, then dropped to 133 in November and 172 in December.
Richard Granvold, a bankruptcy attorney in Federal Way, filed 260 bankruptcy cases in the 15 days before the law changed in October and has filed only three since then. But that pace will change.
"It will pick up," Granvold said. "A lot of people filed before the law changed, so it dropped off. It'll take until August to be back where it was."
That doesn't surprise the American Bankers Association, whose members lobbied for the new law. It was not intended to slash the number of bankruptcies significantly, spokeswoman Laura Fisher said.
"We weren't expecting a huge drop in filings, just that the system be more fair," Fisher said.
To creditors, that meant weeding out the 5 to 10 percent of Chapter 7 filers with high incomes who used bankruptcy as "a financial planning tool," Fisher said. Those people "got into debt, declared Chapter 7 and erased all their debts, leaving the rest of us with the tab."
To go bankrupt now, they will have to file Chapter 13, which forces them to repay more of their debts.
Fisher figures the higher cost of filing is worth it for debtors.
"If you think about the amount of relief people are getting, sometimes in the tens of thousands of dollars, it's significant," she said.
Melissa Allison: 206-464-3312 or firstname.lastname@example.org