Rush to file for bankruptcy precedes new federal law

Tuesday, October 18th 2005, 5:43 am

By: News On 6

DES MOINES, Iowa (AP) _ Bankruptcy courts, attorneys and credit counselors worked through the weekend to deal with a barrage of filings before new federal bankruptcy laws took effect this week.

``What we filed on Friday was higher than any month in 2004,'' said Sean McAvoy, clerk of U.S. Bankruptcy Court for the Northern District of Iowa.

Bankruptcy clerks in Iowa reported that 1,487 people filed on Friday alone. Hundreds more cases were filed on Saturday and Sunday.

``It was a struggle to get all the cases on the system,'' McAvoy said.

Swimming in debt and fearing that the new law that took effect Monday would take away their ability to shed it, thousands of Iowans took the plunge into Chapter 7 bankruptcy in the past week. Statewide, 16,204 bankruptcy filings had been logged as of Monday, already ahead of last year's 12,968.

West Des Moines attorney Jeff Mathias said implementation of the 2005 Bankruptcy Prevention and Consumer Protection Act was a triggering event that pushed many consumers teetering on financial failure to file for before the new law's stricter rules kicked in.

Mathias said the deadline boosted his case numbers by three to four times the normal 30 a month.

``It's mostly credit card debt, but typically arises from something like illness, disability, divorce or job loss,'' he said.

The perception that most people who file for bankruptcy overextended themselves with frivolous purchases is not true, he said. Most have had a catastrophic event that pushed them deeper into debt.

For Douglas Roeske, a 25-year-old Ames appliance store manager, $20,000 of debt was preventing him from getting ahead enough to afford a decent car for his family. Roeske and his girlfriend share an apartment with their 13-month-old baby. Another child is due in March.

The exhaust pipes fell off of his 1989 Mazda, sending fumes into the passenger cabin. The brakes are bad and the windows don't work.

Roeske filed for bankruptcy on Saturday.

``I'm hoping for a fresh start. I was just tired of not being able to get credit,'' he said.

Roeske admits he was a reckless teenager, piling up debt for an all-terrain vehicle and pickup truck that he couldn't afford.

``I messed up. I screwed up my whole life and now I'm working real hard to fix it,'' he said. ``Since they were going to make it a lot harder to claim bankruptcy, I decided to bite the bullet.''

The new law forces more consumers into Chapter 13 bankruptcy, which requires them to repay their debts over a period of time. Fewer Chapter 7 filings, which allow consumers to erase their debts, will be allowed.

The law no longer allows the value of a home to be exempted from creditors, Mathias said.

``Many people will lose their homes, even if they've had them for several years and have been paying on their mortgage,'' he said.

Karen Atwood, chief executive officer with Consumer Credit Counseling of Northeastern Iowa, favors the new law because it forces debtors to seek credit counseling before their cases are settled.

Those who filed for bankruptcy before the law changed ``will have learned nothing and in two years they will be in as bad a financial shape as they were in August,'' she said.

Katherine Porter, a University of Iowa law professor, was highly critical of the new law, which she said was poorly drafted and is highly complicated. She said it benefits lenders more than consumers.

``Who really wins here is the secured creditor _ car lenders do better, landlords do better,'' she said.

The underlying principle behind the bill _ that too many people file for bankruptcy protection _ is true, she said.

However, the bill does little to curb high late fees and interest rates charged by credit card companies and does nothing to inform the consumer in an era of unlimited marketing of credit cards, home equity loans and second mortgages, she said.