Counseling agency bears brunt of new bankruptcy law

Depending on whom you ask, last October’s overhaul of the federal bankruptcy law may or may not be having its intended effect of keeping deadbeats from shirking debt.

There’s no argument that it’s having the intended effect on people like Sara Allen.

Allen, executive director of the Consumer Credit counseling Service of Northern Colorado and Southeast Wyoming, confirmed activity at her office has soared over the five months since the law changed.

One requirement of the new bankruptcy law calls for those contemplating seeking protection to undergo credit counseling before filing – a task for which Consumer Credit Counseling is the only authorized agency in Larimer and Weld counties.

Between Oct. 17, 2005 – the effective date of the new law – and March 10, Consumer Credit Counseling served 384 pre-filing clients.

Of course, there’s not a past record to compare these numbers. But it appears the flood is just beginning to rise.

“We’ve gotten a little busier each month,” Allen said. “We were projecting about 100 sessions per month. We’re going to get there. We’re not there yet.”

Still, Allen has hired two more financial counselors so the nonprofit agency can meet the additional demand, and will likely add another this year.

Bankruptcy filing artificially spiked before Oct. 17, as people who considered bankruptcy rushed to court to beat the deadline and any uncertainty that came with the new law. For instance, filings in Northern Colorado topped 1,300 in October – compared to 250 in October 2004 – but tailed off to just 20 in November.

“People who might normally have filed in November or December or January got frightened by the new law,´ said Joe Carroll, a Fort Collins attorney who provides bankruptcy services.

As a result, bankruptcy cases slowed to a trickle through January. That started to return to a normal pace in March, Carroll said.

The major difference under the new law, Carroll said, is the “means test,” which applies to filers earning at or more than the median area income in their county. For instance, a household of four in Larimer County that makes at least $66,500 has to prove it doesn’t have any disposable income beyond necessary expenses. If so, the filer will likely be compelled to pay back at least part of the outstanding debt.

If a filer earns under the median threshold, the means test is not necessary.

“Other than the means test, there’s not a whole heck of a lot of difference from the old bankruptcy (law), except more paperwork,” Carroll said. “For instance, because of the credit counseling, they need to bring more documents into (lawyers), and more forms.”

As more debtors step their way through the new bankruptcy protocols, Consumer Credit Counseling and similar agencies around the country will see more work on the backside of the process.

The law also requires pre-discharge counseling.

“One of the things we’re seeing is people who aren’t really aware of what life might look like after bankruptcy,” Allen said. “One of our hopes is that people will say, ‘How do I avoid this in the future?'”

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