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Bar News - June 23, 2006

More Chapter 7 Filings Than Chapter 13: Is This a Return to Pre-Law Normalcy?


First-quarter consumer bankruptcy data compiled by LexisNexis CourtLink reveals that since the implementation of the federal Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) last October 17, national totals of Chapter 7 (straight bankruptcy) consumer bankruptcy filings have reassumed the lead over Chapter 13 filings that require repayment of debt to creditors.


The new law makes it more difficult for consumers to file for Chapter 7 bankruptcy protection, and was intended by Congress to reduce the number of Chapter 7 filings in favor of Chapter 13.


Following the national trend, New Hampshire, for the first five months of 2006, had Chapter 7 filings that outpaced Chapter 13 at 404 to 186. This compares to 2,009 Chapter 7 filings and 2,001 Chapter 13 filings during the same time period last year.


George A. Vannah, clerk of court for the US Bankruptcy Court, District of New Hampshire, says that the basic impact of the new law in the state has been a slowdown in the Chapter 7 caseload but not with the expected reciprocal increase in Chapter 13. “Chapter 13 filings have picked up a little, but, relatively speaking, they have remained steady.” He says the trend for a decrease in Chapter 7 cases with a related increase in Chapter 13 cases has not proven to be the case currently in New Hampshire. “We’ll need at least a full calendar year or more to get a more balanced view of the filings.”


The impact of the new law has actually been a drastic reduction in filings overall, explains Vannah [see related article.] Total filings, including all types of chapter cases in the state, experienced a 76 percent decline for the first five months of 2006 over the same period in 2005. In 2005 there were 2,000 bankruptcy filings in the New Hampshire District from January 1-May 31 compared to 600 for 2006.


Nationally, in Q4 2005, directly after the law went into effect, total Chapter 13 filings outpaced Chapter 7 filings by 8 percent, 24,656 filings compared to 22,668. In Q1 2006 that trend did a flip-flop. By March, more than 60 percent of bankruptcy filings were Chapter 7 cases (31,615) and fewer Chapter 13 cases (19,481) were filed for a total of 51,096 filings, more than twice as many total bankruptcies as were filed in January (25,005).


Nine states, mostly in the Southeastern quadrant of the United States posted higher Chapter 13 filings than Chapter 7 in the first quarter of 2006.


Six states led the nation with more than 6,000 total consumer bankruptcies filed in the first quarter, including: Georgia (7869); Texas (7,245); Michigan (6393); Ohio (6140); Tennessee (6074) and California (6003).


As more time is clocked from the new law, Henry J. Sommer, attorney and editor-in-chief of Collier on Bankruptcy, suggests the national trend toward more Chapter 7 filings will continue.


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