Filing Bankruptcy Now Too Expensive for Some Who Owe

The price of filing for bankruptcy, just like that of a gallon of gas, has gone up and up over the last few years.

According to The Wall Street Journal, filers have faced a process that's grown more expensive ever since Congress revised U.S. bankruptcy laws three years ago. A huge part of the added expense is the nearly 50-percent increase in lawyer's charges.

The U.S. Government Accountability Office (GAO) recently reported that for individuals who seek to file for Chapter 7 bankruptcy protection, attorney's fees have risen by 51 percent since October 2005, when the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect. GAO further suggests the law's new requirements mean that lawyers must carry a heavier workload to satisfy the regulation. This prevents a major hurdle for individuals who are already short on funds.

The Journal quoted Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys, as concluding that individuals now face a very expensive barrier if they want to file for bankruptcy. The GAO report suggests that typical legal fees for a Chapter 7 filing, in which assets are liquidated and debts are discharged, rose from $712 in 2005 to $1,078 in March of 2007.

Chapter 13 bankruptcies allow individuals to develop plans to repay their creditors. The median attorney's fee of $2,000 for a Chapter 13 in 2005 morphed around $3,000 in February of 2008. GAO also cited big increases in filing fees. Chapter 7 filers faced fees of $299, up from $90 before the law passed. Those attempting a Chapter 13 bankruptcy used to pay $80 but now face charges of $274.

According to The Journal, financial experts attribute the increased costs to the individual to the means test introduced with the 2005 bankruptcy law. Filers must submit extra paperwork to prove that based on their income, they're eligible for the court to discharge their debts. They need to locate and submit documents such as earnings stubs and income tax returns.

The means-test requirement has also proven expensive for the Federal government. GAO reported that $42.5 million of the $72.4 million the Department of Justice's U.S. Trustee Program spent to revamp the bankruptcy code went for implementation of the new means test. This required hiring 127 employees to review Chapter 7 filings, including half a million in 2007 alone.

The Journal quoted University of Illinois law professor Robert Lawless as remarking that it's possible for a debtor to be too poor to be in bankruptcy court because he can't even afford the filing fees.