GREENBELT – For the court clerks who handle bankruptcy paperwork, the sound of changing bankruptcy law is the distinctive “thump-thump” from office time-stamp machines.
New case filings in Maryland have soared since the House and Senate passed similar bankruptcy reform bills this month.
On Monday, the first business day after Friday’s Senate approval of a reform bill, 140 new bankruptcy cases poured into the Baltimore Division of the federal bankruptcy court, double the number of new cases the office typically sees. In an eight-hour day, those 140 cases translate into one new case logged by clerks every 3.4 minutes.
“A lot of people think it is in effect now and are trying to beat the wire,” said bankruptcy lawyer John Burns, who has seen a 25- to 30-percent jump in potential clients at his Greenbelt office.
Proponents say bankruptcy reform is sorely needed to curb abuses and cut down on an explosion of new filings in recent years. Chapter 7 bankruptcy filings in Maryland rose from 5,500 in 1989 to 26,000 in 1998, before falling to 22,400 in 1999, according to the Department of Justice. Nationally, bankruptcy filings jumped from about 350,000 to 1.4 million a year in the last 15 years, said the U.S. Chamber of Commerce.
But just the talk of reform has itself sparked a flood of new cases from worried folks who want to make sure more-stringent bankruptcy laws don’t block them from using the federal court system to hold creditors at bay.
“We feel a little wave coming in right now,” said Mark Sammons, chief deputy clerk for the District of Maryland Bankruptcy Court.
Sammons said many of the new cases are Chapter 7 personal bankruptcy filings, which allow people buried in debt to wipe the slate clean. The proposed reform would make it harder for debtors to file for Chapter 7, steering them instead into Chapter 13 filings, where they would have to follow court-approved debt-repayment plans.
Sammons suspects the surge is due to the proposed reform legislation. Bankruptcy filings in the court’s Greenbelt division have gone from about 65 a day in February to about 75 a day since early March, when the House overwhelmingly passed a reform bill. In the court’s Baltimore division, filings in the first three weeks of March jumped from about 75 a day to more than 90 a day, before Monday’s deluge.
Andy Wilson, a bankruptcy attorney in Annapolis, said his office is answering a lot of phone calls from people who think bankruptcy reform is a done deal. He met recently with one man who was incredulous when the attorney tried to explain that the law had not yet changed.
“I’ve seeing some panicking people right now,” Wilson said.
George Blumenthal said his Upper Marlboro law office has received about 50 percent more calls since bankruptcy reform became a hot issue on Capitol Hill this year.
“Obviously there’s a flurry of activity,” said Blumenthal, who also saw more clients during last year’s failed push for federal bankruptcy reform. But that was nothing like this year’s stampede, he said.
Lawyers say most people who file for bankruptcy do it as a last resort, sometimes only days away from foreclosure after being painted into a corner by unemployment, illness or some other family crisis.
Like his colleagues, Burns said he is telling clients that the law has not changed — yet — and that Congress has not spelled out the details that would determine exactly who would and would not qualify for Chapter 7 bankruptcy protection.
Differences between the House and Senate bills still have to be worked out in a joint conference before being sent to President Bush, who has indicated he will sign a reform bill.
But people buried in credit card debt or facing a mortgage foreclosure may not feel they have the time to wait. So they want to file now, just in case.
“It’s created a bit of anxiety and also created a bit of misunderstanding,” Burns said.