A Pawtucket lawyer is encouraging debtors to take action before a new law makes it more difficult to seek protection.

12:13 PM EDT on Friday, September 23, 2005

BY LYNN ARDITI
Journal Staff Writer

More than 400 people in Rhode Island filed for personal bankruptcy last month, up nearly 50 percent from a year earlier, according to data from the federal Bankruptcy Court in Providence.

The sharp rise in Rhode Island, as in other states, comes as a new federal bankruptcy law is poised to take effect on Oct. 17.

The new law is widely expected to make it harder for debtors to seek protection from creditors under Chapter 7 of the bankruptcy code. Instead, industry experts say, more debtors will be forced to file under Chapter 13, which requires a repayment plan.

Last month, 413 Chapter 7 personal bankruptcy cases were filed in federal Bankruptcy Court in Providence, up from 278 cases in August of last year.

"My caseload has exploded," said Christopher Lefebvre, a bankruptcy lawyer in Pawtucket. "I've been advising my clients since January" who need to file for protection from creditors to do so before the October deadline.

The new law may limit who can file under Chapter 7 because it will enable a bankruptcy trustee or any creditor to bring a motion to dismiss the filing if the debtor's income is greater than the state median income, according to the Web site for a national credit counseling agency, Money Management International. Money Management is one of three agencies approved by the U.S. Trustee's office to provide the mandatory credit counseling to Rhode Island residents who file after the new law takes effect. (A list of approved credit counseling agencies by state can be found on the U.S. Trustee's Web site at www.usdoj.gov/ust/).

The new law worries Lefebvre, the bankruptcy lawyer, because many debtors in Rhode Island who file under Chapter 7 now are "working, middle-class families, families that own a home, have two cars, have two children, work hard and something happened -- a month or two layoff, a change in overtime, some wrinkle in their lives and it starts this domino effect."

Lefebvre said that he has already notified his clients that "Congress has passed a very anti-consumer, pro-business bankruptcy bill, and the bankruptcy protection is going to be less helpful." He said he tells clients that anyone who needs bankruptcy protection "will regret not filing now."

Once the new law takes effect, the cost of filing is likely to rise. That's because lawyers are likely to charge their clients more because of the additional time involved in filing, Lefebvre said.

For a bankruptcy case involving a two-parent family with a mortgage, two cars and $40,000 to $50,000 in credit-card debt, he said, the lawyers' fees run from about $700 to $1,000. That's in addition to the Bankruptcy Court filing fee of $209, he said.

As of Oct. 17, Lefebvre said, the charge for the same bankruptcy filing will probably rise to $2,000, plus the filing fee, and that filing fee is going to go up another $50.

Lynn Arditi can be reached at larditi [at] projo.com or by calling (401)277-7335.