Colorado Springs bankruptcy attorney John Turner said fee increases are a possible reason fewer people are filing for bankruptcy.

Going broke keeps getting more and more expensive.
Since stricter bankruptcy laws went into effect last year, the cost of filing for bankruptcy has jumped 90 percent, and U.S. lawmakers are considering legislation that would raise filing costs another $40, which would account for a cumulative 110 percent increase in less than a year.
The filing cost in 2005 was $209. Today it’s $299, and new credit counseling costs of about $100.
Bankruptcy attorneys say the increases are hurting the wrong demographic – middle class families. They also worry the rising costs will someday mean the death of bankruptcy as an option for escaping debt.
However, the banking and credit card industries say the rising costs are an acceptable side effect of reforms to bankruptcy laws that allowed widespread abuse and fraud.
In June, the U.S. House of Representatives Financial Services Committee passed H.R. 5585, a portion of which calls for a $40 increase to cover administrative fees added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which went into effect in October.
The measure is expected to pass the House of Representatives during the coming weeks and then be sent to the Senate.
Reforms required under last year’s legislation include credit counseling and educational courses for those seeking to clear their debts. The law also requires consumers to show greater proof that they’re financially destitute – something that created more paperwork for attorneys and trustees.
Bankruptcy filing numbers have drastically fallen in 2006. A surge in the number of people filing before the reforms were instituted could account for the lesser number of filings so far in 2006, but many believe higher fees are also a factor.
Consumer filings declined nearly 75 percent during the first quarter of 2006 and nearly 69 percent during the second quarter – putting the nation on track for a 20-year low, according to the bankruptcy analysis firm Lundquist Consulting.
“Definitely the numbers are down,” said Colorado Springs bankruptcy attorney John Turner, who is a member of the National Association of Consumer Bankruptcy Attorneys.
Turner said he usually handles between 225 and 250 cases a year, but this year, he’s on track to reach about 100.
“It’s burdensome for people to file, and it’s more burdensome for me, too. It takes more time,” he said.
The NACBA is one group that’s working to preserve bankruptcy as an affordable financial lifeline. In the face of rising filing fees, the organization is urging its 3,300 members to offer free consultation sessions with consumers.
Turner, who said that he’s a pro-business Republican, opposes the reforms and the higher fees because he said they tend to unfairly target middle class families and not those abusing the system.
While not totally disagreeing with his argument, the American Bankers Association believes the reforms and fees are justified.
“Some people have been using this as financial planning tool. They run up a lot of debt, file for bankruptcy and leave the rest of us with the tab,” said ABA spokeswoman Laura Fisher.
Credit card companies have long been hurt by elimination of consumer debt, Fisher said.
“We’re talking about a system that hasn’t seen reform in 25 years,” she said. “So, yes, we’re going to see fees go up.”
Fisher also said the higher fees are worth what bankruptcy protection has to offer consumers.
Just how much the credit card industry was hurt by two decades without reform is hard to say. The industry is one of the nation’s most profitable with annual earnings that average $30 billion.
Fisher admitted that the ABA estimates that 10 percent of all consumer bankruptcy filings are fraudulent — an estimate that would account for 150,000 filings last year.
The other 90 percent are those who file because of job loss, illness and divorce, Fisher said.
And that’s the problem, according to Harvard Law School professor Elizabeth Warren.
Warren explored the idea in her paper, “The Growing Threat to Middle Class Families,” which used statistics from a larger study, “Financial Collapse and Class Status: Who goes bankrupt?”
Warren wrote that the study found bankruptcy is more prevalent than many people might believe.
Families with children are twice as likely to file for bankruptcy, according to the study, and if trend that continues, one in seven families will declare bankruptcy by the end of the decade.
The study also found that in 2003 more people filed for bankruptcy than had heart attacks, were diagnosed with cancer or filed for divorce.
“It’s become a needs test,” Turner said. “It’s not the abusive who need bankruptcy.”
Turner is unsure whether Congress will continue to raise fees for bankruptcy filings, but he’s certain that statistics from trade industries will not deter lawmakers.
“That’s what’s shocking,” he said. “Congress totally ignores groups that have professional experience.”
Rob.Larimer@csbj.com