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Filings soar before Monday's tough bankruptcy law takes effect

WASHINGTON—For the fourth straight week, U.S. personal-bankruptcy filings hit an all-time weekly high as consumers mired in debt rush to file before next Monday, when a new law makes it tougher to get federal debt relief.

Nearly 103,000 Americans filed for bankruptcy in the week that ended Friday, up from the previous weekly high of 68,287, according to figures from Lundquist Consulting Inc. of Burlingame, Calif., a financial-services advisory firm.

Typically, bankruptcy filings were about 30,000 a week.

The deluge has swamped bankruptcy lawyers across the country and forced many to turn away customers. Washington lawyer Scott Arnopol said he was handling more than twice as many cases as usual and was trying not to turn anyone away.

"This is like April 15 with tax returns. It's the only analogy I can think of," Arnopol said. "We're trying to file these cases as fast as we finish them. Normally we have a five-day turnaround for these petitions; now we're doing them in 24 hours."

The rush is intended to beat Monday's enactment of new eligibility limits for filing under Chapter 7 of the bankruptcy code, which allows those in fiscal trouble to erase their debts after forfeiting their assets.

Under the new law, only bankruptcy petitioners who earn less than the median income in their states are eligible to file under Chapter 7. Those who earn more and can repay at least $6,000 over five years can file only under a Chapter 13 debt reorganization plan, which requires some repayment.

The law would force about 10 percent of debtors to seek Chapter 13 debt relief instead of Chapter 7 protection, studies have found. As a result, creditors would net another $1 billion to $4 billion in debt repayments over five years, according to similar studies.

The law also requires filers to submit more paperwork, such as tax returns and paycheck stubs, and to get credit counseling at their own expense within six months of applying.

To a lesser extent, the law also makes it tougher to file for commercial bankruptcy by giving companies that seek debt protection less time to decide whether to assume or reject leases. They'll also have less discretion in deciding whether to propose reorganization plans and will be required to have more cash available to pay utilities and suppliers in order to keep operating.

As a result, business bankruptcy filings also have accelerated. Notable companies that filed recently include Northwest and Delta airlines and auto-parts maker Delphi.

One group that may not be able to file before the new restrictions take effect are destitute Hurricane Katrina survivors. Many are tending to more immediate concerns such as relocating, finding jobs, reconnecting with family members and recovering from injuries.

It probably will be one to three years before Katrina victims make a noticeable dent in the bankruptcy caseload, said law professor Robert Lawless of the University of Nevada, Las Vegas, who's studied bankruptcy filings after major hurricanes.

"There's always a rather significant delay from the onset of problems to the actual bankruptcy filing, so it doesn't surprise me at all that we don't immediately see" a large number of hurricane victims in bankruptcy court, he said.

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For information about the new bankruptcy law online, go to the U.S. Trustee Program at www.usdoj.gov/us.

For the list of credit counselors approved by the Justice Department, go to www.usdoj.gov/ust/bapcpa/ccde/cc(underline)approved.htm.

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(c) 2005, Knight Ridder/Tribune Information Services.

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