A Day of Last Resort

On Monday, we looked at the Insolvency Epidemic — so its not like no one saw this coming. 

Everyone knew that yesterday was going to be the "Day of Last Resort" — but even still, this headlong rush is pretty astonishing:

"When the new regulations go into effect on Monday, they will introduce sweeping changes intended to make it more difficult for consumers to erase their debts. They will also increase the costs of filing for bankruptcy, adding new steps like credit counseling and more paperwork to the process. The new law, which was passed by Congress six months ago, will also require a thorough review of whether people can pay off at least some of their credit card bills and other debts.

In anticipation, there has been a rising stream of bankruptcy filings in the past several months. That has turned into a scramble in the last couple of weeks.

But at federal courthouses across the country yesterday, the sheer numbers were more than anybody in the court system could recall.

"We have never seen anything like this," said Barbara J. May, a consumer bankruptcy lawyer in St. Paul. "We knew it would be an upswing, but this is pandemonium."

Bankruptcy lawyers across the country reported scores of last-minute phone calls from anxious debtors wanting to schedule an appointment; one out-of-state client even bought a first-class airline ticket just so he could meet with an adviser.

Court clerks around the country reported that thousands of consumers had filed their bankruptcy petition electronically. But thousands more filed their paperwork in person, prompting many bankruptcy courts to use vacant courtrooms, bakery ticket numbers and extra staff members. The flood of filings is expected to continue until midnight Sunday because the judges are allowing electronic filings and some courthouses have put out drop boxes." (emphasis added)


That’s the lawyer’s word, not mine. And Friday, originally thought to be the "Day of Last Resort"  has been extended throughout the weekend: 

"Many consumer bankruptcy lawyers will be working through the
weekend. "I have 75 cases that I have to file before I can go home
today," said Ms. May, who has employed five additional paralegals and
her 79-year-old mother to handle the flood of phone calls. "I will be
here until midnight on Sunday and people are still calling to get
In many cases, consumers trying to get their bankruptcy petitions in
under the wire had been contemplating the decision for a long while.
The deadline, however, led them to act."


The chart suggests that this will not play too well in Peoria . . .


graphic courtesy NYT



UPDATE October 16, 2005 10:49 am

You can see highlights of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 at  Mike Shedlock’s, along with a good analysis, and excerpts from a WaPo article on the smae subject . . .


Debtors Throng to Bankruptcy as Clock Ticks
NYT, October 15, 2005

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What's been said:

Discussions found on the web:
  1. Emmanuel commented on Oct 15

    Let’s try to figure out the implications of this law once it is implemented. Here are what I can think of:

    (i) The law is being passed at a most inopportune time for overindulgent US consumers. Last Friday’s figures of a +1.2% inflation rate rise combined with a -1.2% dip in weekly take-home pay plus this new law on top of everything should put to rest the myth of the “resilience” of the “Goldilocks economy”;

    (ii) On a related note, while it’s hard right now to disentangle those sent to the poorhouse because of a rush to beat the bill’s implementation and those who are literally spent, the times certainly merit an uptrend in bankruptcies. Starting from next week and on, we ought to get a clearer picture of how these difficult “wrong track” times in pollster parlance are affecting consumers.

    What’s interesting to note is the uptrend in Chapter 13 bankruptcies as well as Chapter 7 bankruptcies. The former looks like a phenomenon apart from the rush to beat the deadline;

    (iii) There is certainly room for this new law to curb consumer spending. Whereas there was a “moral hazard” aspect in the past of being able to pile on debt then declare Chapter 7 when it’s been overdone, that route is no longer there. People will likely be less willing to flirt with disaster, though you never know what the US consumer will do!

  2. Blackwood commented on Oct 15

    Once again, the states with the most bankruptcy filings are the states with the least appreciation in housing values.

    Everyone else is doing reverse mortages.

  3. calmo commented on Oct 16

    Good point Blackwood, –nobody in Texas knows what a cash-out is.
    The “Pandemonium” (good name for a stadium, no?) as only the lawyer could put it, is an isolated event.
    No, worse: a compressing event bringing forward lots of future bks –much like the little noticed dive in auto sales are a result of the sales brought forward by outsized incentives in the summer.
    This item feels like a pop-gun to me. The main feature is the “pop”, (illustrated by the tag “Pandemonium”), while the real action is elsewhere. No, not Pakistan, I’m no saint. But the hurricanes still have momentum IMO if I am reading the confidence numbers not too sentimentally.

  4. scorpio commented on Oct 16

    the passage of this bill, and now its imminent application, is like a bell going off. banks and credit card companies obviously dont make enuf money, certainly not compared to the average american. they must make more, even if it takes an ounce of flesh. ancient Egypt had the Jubilee: every third generation a family’s debts were erased. oppressive as that was, it kept some kind of balance betw creditors and debtors. we speak of “the wisdom of a Solon” but often dont recall what that wisdom was: Solon was Greek leader of approx 400 bc who staved off civil war by erasing debts of the workers, the Hoplites. if people cant get out of debt, the society will implode

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