Study: Controversial Bankruptcy Law Reforms Not Working -

97 Percent Unable to Repay Debts, Most Pushed to Brink by Crisis

NACBA Analysis of More than 60,000 Consumers Processed Under New Law Asks:

'Where Are the Deadbeats' Congress Expected to Find

and Stop With Onerous Rule Changes?

WASHINGTON, Feb. 22 /PRNewswire/ -- The first analysis of tens of
thousands of consumers seeking protection since a new federal
bankruptcy law went into effect last October concludes that the
changes put in place by Congress are not working as intended. The
report by the National Association of Consumer Bankruptcy Attorneys
(NACBA) finds that of the 61,355 consumers seen so far by credit
counseling firms -- the required first stop under the new bankruptcy
law -- nearly all (97 percent) are unable to repay any debts and that
four out of five would-be filers (79 percent) were forced into dire
financial straits by circumstances beyond their control, such as the
loss of a job, catastrophic medical expenses or the death of a spouse.

Entitled "Bankruptcy Reform's Impact: Where Are All the Deadbeats?,"
the NACBA analysis is based on data provided by a cross-section of six
large and small credit counseling firms that have been authorized by
the U.S. Justice Department's Executive Office for U.S. Trustees to
provide bankruptcy screening. The credit counseling firms responding
to the NACBA survey were: Money Management International (Houston,
TX), GreenPath Inc. (Farmington Hills, MI), Springboard Nonprofit
Consumer Credit Management (Riverside, CA), Hummingbird (Raleigh, NC),
Institute for Financial Literacy (Portland, ME) and ByDesign Financial
Solutions (Los Angeles, CA).

Brad Botes, executive director, National Association of Consumer
Bankruptcy Attorneys, said: "Contrary to the claims of proponents of
bankruptcy law changes that they would zero in on the alleged legions
of 'deadbeats' who supposedly were crippling the U.S. economy with
'billions of dollars in losses associated with profligate and abusive
bankruptcy filings,' the federal bankruptcy law changes that went into
effect on October 17, 2005 are doing no measurable good whatsoever.
Instead, they have put new hurdles in the path of people who are
already flat on their back due to financial crises over which they
have no control, such as the loss of a job, catastrophic health care
bills, and so on."

Botes noted that bankruptcy filings are down because many Americans
may mistakenly believe that the courthouse doors are barred to them.
The NACBA executive director said: "Credit counseling organizations
now know what bankruptcy lawyers and other experts said all along:
Congress got it dead wrong when it passed the bankruptcy law. Even
though the process is now more cumbersome, time consuming and
expensive than before, consumers who need help should still seek out a
bankruptcy attorney to explore their options and figure out how to
navigate this trickier and more confusing process."

John Rao, attorney, National Consumer Law Center, said: "Bankruptcy
judges, attorneys, academic researchers and others warned Congress
that the bankruptcy filing rate was a 'symptom' and not the 'disease'
itself. So long as people lose their jobs, have uninsured medical
problems, and face other catastrophic circumstances, they will need
the protection of the bankruptcy system. This data is evidence of
that. All Congress has succeeded in doing with the new law is to delay
and drive up the cost of bankruptcy protection for those who
desperately need it."

Leslie E. Linfield, executive director of the Institute for Financial
Literacy, which is a credit counseling organization, said: "The
clients receiving credit counseling under the new bankruptcy law are
at their most vulnerable. Many of them are at risk of foreclosure,
wage garnishments or other pending legal actions. Bankruptcy for most
is their only option and a bankruptcy alternative, such as a debt
management plan, is inappropriate. Where the credit counseling
industry has the ability to truly serve these clients is assisting
them in the creation of family budgets, providing information on
available social services and educating these clients in sound
financial management."

The following are key findings from a National Association of Consumer
Bankruptcy Attorneys survey of six major credit counseling agencies
that have dealt with a total of 61,335 consumers under the new federal
bankruptcy law:

* Almost none of those seeking bankruptcy protection are able to repay
their debts. Fewer than one out of 20 consumers (3.3 percent) were
candidates for paying off what they owe under a debt management plan
(DMP), with the remaining 96.7 percent requiring the same bankruptcy
filing that they would have needed before the new bankruptcy law went
into effect. As the NACBA report notes: "Thus, the credit counseling
requirement under the new law, designed to steer debtors who could
repay their debts into a debt management plan, simply imposes new
costs and time burdens on individuals who can ill afford either -- and
clearly are not the people for whom a DMP is feasible."

* The vast majority of Americans seeking bankruptcy protection are
victims of unfortunate circumstances, not reckless spenders seeking to
shirk their debts. Four out of five consumers (79 percent) seen by
credit counseling agencies are suffering from debt "caused by
circumstances beyond their control (e.g., loss of a job, medical
expenses, death, divorce or other change in marital status, increased
minimum payments on credit cards, predatory lending, and so on). As
the NACBA report concludes: "Thus, the masses of expected deadbeats
who were supposed to be identified under the new law and forced into
debt management plans have not materialized." Only about one in five
of the respondents (21 percent) were identified as suffering from debt
due to "circumstances within their control". Credit counseling agency
respondents explain that this number includes all of those who did not
deliberately seek out to get in over their heads financially but did
not fully understand how fees and finance charges associated with
credit cards put them deeper and deeper into a hole from which they
could not escape, except through bankruptcy.

Credit counseling firms ranged in size from small (with 100 consumers
seen) to quite large (with nearly 23,000 consumers seen). The end date
for the consumer-based information provided by the credit counseling
firms ranged from January 31, 2006 to the first two weeks of February
2006. The highest estimate of consumers being able to make repayments
under a credit counseling DMP was 5 percent, with the low being in the
1-2 percent range. Estimates of the number of Americans seeking help
for financial circumstances beyond their control ranged from a high of
95 percent to a low of 65 percent. Of those believed to be seeking
protection for financial problems within their own control, the range
was from a high of 35 percent to a low of 5 percent.

The NACBA report contrasts the pre-passage comments of opponents of
the legislation, who warned that the bankruptcy law changes would not
work, and proponents who argued that the new hurdles in the law would
slow down or stop abusers of the bankruptcy system. The report quotes
House Judiciary Committee Chairman F. James Sensenbrenner, Jr.
(R-Wis.) as predicting the bill would stop "billions of dollars in
losses associated with profligate and abusive bankruptcy filings."
Senator Charles Grassley (R-Iowa) said the bankruptcy changes would
clean up "a convenient financial planning tool where deadbeats can get
out of paying their debt scott-free ... "

ABOUT NACBA

Established in 1992, the National Association of Consumer Bankruptcy
Attorneys is the only organization dedicated to serving the interests
of consumer bankruptcy attorneys and protecting the rights of consumer
debtors in need of bankruptcy relief. The Association's twin missions
are to help consumer bankruptcy attorneys more effectively represent
their clients and ensure that the voices of consumer debtors and their
attorneys are heard in the halls of Congress, the Judiciary, and in
other arenas where consumer debtors are affected. SOURCE National
Association of Consumer Bankruptcy Attorneys, Washington, D.C.