Bankruptcy cases plummet in Louisiana

As has happened in the rest of the United States, the number of bankruptcy filings in Louisiana plummeted in 2006, the first full year of a revised federal law that makes it much tougher to wipe out debt.

In the Eastern District of Louisiana, which includes New Orleans and the Houma area, filings dropped from 11,821 in 2005 to 1,757 last year, according to the Administrative Office of the U.S. Courts.

In the Middle District of Louisiana, which is centered around Baton Rouge, filings fell from 5,432 in 2005 to 1,317 last year. In the far-flung Western District of Louisiana, which includes Lafayette, Alexandria, Lake Charles, Shreveport-Bossier City and Monroe, bankruptcy filings dropped from 19,489 in 2005 to 8,152 in 2006.

A top official with a major credit counseling service in New Orleans said filings are likely to increase in the future, though probably not to levels seen before the revised bankruptcy law took effect in October 2005.

Instead of having their choice to file Chapter 7, which is a debt liquidation process based upon a creditor’s assets, or Chapter 13, which involves a debt repayment plan, people in debt now face stringent requirements to avoid not having to repay.

Tom Collens, executive vice president of the nonprofit Consumer Credit Counseling Service of Greater New Orleans, said that the new law doubtlessly has cut down on the number of people who run up credit card debt with no intention of repaying, file for Chapter 7, walk away from most of that debt, then start over.

“There was probably a little less scrutiny under the old law on whether their intent was to defraud credit card companies,” Collens said last Tuesday. “They can now be thrown into Chapter 13. I think the judge will be a little more intent on determining whether their intent was to defraud.”

Collens said he believes the number will increase, but not to pre-2006 levels. Issues still facing many creditors include credit card bills and subprime mortgages with variable rates that have left many homeowners nationwide unable to make their mortgage payments.

“It’s certainly going to go back up, but I don’t know at what rate,” Collens said. “What we don’t know is how many people went bankrupt under the old law that would not go bankrupt under the new law.”

To this stage, Collens said it is difficult to determine how many bankruptcies are tied to hurricanes Katrina and Rita. He said people are still getting money from government aid programs or insurance policies, preventing bankruptcies.

Nationwide, the total of bankruptcy filings dropped to 618,000 from a record of 2.1 million in 2005 when people rushed to avoid the new law. The number of filings last year was the lowest since 1988, the Alexandria, Va.-based American Bankruptcy Institute said.