Monday, Oct. 3, 2005 | 8:18 a.m.
WASHINGTON -- Jim, a 53-year-old physician's assistant and Las Vegas transplant from Cleveland, made a decent salary and never dreamed he'd go broke.
But after a long layoff from work and an injury that kept his wife from being able to keep her nursing job, the couple had racked up $60,000 on three credit cards.
Jim, feeling embarrassed and defeated, last month reluctantly joined the masses who have swarmed Las Vegas bankruptcy court since April, when President Bush signed a law that will make it harder to file personal bankruptcy and erase debts.
The law takes effect Oct. 17, and courts nationwide have been swamped with people teetering on the brink of financial ruin rushing to meet the deadline.
"That (law) definitely put us over the edge," said Jim, who spoke on the condition his last name not be disclosed.
"The credit card companies are drooling, just waiting for this law to change, and they're not willing to work out any payment plans that everyone can live with."
Jim's is just one of the faces in Las Vegas' bustling bankruptcy courts.
In a city to which many people flock for a fresh start, federal bankruptcy court in Las Vegas has always been a busy place. But rarely has it been busier than the last few months.
Filings in the second quarter of this year rose to 5,048 in Nevada bankruptcy courts, up from 3,431 in the first quarter -- in a state that already has one of the highest bankruptcy filing rates in the nation.
The numbers reflect a national trend.
Americans filed 467,333 bankruptcies in the second quarter -- a record that experts attribute to the new law. And the increases are likely to continue, experts say.
"I'm going gangbusters," said Las Vegas bankruptcy attorney Benjamin Childs, Jim's lawyer. "I usually have about five a month, and now I'm filing more like five a week.
"I increased my advertising almost as a public service because this thing is so harsh on the debtor. These people are literally panicking."
Credit card companies this spring celebrated after years of lobbying for a new law aimed at making it more difficult to file for Chapter 7 bankruptcy, which allows people to sell their assets to pay their debts. Any debts unpaid after that are written off.
The law is expected to force more people to seek credit counseling and to file Chapter 13 bankruptcy, wherein they must make monthly payments toward the debt, typically for five years.
Advocates say the law change will apply to about 10 percent of bankruptcy filers -- people abusing the system by accumulating huge debts and filing bankruptcy just to get out of paying any of it back.
"Under the new law, from our point of view, the U.S. bankruptcy system will be more streamlined and better functioning," said Lynne Strang, spokeswoman for the credit industry group American Financial Services Association. "It will weed out some of the people who use the system as a financial planning tool."
The new law's critics, however, warn it will punish hard-working people with moderate incomes whose lives have been ripped apart by one or a combination of the three leading causes of bankruptcy -- illness, job interruptions and divorce. Another cause -- hurricanes -- is expected to further drive up national bankruptcy rates in 12 to 36 months.
"This bill is going to hurt not just the abusers but the people who have a legitimate reason to be there," said Travis Plunkett, legislative director of the Consumer Federation of America, which fought the bankruptcy bill.
The new law misdiagnosed the problem, Plunkett said. Bankruptcy abuse was not widespread -- maybe 3 percent of filers were gaming the system, he said.
The problem was that many people have found themselves in credit trouble because of problems they couldn't control, including a glut of debtors who had access to credit for the first time during a lending boom in the 1990s, Plunkett said.
The law likely won't do much to solve the problem, he said.
As many as two-thirds who file Chapter 13 in attempts to pay back some of their debt end up in the same financial abyss -- or in worse shape -- by the time their pay-back terms are up, said Plunkett, who expects that percentage to increase.
Las Vegas bankruptcy attorney Philip Goldstein said up to 20 percent of his clients could be above the income bracket that will force them into a payback plan -- one they usually cannot afford, he said.
"Sure there is some fraud out there. But this bill doesn't go near it," Goldstein said. "We're going to punish the sick, the divorced, the people who lost their jobs. Most of the people who sit in front of me -- they're embarrassed. They're upset. I get 300-pound firefighters crying their eyes out."
Nevada's Chief Bankruptcy Judge Gregg Zive in Reno said he expects the law will curb abuse "to a certain degree." But he said most of the people he sees did not set out to commit fraud. Many just made bad decisions, he said. Many others faced a mountain of medical bills.
"It only takes one illness," Zive said. "There are a lot of sad stories."
Jim, for example, had a good life in Cleveland, he said. But three years ago he saw the signs of a wavering Rust Belt economy. People were losing their jobs. Suddenly, he was one of those people.
"I was downsized," he said.
Then his wife was injured at her job as a nurse and couldn't go back to work.
The bills piled up.
In desperation they moved about 18 months ago to Las Vegas, where Jim had found a job. But by then they were in over their heads, using credit cards for routine expenses.
They put off bankruptcy as long as they could, ashamed, and fearing a stained credit rating.
Now Jim and his wife are "just trying to put a few dollars away and save for retirement," he said. He vowed, "No more credit cards."
"Through no fault of our own, we had some significant setbacks," Jim said. "One thing I have learned is that bad things happen to good people."
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