As recession-related bankruptcy filings rise, courts are dealing not only with larger caseloads but also more time-consuming case filings. An increase in pro se litigants leads to a bigger drain on court resources, as well as bigger challenges for trustees.
Since the economic crisis began, Andrew N. Herbach has seen a steady increase in traffic at the Pro Se Help Desk for the U.S. Bankruptcy Court for the Eastern District of Wisconsin in Milwaukee.
“We’re overwhelmed right now. It used to be that we’d get seven people that came in, and now it’s double-plus every week,” said Herbach, who practices with Howard Solochek & Weber SC in Milwaukee. Herbach was involved in developing the help desk in response to a request from a bankruptcy judge.
Filings are up around the state, although not quite as much as in the Milwaukee area, where records show a 30-percent increase in Eastern District Court bankruptcy filings from last year.
In Milwaukee, bankruptcy lawyers have had the added challenge of people in the city being targeted by bankruptcy petition preparers, Herbach said.
The preparers, or BPPs, are not lawyers. Many aren’t even paralegals. But they advertise cheap bankruptcy services. So, many financially desperate people turn to preparers, rather than pricier lawyers, to help them navigate the unfamiliar and complicated terrain of bankruptcy court.
The problem, Herbach said, is many preparers “don’t know what they’re doing. And a lot of people are getting stuck in the system because the BPP didn’t warn them.”
“It’s putting a strain on the court system itself,” Herbach said. “Judges are spending more time on cases that involve these people who have gone to bankruptcy petition preparers.
Trustees who question these debtors at hearings find the papers are done insufficiently, so it takes more time to handle those cases, which delays everyone.”
The challenges of the 2005 Bankruptcy Act have compounded the situation, said Chief Judge Margaret Dee McGarity of the Eastern District of Wisconsin.
Despite a drop in the number of cases since the law went into effect in October 2005, bankruptcy courts have found their workloads increased substantially.
“The change added so many ambiguities, red tape, hoops to jump through, ridiculous requirements,” McGarity said “The work per case probably went up by 50 percent. There was a lot of extra work.
Fast forward to the recession of 2009 and, McGarity said, the courts are dealing not only with an increased number of filings because of the real estate and credit crises, but the courts also are finding those cases are taking longer to resolve because of the 2005 law.
Simplifying the Process
As she did before the recession, McGarity has steered her court toward seemingly simple innovations, such as streamlined forms, to save time and increase efficiency. One example: plans for Chapter 13 filings were once a kind of create-your-own filing, which meant it often took longer to review them.
“By developing forms, we’re able — and debtors are able, creditors are able — to look here if you’ve got secured debt. You go to No. 11, if you’ve got special provisions. And that’s the only place where special provisions are. That makes it easier and faster to analyze.”
Another form clearly spells out how debtors can ask for more time to complete credit counseling; while yet another helps debtors make sure they’ve followed all the necessary steps before filing.
“The forms are just fill-in the blanks,” McGarity said. “It’s really just been a huge help because it keeps people from going down roads where they would just fall into a landmine.”
Even with those improvements, court-appointed bankruptcy trustee and Milwaukee attorney Bruce A. Lanser said the pro se caseload has posed particular challenges.
“Pro se (cases) clog the system. They slow things down,” Lanser said. And, he added, “They also have an economic impact for the trustees.”
Under the 2005 law, debtors can ask for a waiver of the $299 bankruptcy filing fee. Waivers are typically granted, if debtors meet the economic standard of income less than 50 percent of poverty.
That might be good for cash-strapped filers, but waivers mean no pay for trustees, who are paid out of that filing fee at a rate of $60 per case for no-asset bankruptcy cases.
On a recent calendar of 40 cases, 13 of the cases where Lanser served as a trustee were pro se. Of those, eight or nine had fees waived.
“Does it clog the system? No,” Lanser said. “Does it impact the system? Absolutely.”
When dealing with pro se filers, Lanser has tried to keep the system moving by sending debtors a letter outlining what information he will need to review their files. He also has staff follow up with filers and, if there is still no response, talks to people in court.
He also tries not to let the inevitable glitches get him down.
“I don’t see a bright side right now,” Herbach said. “I think long-range, the tightening of credit card availability will help because there will be less loose credit for people who truly can’t afford it.”
But for now, he said, it’s just a matter of keeping up.