NEW YORK (CNN/Money) – Those who are least able to pay their bills are likely to see a price hike in the coming months if they file for bankruptcy.
And, many predict, they'll be less likely to find a lawyer willing to help them.
The House on Thursday approved a bankruptcy reform bill that has already passed in the Senate. The House vote virtually guarantees the bill will become law. Soon after the House vote, President Bush said in a statement that he would sign the bill. That could happen as early as next week.
Under the new law, bankruptcy attorneys would be liable for any misleading statements or inaccuracies in a client's case. As a result, attorneys say, they'll have to invest far more time and effort – in some cases hiring accountants and other experts – to verify all the information clients give them, down to examining receipts.
In a cost-estimate report, the Congressional Budget Office said that complying with the provisions of the bill is likely to increase attorney costs by $150 to $500. "Some of those additional costs," the report noted, "would most likely be passed onto their clients."
That may be a modest assessment.
"The price of bankruptcy will go through the roof," said Brian Kimber, a West Palm Beach bankruptcy attorney. "The average consumer won't be able to do it."
Craig Kelly, another bankruptcy attorney in West Palm Beach, estimates that the cost of filing for Chapter 7 with a boutique bankruptcy firm could range as high as between $2,000 and $2,500.
Currently, it's typical for a Chapter 7 filing to cost about $1,000 in attorney's fees, and a base of $2,500 for a Chapter 13 filing, according to Sam Gerdano, executive director of the American Bankruptcy Institute. A Chapter 13 filing is more expensive because it's more labor-intensive than a Chapter 7.
Fees can vary from state to state and within a state.
In the southern district of Florida, for instance, a bankruptcy "mill" might charge just under $1,000 for a Chapter 7 filing, while a boutique bankruptcy firm might charge $1,500, said Kelly. A Chapter 13 filing, meanwhile, costs $2,500, he said.
The Tampa area is less expensive. At one firm, a Chapter 7 filing costs $800, and a Chapter 13 filing costs $1,500.
As a result of the bill, bankruptcy attorneys are anticipating a decline in their business, and a reduction in the number of lawyers willing to take on Chapter 7 cases.
Terry Leavitt, a bankruptcy attorney in Las Vegas, said he may not take Chapter 7 cases anymore and would only consider taking them on if the law specifies a narrow checklist of things for which attorneys are liable.
A Chapter 7 filing, which accounts for the majority of non-business bankruptcies and is one of the speediest and least expensive to file, is known as a "fresh start" because assets (minus those exempted by your state) are liquidated and given to creditors, while many of remaining debts are cancelled.
The reform bill will make it much harder to qualify for a Chapter 7 filing. Consequently, it will push more people into Chapter 13 filings, where you're put on a repayment plan of up to five years.