Economic downturn brings business upsurge at bankruptcy firm

Dianna Long, owner of Mid-Missouri Bankruptcy Center, said bankruptcy lawyers knew the recession was coming long before the government declared its arrival.
Long, who teaches bankruptcy classes for the Missouri Bar Association, told students in March 2008 that she didn’t buy government forecasts predicting a vibrant economy.

“I told the class at that time, ‘We’re in a recession,'” she said. “You don’t know it yet because it hasn’t hit, but we’re in a recession because at that time I was already seeing people coming in and begging me to get rid of their house debt. Before, I always had bankruptcy clients who would come in and say, ‘I’ve got to keep my house; I’ve got to get rid of the other debt.’ These people started coming in and saying, ‘This house is killing me.'”

The housing downturn started in 2006, and on Dec. 1, 2008, the National Bureau of Economic Research declared that the U.S. had been in a recession since December 2007.

The tough economy drove bankruptcy filings above 125,000 nationwide in April 2009 alone, up 36 percent from April 2008, according to the American Bankruptcy Institute. There were more than 1.1 million bankruptcy filings in federal courts last year, according to the U.S. Courts administrative office, an increase of 31 percent over last year. That number includes more than 25,000 in Missouri, where bankruptcy filings rose 20 percent.

Long said she sees a similar trend in the 13 central Missouri counties she serves. Her practice, which moved 14 months ago to 806 Locust St., handles about 15 bankruptcies a month these days, more than double the number she was taking a year and a half ago, and has about 150 cases open at a time. The surge in cases led her to add an associate attorney and two support people a year ago.

She said the reason behind local bankruptcies has changed in recent months.

Foreclosures drove most of the previous bankruptcies, as adjustable rate mortgages ratcheted up toward the high end and monthly payments leapt. Today, bankruptcies are often driven by employment issues, such as the loss of overtime pay that debtors had counted on.

Mid-Missouri Bankruptcy Center mainly handles bankruptcies under Chapters 7 and 13 of the code.

In a Chapter 7 bankruptcy, which takes three or four months, most of a client’s debts are discharged, but the process often leads to foreclosure on the debtor’s house, she said. For a typical Chapter 7 client, Long or her partner develops a 50- to 80-page bankruptcy petition, which is filed electronically with the federal circuit court in Kansas City. The client must meet with a bankruptcy trustee within 30 days of filing and receives a discharge notice from the court about 60 days later. Costs for the client usually range between $1,000 and $2,000 and are capped at $3,000 by the court.

In a Chapter 13 bankruptcy, debts are restructured and paid back over time, usually over three to five years. But the process often allows the debtor to keep his or her home.

Bankruptcy is not necessarily a bad thing, Long said. The bankruptcy process was set up originally to free Americans from the specter of debtor’s prison, but a side benefit is that it also stimulates the economy. Instead of debtors paying for old debt, the process gets them focused on paying for today’s necessities.

When bankruptcy laws were toughened in October 2005, one result was a huge increase in paperwork. The court now demands to see many more documents, such as deeds of trust on houses and pay stubs, she said. Prior to 2005, she said, she could put together a bankruptcy for a client by herself in two hours. Now it takes a full staff and ten times that many hours.

The new system has damaged the attorney-client relationship, she said. “Instead of an area of professional practice, where I’m dealing with clients and legal issues, I feel like we spend so much time on the mechanics,” she said. “It really is kind of an industry now. This office kind of operates like an assembly line in some cases.”

Michelle G., a client who asked that her last name not be used, began the Chapter 13 process with the bankruptcy center a year or two ago. She was satisfied with the results overall, she said. “It was frustrating until we got to the point of figuring out what was going to be paid and when,” she said. “It was kind of like a rollercoaster ride. One minute everything was OK, and the next minute it wasn’t. In the end, it made it a lot easier having one little payment, cutting out a bunch of interest and making certain debts go away.”

Long became a public defender after graduating from law school in 1991, then started a general law practice in 1995 in Branson while she lived in Springfield. That same year, she took her first bankruptcy case. She moved to Columbia in October 2002 and decided to focus solely on bankruptcy. She opened an office on North College Avenue and later moved it to Cherry Street.

“Criminal law helps people, yes, but bankruptcy makes them happy,” she said. “It’s an area of law that really, really helps. It helps good people who’ve just had problems, and it gets them out of that problem. It moves them right on down the road from a terrible debt situation, from being harassed by creditors to, within four months, not having any problems as far as debt.”

As for the recent surge in bankruptcies, so far Columbia has had it easy compared with the rest of the country, she said. But she predicts it will get worse here before it gets better.

Long strongly encourages people who are in financial distress to not spend retirement funds on debt when they don’t have to.

She lamented the fact that clients, frightened by the stigma of bankruptcy, waste thousands of dollars before coming to see her.

“The most important fact for people in financial distress is ‘Don’t rule out bankruptcy before you talk to an attorney,'” she said, emphasizing the point by hitting the desk with her index finger. “Talk to an attorney about bankruptcy options before you decide to do anything else. Don’t deplete your retirement money. Don’t go to a debt consolidator. Talk to a bankruptcy attorney first, because in this office we will tell you if we can’t help. We’ll tell you if you need to go to a debt counselor. We’ll tell you if bankruptcy is not right for you.”

Above all, she said, don’t call up some company you heard about on TV that makes all sorts of promises it can’t deliver.

“They break my heart whenever I see them,” she said. “I say, ‘No, don’t call those people, not until you’ve talked to somebody local first! I’ve seen people who’ve done that. They’ve spent $20,000 or $30,000 they’ve sent to an agency who tells them, ‘Oh, we can get rid of this debt for you; we can stop a foreclosure.’ They can’t.”