McGlinchey in the News
McGlinchey Stafford on Hurricane KatrinaRead Time: 4 mins
This story by Eric Fleischauer first appeared in the Decatur Daily.
Double whammy; Katrina survivors face Oct. 17 deadline of bankruptcy law
A new bankruptcy law that takes effect Oct. 17 may sink those Hurricane Katrina survivors who are still afloat. Jack Jernigan, a New Orleans bankruptcy lawyer who is trying to run his practice from Central Florida, said the Oct. 17 effective date of the creditor-friendly bankruptcy law could have catastrophic effects on his clients, most of whom have low incomes.
Richard Aguilar, another New Orleans bankruptcy lawyer, has a temporary office in Baton Rouge. He sees extraordinary problems for many higher income individuals.
In most instances, the new law prevents debtors who make above the median income in their state from filing a Chapter 7 petition. The median income for a family of four in Louisiana is slightly over $50,000. The new law will prevent most people above those income levels from obtaining the “fresh start” associated with Chapter 7 bankruptcies.
Jernigan said most of his clients are well below the state’s median income, so they will still be able to liquidate their assets. Most of the remaining money — if there is any — goes to creditors. The Chapter 7 bankruptcy discharges all debts immediately.
Jernigan, who has practiced in New Orleans for 22 years, said the hurdles for his city’s debtors begin with the chore of finding a lawyer. His own plight demonstrates the problem. Like many, he did not worry about the coming hurricane until shortly before it engulfed the city.
“I went by the office and put bags over a lot of files and computers and just left and assumed I’d be back in a few days,” Jernigan said. He headed for Shreveport, 300 miles from New Orleans. He arrived there 15 hours later.
Two weeks later he still hasn’t made it back to his office. Someone who did get into the downtown area told him all the windows of his office had blown in.
“I’ve got a lot of clients freaking out because the deadline is Oct. 17,” Jernigan said.
Another problem involves access to the bankruptcy court.
“The court was kind of in disarray anyway,” Jernigan said, even before the hurricane. One bankruptcy judge died six months ago and has not been replaced. Another judge is about to reach mandatory retirement age. That leaves one full-time judge and two part-timers who rotate to the court as needed. The Oct. 17 deadline would have taxed the court severely in the best of times.
Even those debtors whose income is below the state median have every incentive to beat the Oct. 17 deadline.
Jernigan said numerous hurdles imposed by the new law mean that debtor-side lawyers are having to at least double their fees for bankruptcies filed after Oct. 17. The new law also has myriad new and costly steps debtors must take before filing a petition.
All those hurdles are minor, Jernigan said, compared to the debtors’ post-hurricane circumstances.
Jernigan said his clients lived almost entirely in “the parts of town that were hit the worst.” Those who survived are scattered.
“I haven’t heard from probably 90 percent of them,” Jernigan said. “I’m getting very concerned.”
Aguilar’s clients come from the other side of the tracks or, in Big Easy terms, the other side of the 17th Street Canal.
Aguilar provides what he says is a typical situation for the newly poor.
“Say you have a $600,000 home and 80 percent is financed. So you owe $480,000 on the home. Maybe you get (the maximum of) $250,000 from flood insurance. You’re left with a debt of $230,000. You can’t live in the house. You may not be able to rehabilitate it; water’s been sitting in these houses for two weeks at depths of 3 to 10 feet,” Aguilar said. “That puts those people in significant financial distress. It’s a double whammy.”
Unlike Jernigan’s clients, most of Aguilar’s clients have incomes above the state median. That means the new bankruptcy restrictions will prevent most of them from filing a Chapter 7 bankruptcy. If they file after Oct. 17, most will be stuck making court-monitored payments, on a house that no longer exists, for years.
It is a timing issue that gives Aguilar a headache. By Oct. 17, he said, his clients won’t know whether their homes are salvageable, how much insurance they will receive, whether they still have a job or how much, if any, federal financial assistance they will receive.
“There are so many things that are up in the air right now,” Aguilar said. “It is unprecedented to move a million people out of one city at one time. Now we’re going to repopulate the city. I’m going back, and I hope everybody goes back and we have a good and vibrant city again, but it’s going to take time.”
“This is a big mess,” Aguilar continued. “Some may say they’re not willing to risk waiting (beyond Oct. 17), that they want a fresh start.”
U.S. Sen. Jeff Sessions, R-Mobile, a member of the Senate Judiciary Committee, said he opposes “delaying the effective date . . . but will consider legislation, if necessary, to deal with the unique problems arising from Hurricane Katrina.”
Jernigan is not optimistic.
“I don’t think right now bankruptcy is a top priority,” Jernigan said. “It’s sort of hard to get anybody’s attention on this issue when they’re still locating bodies. But Oct. 17 is just around the corner.”