Bankruptcy Boom
California Lawyer

Bankruptcy Boom

Californians going broke means business for lawyers.

September 2008

Marc Rosenthal

Three years ago, when the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became law, many attorneys expected Chapter 7 bankruptcy business to hit the rocks. BAPCPA (Pub. L. No. 109-8, 119 Stat. 23) raised the bankruptcy filing fee and added requirements for credit counseling and debtor-education certificates for Chapter 7 filings. All told, the reforms fed a perception that it would be too costly or difficult to file.
      But that was before the housing market went bust, the credit crunch put the squeeze on consumers, oil prices rose sky high, and the economy slumped. Now, filings in federal bankruptcy courts across California are up by at least 50 percent over last year. And according to the most recent statistics, filings increased as much as 73 percent since 2007 in the bankruptcy court's Central District, and 82 percent in the Eastern District. Some consumer attorneys report their Chapter 7 business has doubled.
      "I remember attending bankruptcy forums just two years ago, where the consumer lawyers were looking for another line of work," says Jeffrey Cawdrey, an attorney with Gordon & Rees in San Diego. "Now they're so busy you can't get them to return your call unless they know you already."
      Part of what's fueling that increase in business is a new bankruptcy model: Rather than falling behind in the usual house, car, and credit-card payments, a new breed of debtor has arisen in recent years, having acquired multiple properties for no money down and without documenting income. Shawn Doan, a partner with San Diegobased Doan Law Firm, recalls a particularly extreme case of a debtor who acquired more than 100 properties with no proof of income--all from the same lender. Radmilla Fulton, a sole practitioner who has practiced in San Diego for 25 years, goes so far as to call the emergence of such multiple-property holders "the filing trend of this decade."
      For the time being, it appears the trend will continue. "We're only a little ways into the cycle," says Ron Greenspan, a Chapter 7 Trustee (who represents the interests of the bankruptcy estate, and not the debtor) for FTI Consulting in Los Angeles. "We're still below the levels of five years ago. But we're in a significant liquidity squeeze, and sometimes it takes a while to run out of cash and trip covenants."
      Keeping up with the volume of new business may be the biggest challenge for California lawyers. Doan Law Firm, for example, more than doubled the number of attorneys in its San Diego office and has opened three new offices in Southern California. "If gasoline stays around $130 a barrel," Doan says, "we're going to be on a massive head-hunt for talent as we open more offices."

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