Bankruptcy law strains local debtors

After many sleepless nights, George and Aurore Roy of Amesbury filed for bankruptcy Tuesday, just days before a sweeping rewrite of the nation's bankruptcy codes takes effect.

The Roys, both 53, were among the thousands of financially struggling consumers and companies nationwide who rushed to file in order to avoid the layers of additional regulations associated with the new law, which also will make it more difficult for debtors to get relief from creditors.

''We struggled with this for a long time, but finally decided that we had to file for bankruptcy," said Aurore Roy. ''We had no other recourse. We knew there was no leniency in the new law."

The new federal law takes effect tomorrow. As the deadline approached, local attorneys said they have had to turn away a slew of potential clients.

''Over the last month, people are just coming out of the woodwork," said Donald H. Adler, a bankruptcy attorney with Finneran & Nicholson, a Newburyport firm. ''Our entire staff is putting in extra hours."

Last week, Adler filed six bankruptcy petitions -- including one for the Roys -- on behalf of clients in northern Massachusetts and southern New Hampshire, double the number of cases he typically handles each week.

Over the past two decades, personal bankruptcy filings have ballooned. In Massachusetts alone, they jumped from 3,122 in 1980 to 18,444 last year, according to the American Bankruptcy Institute, a nonpartisan organization dedicated to research and education on matters related to insolvency.

The looming revisions have added to the frenetic pace of bankruptcy filings, the institute's records show.

Between June and September, bankruptcies reached record numbers, with 6,538 filings in Massachusetts alone, according to the clerk's office at US Bankruptcy Court in Boston.

Credit card companies and financial institutions lobbied for eight years for the changes, arguing that revisions to the bankruptcy codes were needed because the system was being abused. Opponents of the changes said they will hurt middle-class wage earners and be particularly hard on single mothers, minorities, and the elderly by removing a safety net for individuals who have suffered unexpected hardships, such as unemployment or mounting medical bills.

Starting tomorrow, individuals who seek to discharge their debts in bankruptcy court will be subjected to increased scrutiny, required to pay higher court costs and fees, and forced to undergo credit counseling.

All debtors who file bankruptcy also will have to complete a financial management course. Many will be pushed out of relatively quick Chapter 7 liquidations and into court-approved Chapter 13 debt repayment plans. Such plans typically require the debtor to live on a tight budget for five years.

To determine which fate a debtor faces, he or she will be required under the new law to complete a ''means test," intended to assess an individual's ability to repay debts. Bankruptcy courts will consider a petitioner's income and expenses to determine whether at least some of the debt can be repaid. The amount to be repaid will be set using a formula established by the Internal Revenue Service.

''The promoters of the law said they were trying to target deadbeats, but quite frankly, the law affects a much larger group of people," said Walter W. Miller Jr., a bankruptcy law specialist at the Boston University School of Law. ''Under the new law, lots of middle-income people who have gone through a crisis will be told they must live on a shoestring budget for another five years, their lives dictated by an outdated IRS formula."

George Roy said he and Aurore decided in April to file for bankruptcy. They learned later that the law was going to change Oct. 17, prompting them to rush to get their paperwork completed in time so that they could avoid the additional restrictions.

A former city councilor, George Roy ran his own mechanical contracting company for 20 years, rebuilding water and waste water treatment plants. In 2001, Aurore Roy opened a small copy center in Amesbury.

The couple ran into financial trouble three years ago, when George's company had difficulty collecting payment on a $250,000 project. Aurore's company began to flounder soon after. To keep their businesses afloat, the couple borrowed against their house, liquidated their retirement accounts, and tapped into their savings.

''It was a cascading effect," George Roy said. ''We just couldn't recover from it."

By December of last year, both businesses had crumbled. In April, the Roys made the painful decision to file for bankruptcy. Their goal was to wipe out credit card debt, protect their house -- a raised ranch they built with sweat equity two decades ago -- and keep the few assets they had left. The couple are desperate to meet growing medical bills. Their youngest daughter is disabled and requires costly care.

According to Victoria W. Whelan, a bankruptcy and family law attorney who practices in Danvers, medical bills are the most common reason people file for bankruptcy, followed by divorce and job loss.

''We're talking about elderly people who are living on fixed incomes, depending on Social Security checks or the meager interest they earn on [certificates of deposit] to pay their bills," said Whelan. ''They're not going into debt to buy luxury items. They're using credit to pay for food and medication."

The Roys are hopeful that their case, a Chapter 7 bankruptcy, will proceed smoothly.

''We worked all of our lives to build this home and take care of our family," said George Roy, who recently took a job as a project superintendent for a construction company in Salem, N.H., so the family could meet their mortgage payment and medical expenses.

''We just got to a point where we couldn't make ends meet anymore," he said. ''Our liabilities far outweighed our assets. Our hope now is that we get a fresh start."

For more information about the revised bankruptcy codes, visit the American Bankruptcy Institute website at www.abiworld.org. For a list of bankruptcy lawyers in your area, visit the website for the National Association of Consu-mer Bankruptcy Attorneys at www.nacba.org.Brenda J. Buote may be reached at bbuote@globe.com.