YBK [Part 24]: CNN is reporting that the week ending October 1 saw a record 68,387 filings, up approximately 25% from the old record, which was set the previous week. It also notes what I predicted some time ago, that the new law will generate a billing bonanza for bankruptcy professionals.

Ironically, this last-second panic to file before the new law goes into effect a week from today may not be necessary. The U.S. Trustee, which administers the bankruptcy courts and has the responsibility, along with the court, of enforcing the means test under the new law, drafted a letter last week formally stating that it considers "...income loss, expense increase, and other adverse impacts of a natural disaster to constitute 'special circumstances' in determining whether to file an enforcement motion on grounds of presumed abuse." The Trustee also announced it would waive some of the paperwork and credit counseling requirements from affected debtors, as well as agree not to pursue venue objections against displaced debtors filing in other states.

Of course, this should alleviate some of the potential problems faced by survivors of Hurricane Katrina, who lost critical financial records that could have backed up any "special circumstances" claim before the courts, as well as destroying the legal infrastructure along the Gulf Coast. It may also ease pressure on Congress to revise the new law before it goes into effect October 17. Although creditors can still raise objections under the new law, it would become prohibitively expensive for them to do so; the advantage of the new law for them was supposed to be the fact that they could piggy-back on the Trustee's office's without having to fill out the paperwork in each and every instance. Now, of course, if they file a motion to convert, they will do so before a court that has already been put on notice that the U.S. Trustee is presumptively on the side of the debtor.

More interesting to me, though, is the fact that the Trustee, an instrument of the Department of Justice, is interpreting its discretionary power to act, or not to act, quite broadly. The new law does not make it mandatory for the Trustee to attempt to convert cases where the debtor's income exceeds the medium level for the state; it is a power the Trustee "may" exercise. The only thing the Trustee is obligated to do is notify the court at a certain point that it considers the case to be an abuse, and that it intends to seek the conversion of the case. That the Trustee has already decided to ignore congressional intent to not include financial losses resulting from natural disasters as a "special circumstance" indicates a reticence about bringing motions to convert cases to Chapter 13 in other situations as well. A broad definition of what constitutes "special circumstances" will mean that the new law may only create new paperwork for filers, not a dramatic shift in who will be permitted to receive bankruptcy relief.