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SALT LAKE CITY (AP) -- Utah's bankruptcy filing numbers dropped 79 percent during the first quarter of this year -- a slide some say is a direct result of sweeping changes to federal bankruptcy law that make it tougher for consumers to walk away from debts.
Still, most observers believe the decline is only temporary.
"We're just seeing the results of the new bankruptcy law that went into effect in October, but nothing has really changed," said Jean Lown, a professor at Utah State University who has studied Utah's consumer bankruptcy rate. "Lenders remain as aggressive as ever, providing credit at high interest rates to just about anyone who has a heart beat."
In the first three months of 2006, 1,015 Utahns sought bankruptcy protection. During the same time in 2005, some 4,861 bankruptcy petitions were filed.
David Sime, clerk of the U.S. Bankruptcy Court for Utah, said large numbers of consumers crowded bankruptcy courts in September and October prior to the nation's new bankruptcy law going into effect.
In Utah this year, there were 233 petitions filed in January, 311 in February and 471 in March, he said.
Last year's bankruptcy reform bill, known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, was passed by Congress after heavy lobbying by credit card issuers, who portrayed consumers as out-of-control spenders.
The law established a "means test" for anyone who files and earns at least 125 percent or more of their state's median income level.
In Utah that's only $45,726, so only households earning more than $57,157 a year are subject to the test.
The test determines if bankruptcy filers can afford to pay at least 25 percent of what they owe, or a minimum of $6,000, over a five-year period. Those who can must file for a Chapter 13 reorganization and make payments rather than get immediate relief under a Chapter 7 liquidation of their assets.
Attorney Duane Gillman, who also serves as a bankruptcy trustee, said Utah's current robust economy and high employment rate should keep bankruptcy filings down, but only in the short term.
Gillman blames Utah's historically high number of bankruptcies on a lack of consumer financial education.
"Thirty years ago the bankers took a gamble," he said. "They fired of all those guys who used to sit around with rolled up sleeves and green visors and go over someone's loan application with them to see if they could afford to borrow the money they were requesting."
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Information from: The Salt Lake Tribune, http://www.sltrib.com
(Copyright 2006 by The Associated Press. All Rights Reserved.)
