If you’re a bankruptcy lawyer and expect filings to return to the way they were, it’s time to readjust your expectations. It’s never going to be the way it was. In fact, it hasn’t been that way for over 8 years.
For the first decade of my bankruptcy practice, you could set tell the time of year by the balance of my bank account and the flow of new clients through my doors.
From mid-January through mid-May, the clients came for help. They paid their legal fees with tax refund money, and my office was busy. Things slowed the week prior to Memorial Day, and typically remained a bit low from them until Independence Day.
July was a lean month, but things picked up a bit in the beginning of August. Then things went quiet again until after Labor Day, which is when the phones began to ring off the hook until Thanksgiving. From Thanksgiving until the second week in January, we wrapped up loose ends and cleaned the office.
The bankruptcy law changed in 2005, so that was a crazy year in terms of filings. But as of October 17, 2005 the practice of bankruptcy law as we knew it changed forever.
Welcome To The New Normal
You will probably argue that 2008-2012 were the typical boom in bankruptcy filings, but you’d be incorrect. Those years represented the byproduct of a catastrophic economic situation the likes of which our country hasn’t seen since The Great Depression. We weren’t seeing a rebound in bankruptcy filings, but rather a group of people filing who would never have considered doing so in the absence of the housing market meltdown.
For example, look at your client base in 2004. Now look at your clients in 2011. I’m going to bet that they looked a lot different in terms of income levels and complexity of problems.
That’s because the people who needed our help before 2005 don’t need us anymore. They don’t have a stack of credit cards, and those who do simply don’t have the ability to afford legal fees that are twice or three times as high as they were before the bankruptcy laws changed.
We didn’t notice it because in 2008 we started dealing with a new breed of client – the person who would have been able to get by had the bottom not dropped out of the economy in such a drastic and sudden manner.
Now the economy is recovering, and that new breed of client no longer needs us. They’re getting back to work, and either no longer own a home or hung on long enough to make it work. They don’t have any retirement savings left, but that’s not a debt issue.
“Wait And See” Isn’t Going To Cut It
You’re tempted to tell me I’m wrong, that all we need is some good old-fashioned credit expansion in the hands of the American consumer to bring the bankruptcy filing numbers up to where they were. Hold on for a few more months and we’ll be just fine.
I’d love it if you were right, but you’re not. And if you look at the numbers, Professor Bob Lawless agrees with me. Lawless did a chart on Credit Slips in November 2013 showing the number of people per capita who have filed for bankruptcy in the period of 2008-2013. Here’s his chart (reproduced without permission, but I can’t figure out whether the University of Illinois permits reproduction of charts such as these. If not, I’m sure Professor Lawless will contact me):
The 12-month moving average on bankruptcy filings is 3.34 per 1,000 persons. The last time it was this low was in 1995, when I started practicing (and, interestingly enough, right after the law changed to the one in use prior to the 2005 Act).
In 1995, we were coming out of a recession that hadn’t wiped out the retirement plans of millions of people, nor had as many lost their homes and savings to a foreclosure meltdown that left the population distrustful of the entire financial system. We’d taken some lumps, but weren’t battered and bruised. We started buying houses and took out credit cards.
Because It’s Different This Time
Total household debt, though rising, is 9.1% below 2008 levels.
Foreclosures are at the lowest level since 2005, and many parts of the country have begun to see a stabilization of property values. In New York City, San Francisco and some parts of Southern California, values are going up quickly.
But US home sales are declining, down 5.1% in January 2014 after investors came in and snapped up cheap properties in the latter part of 2013.
Let me be clear – the rush of bankruptcy filings you need to keep your doors open is not coming. Not now, not soon, and perhaps not for many years if at all.
You Have Choices
If you want to survive in The New Normal, you’ve got to:
- Hone your skills by attending – and paying attention at – events such as the annual convention for the National Association of Consumer Bankruptcy Attorneys;
- Include other complementary areas of practice such as student loan law, FDCPA, FCRA, or collection lawsuit defense;
- Reduce your overhead through the use of technology, outsourcing and increased productivity so you need less income to get by;
- Learn how to bring in business by strengthening your online and offline networking and promotional efforts (a good place to start is my Google+ video course);
- Remember that you can invest money or time – but that success doesn’t come unless you are willing to do one or the other;
- Treat your law practice as a business rather than using a, “build it and they will come,” mentality; and
- Recognize the importance of outstanding client service in an era of online reviews and increased word-of-mouth.
You do have a choice. If you’re not up for the challenge of The New Normal, you should consider an exit strategy from the practice of consumer bankruptcy law. Because for the foreseeable future, you won’t be able to feed yourself without making these changes.
My greatest impact in the foreseeable future is to be a voice in this industry, to help make it easier for you to thrive in The New Normal.
I’m not necessarily in favor of more people needing to file for bankruptcy though; behind each filing is a person, and bankruptcy is never a happy decision to make. Rather, I’m in favor of giving help to more people who what bankruptcy provides. To greater public education. And to more effective ways of reaching those who need us most.
It’s not easy, though it is simple. And it’s not an overnight formula. But it’s effective, and it’s profitable.