Nick Wass, Associated Press Signs mark the entrance to U.S. Bankruptcy Court in Alexandria, Va. The ranks of people petitioning to erase their debts have thinned in the year since the biggest changes in U.S. bankruptcy laws in a quarter-century took effect.

By Marcy Gordon, The Associated Press

WASHINGTON -- The ranks of people seeking to erase their debts have thinned noticeably in the year since the biggest changes in U.S. bankruptcy laws in a quarter-century took effect.

At a public session at the U.S. Trustee's office in Alexandria, Va., on a recent morning, only about half the 50 or so chairs were occupied -- in a room that used to be jammed with anxious people and their attorneys.

Most were there seeking to file under Chapter 7 of the U.S. Bankruptcy Code, which wipes the debt slate clean after certain assets are forfeited. The bankruptcy trustee's red-jacketed files on them land with a thwack on the official table, fattened by new documents required by the landmark bankruptcy law that took effect on Oct. 17, 2005.

After an eight-year campaign by banks, retailers and credit card companies, Congress changed the law to require for the first time an income-based test for measuring a debtor's ability to repay obligations.

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Those deemed to have insufficient assets or income can still file a Chapter 7 bankruptcy. But those with income above their state's median income who can pay at least $6,000 over five years are forced into Chapter 13, where a debt repayment plan is ordered.

In Virginia, where the median annual income is $43,000, more cases are ending up in the latter category.

"It's designed to make life miserable for anybody who owes money," says Lawrence Brooke, an attorney in Alexandria, across the Potomac River from Washington. "It's a help-the-banks, squish-the-little-guy law."

Mr. Brooke is one of several lawyers in northern Virginia who have abandoned consumer bankruptcy work since the new law took effect. "I won't have anything to do with it," he said, even though it has reduced his income.

Mr. Brooke said the paperwork hurdles for debtors to qualify for Chapter 7 have become insurmountable for many, and the workload and aggravation for attorneys have increased.

The income test for qualifying for Chapter 7 means more forms for people to give their lawyers: tax returns and pay stubs, and more questions from a bankruptcy trustee in the mandatory public sessions that already had probed into details of a person's mortgage, bills, life insurance, child support obligations, car payments.

"It's a whole different game now," said Gordon Peyton, one of the trustees in Alexandria. "It's much harder to file bankruptcy now."

Numbers tell the story: There were 263,660 personal bankruptcies filed nationwide in the first half of this year, down dramatically from 851,683 in the first six months of 2005 and 809,867 in the same period in 2004, according to the American Bankruptcy Institute, an organization of bankruptcy judges, lawyers and other experts.

Chapter 7 filings accounted for 58.8 percent of this year's first-half total, down from 75.8 percent in the first half of 2005 -- while filings under Chapter 13 debt reorganization jumped to 41.1 percent from 24.1 percent a year earlier.

Mr. Peyton, who used to preside over three or four of the so-called Section 341 sessions on the Thursdays it was his turn, says he now holds only two. His one-on-one interviews of the people filing, who sit across from him at a table after raising their right hand and being sworn in, can take up to 12 minutes or more -- compared with an average 35 seconds or so before the law took effect, he said.

"It's gotten so tricky. There are a lot of pitfalls," said Mr. Peyton, a private attorney appointed as a bankruptcy trustee by the Justice Department whose job is to administer a heavy load of cases.

Bankruptcy lawyers say the required changes have meant more work for them, and they are charging clients more for their services. Fees in some cases in northern Virginia have jumped from $750 or $1,000 to $1,500 or more.

In addition, under the new law people seeking bankruptcy protection are required to take credit counseling courses, which they must pay for. "It really does price a lot of people out of the market," said Nora Raum, a bankruptcy lawyer in Arlington, Va., who also works for National Public Radio in Washington.

The American Bankers Association disputes that, noting that the new bankruptcy law allows courts to waive filing and credit counseling fees for low-income people.

Proponents of the law say it has created a more balanced system that eliminates abuse and provides debt relief at the level at which people truly need it.

But some experts predict bankruptcy filings eventually will rebound. There was a huge rush of filings by financially strained consumers between the enactment of the legislation in April last year and the Oct. 17 deadline for the new means test and other requirements. Personal bankruptcies soared 30 percent to a record high last year, surpassing 2 million for the first time at 2,039,214.

Then came the precipitous drop.

Filings "will come back," said John Hartgen, spokesman for the American Bankruptcy Institute. After the shakeout period, with the underlying causes of indebtedness -- such as job layoffs -- still prevailing, equilibrium should return, he said.

Bankruptcy attorney Raum also expects that to happen. "Bankruptcy really is a kind of lagging indicator," she said. "It's the thing people do when they've exhausted all their other options."