I think that before we begin celebrating these common sense changes, we should recognize that from the credit card companies’ perspective, these new regulations will negatively impact profits. And credit card companies have many smart lawyers on staff advising them how to recapture those profits by taking actions that are not prohibited by the new laws.

I predict that when these new laws go into effect we are going to see more instances where credit lines are closed and demand for payments made. We will see more aggressive collection efforts sooner. We will see faster triggers on interest rate hikes because of the delays in hikes set out in the law. And we will see less inclination by credit card lenders to “work with” debtors who have always paid their bills but now need a little breathing room.

In my experience, any squeeze on credit card profits will equal a squeeze on consumers struggling to pay debt, and that will mean more consumers will end up looking at bankruptcy as a way out.

While experts believe some of the increase is due to a natural recovery as consumers and attorneys become accustomed to a recent overhaul of bankruptcy laws, the numbers indicate clear correlations to recession-weary regions. Arizona saw the fastest increase, a jump of 77 percent from the year before, followed by Wyoming (60 percent), Nevada (59 percent) and California (58 percent).

For three years, filings have been steadily rising back toward levels reached early in the decade before Congress overhauled the nation’s bankruptcy laws. The 2005 alterations made bankruptcy filings more cumbersome, a move that followed fears from lenders that some consumers were abusing the system to wipe away debts.

John Pottow, a bankruptcy professor at the University of Michigan, said the return to the highs of earlier this decade illustrates the failures of the 2005 overhaul bill. He said the measure largely made filings more costly and time-consuming by forcing consumers to undergo a paperwork-heavy test to determine eligibility for Chapter 7 bankruptcy and adding liability for attorneys who provide help.

“It never made sense in the first place that you could change the laws and make all these bankruptcies go away,” said Pottow, who would like to see the 2005 law changes repealed. “If people are encountering financial distress, you can only scare them away for so long before they come back again.”

The study found that the cure rate for prime loans dropped to 6.6% as of July 2009, from an average of 45% for the years 2000 through 2006. The cure rate of Alt-A loans fell from 30.2% to 4.3%, and for subprime loans fell from 19.4% to 5.3%.

Cure rates have plunged despite the Obama administration’s prodding of banks to ease the terms of mortgages for millions of borrowers to try to prevent foreclosures. Barclays Capital projects that the number of foreclosed homes for sale will peak at 1.15 million in mid-2010, up from an estimated 688,000 as of July 1, 2009.

According to the American Bankruptcy Institute, consumer bankruptcy filings reached 126,434 in July 2009, the highest monthly total since the rush of filings that occurred before the Bankruptcy Abuse Prevention and Consumer Protection Act was implemented in October 2005. The data came from the National Bankruptcy Research Center (NBKRC). The July 2009 consumer filing total represented a 34.3% increase nationwide from the same period a year ago, and an 8.7% increase over the June 2009 consumer filing total of 116,365. Chapter 13 filings constituted 28.3% of all consumer cases in July, slightly above the June rate.

“Today’s bankruptcy filing number reflects the sustained and growing financial stress on U.S. households,” said ABI Executive Director Samuel J. Gerdano. “Rising unemployment on top of high pre-existing debt burdens is a formula for higher bankruptcies through the end of this year.”

Click here to review the monthly bankruptcy filing charts.

Carolyn Chesnutt, a bankruptcy lawyer with Addison-based Charles R. Chesnutt, P.C., stated, “Often the most responsible, loving, hardworking, bill-paying people file for bankruptcy because of medical debt.”

Todd Mark of Frisco, who is vice-president of education at the Consumer Credit Counseling Service of Greater Dallas, found himself in the same situation as many of his clients. In February 2006, his two-year-old son, Josh, needed kidney and bladder surgery at Children’s Medical Center in Dallas. Mark was left with a $19,000 bill, even after the insurer paid 80% of the medical costs. Mark was fortunate to have enough money to pay the bill, but recognizes that many others do not.

Mark’s average client in 2008 had a gross income of $39,000 and unsecured debt of $28,000. According to Mark, most of that debt was related to divorce, layoffs, medical bills, or a combination of the three. “If you don’t have emergency savings, you’re one step away from financial crisis, whether your one step is a twisted ankle or a car wreck,” Mark said.

Hurst bankruptcy attorney David Ebert of the Ebert Law Offices PC confirmed that his clients follow the same pattern. “For those without cash or other liquid assets, the alternative is credit cards,” Ebert said. Ebert said that he processed 300 bankruptcies last year, and 60% involved high medical bills.

The study, which is published in the August 2009 issue of the American Journal of Medicine, indicates that the proportion of all bankruptcies attributable to medical problems rose from 49.6% in 2001 to the 62.1% figure in 2007. Surprisingly, 77.9% were insured at the beginning of the illness that resulted in bankruptcy, and most were solidly middle class before falling ill. Two-thirds were homeowners and three-fifths had gone to college. Often, medical bills coincided with a drop in income due to lost work time from the illness. And illness frequently led to job loss and the loss of health insurance.

Because of high out-of-pocket medical costs for co-payments, deductibles, and uncovered services, medically bankruptcy families with insurance had medical bills that averaged $17,749 versus $26,971 for the uninsured. Costs averaging $22,568 were incurred by those who initially had insurance coverage but lost it in the course of their illness.

The research was the first conducted nationwide on medical causes of bankruptcy. The researchers surveyed a random sample of 2,314 bankruptcy filers during early 2007, examined their bankruptcy court records, and conducted extensive telephone interviews with 1,032 of the bankruptcy filers.

Although Congress made it harder to file for bankruptcy in 2005, which caused a sharp drop in filings, personal bankruptcy filings have soared as the economy has deteriorated, and are now back to the 2001 level of about 1.5 million annually.

Dr. David Himmelstein, the lead author of the study and an associate professor of medicine at Harvard, commented, “Our findings are frightening. Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy. For middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, co-payments, and deductibles that illness can put you in the poorhouse. And even the best job-based health insurance often vanishes when prolonged illness causes job loss – precisely when families need it most. Private health insurance is a defective product, akin to an umbrella that melts in the rain.”

“For many families, bankruptcy is a deeply shameful experience,” noted Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard, a study co-author, and a leading expert on personal bankruptcy. “People arrive at the bankruptcy courts exhausted – financially, physically, and emotionally. For most, bankruptcy is a last choice to deal with unmanageable circumstances.”

According to study co-author Dr. Steffie Woolhandler, an associate professor of medicine at Harvard and primary care physician in Cambridge, Massachusetts, “We need to rethink health reform. Covering the uninsured isn’t enough. Reform also needs to help families who already have insurance by upgrading their coverage and assuring that they never lose it. Only single-payer national health insurance can make universal, comprehensive coverage affordable by savings the hundreds of billions we now waste on insurance overhead and bureaucracy. Unfortunately, Washington politicians seem ready to cave in to insurance firms and keep them and their counterfeit coverage at the core of our system. Reforms that expand phony insurance – stripped-down plans riddled with co-payments, deductibles, and exclusions – won’t stem the rising tide of medical bankruptcy.”

A copy of the study can be obtained from Physicians for a National Health Program, a membership organization of over 16,000 physicians which supports a single-payer national health insurance program.