In the past decade, the number of bankruptcy cases in South Dakota has averaged about 2,400 per year. But last year, there were just 1,400 cases.

A sign of economic improvement? Not necessarily. Changes in bankruptcy law have more to do with the recent ups and downs in the numbers of people seeking relief from creditors under the U.S. Bankruptcy Code.

In 2006, just 950 people filed bankruptcy in South Dakota. But in 2005, the number of bankruptcies soared to more than 4,000.

Why the big difference? The Bankruptcy Reform Act of 2005 is behind the swing, said Gus Johnson, a Rapid City lawyer who handles a lot of bankruptcy cases.

Under the new law, officials predicted, it was going to be more difficult to wipe away all your debts and start from scratch.

Some debtors would be required to repay some of their credit cards and other unsecured debt even after bankruptcy.

"The perception was that it was going to be harder," he said.

Thousands of South Dakotans rushed to file bankruptcy before the act went into effect in November of that year.

"I did more work in two months than I had done in the previous five years," Johnson said.

By 2006, the number dwindled because most people contemplating bankruptcy had filed in 2005. The lower number in 2007 could also be part of that hangover from the 2005 bankruptcy binge.

Under the new law, those deemed by a "means test" to have at least $100 a month left over after paying certain debts and expenses must file a five-year repayment plan under Chapter 13.

However, the practical effect of the new law, at least in South Dakota, was simply that bankruptcy filings became more expensive, Johnson said.

"For most, the new criteria were not an issue," he said.

But the added paperwork and extra requirements pushed the cost of filing bankruptcy through an attorney to between $1,000 and $1,500. Before the 2005 law change, bankruptcies cost $600 to $900, Johnson said.

Johnson said most of his bankruptcy clients fall into two categories: those who have primarily credit card debt and owe $15,000 to $50,000; and those who have primarily medical debt and owe between $75,000 and $125,000.

By the way, spring is the time of year when most people file for bankruptcy.

The reason: tax refunds. To file, you need pay legal fees and filing fees in cash up front, and a lot of cash-strapped debtors use their tax refunds to pay the legal fees.

Contact Dan Daly at 394-8421 or dan.daly@rapidcityjournal.com