NEW YORK, NY Despite claims earlier this year that bankruptcy practice would return to normal, the bottom is continuing to fall out.

The latest official figures from the Administrative Office of the U.S. Courts spell bad news for bankruptcy lawyers.

While dry statistics tell the story, those figures translate into far fewer people going the bankruptcy route for now.

For the third quarter of the federal fiscal year - April, May and June - the number of filings in New Jersey continued to plummet about 70 percent below normal, and the dramatic falloff was only a tad less in bankruptcy courts nationwide.

Statistics compiled from various federal reports by New Jersey Lawyer show this may not be just a one-year or short-lived nose dive, but rather suggest a sharp downward turn compared to third-quarter filings for New Jersey and the nation the past five years.

Indeed, filings nationwide were off about 65 percent during the quarter.

Earlier this year, bankruptcy lawyers portrayed the huge backsliding first recorded during the second quarter as a mere reaction to the law Congress enacted last year to make it more difficult to avoid debt by declaring bankruptcy.

Attorneys then fully expected the historically steady flow of filings to eventually return to historic numbers, and insisted their practice would not face a lasting impact.

Third-quarter figures here so far suggest otherwise, though time conceivably could soften such early doom-and-gloom warnings.

Still, the latest figures don't paint a pretty picture for bankruptcy lawyers.

"For me, personally, it's slow," said William L. Pegg Jr. of Morristown, who represents debtors. He reports a "substantial drop-off" in business.

"What bother me is I don't see any lowering of interest rates" by credit-card companies that benefited under the new law, he said.

Richard E. Weltman of Weltman & Moskowitz in Fair Lawn, who does a lot of work for creditors, said it's "fair to say Congress did not expect the numbers to drop as dramatically and precipitously as they have."

He said "far fewer practitioners are venturing into bankruptcy" work for debtors because of the additional steps now required to file a bankruptcy petition and the increased oversight lawyers must exercise.

Yet business isn't down, he said, in such areas as commercial litigation surrounding bankruptcy.

Picking up

John J. Scura III of Scura, Mealey, Scura & Stack in Wayne, who represents debtors, said business was "scary slow" at the beginning of the year, but things are "starting to pick up" in part because many lawyers who did only a few bankruptcies a year stopped and some now are referring cases to bankruptcy lawyers like him.

He also said credit-card companies have put out the word that "bankruptcy is gone." Potential clients sometimes ask if people can still file, he said.

Patrick N. Budd of Central Jersey Legal Services in Trenton said the additional documentation required under the new law has discouraged filings.

Historically third-quarter fillings in the Garden State have ranged from a low of 10,912 in 2002 to a high of 11,744 the previous year.

This fiscal year's third-quarter filings amounted to just 3,593.

Second-quarter filings here have ranged during the past five years from a low of 10,302 in 2005 to a high of 11,234 in 2004. The second quarter this year saw just 2,829 filings.

Analysts presumably will get a better assessment of any trend when fourth-quarter figures become public, likely sometime in late November.

As noted in previous New Jersey Lawyer assessments, the early trends underscore how tough federal legislation aimed at reining in abuses seemingly is accomplishing its intended goals - but at the same time it's apparently drying up a lucrative practice area.

National trend

Clearly, New Jersey isn't alone. Third-quarter figures nationally for years have hovered around 400,000 filings. This year, the number tumbled to 155,833.

There has been some speculation that the sharp second-quarter dip was an aberration resulting from implementation of the stricter bankruptcy regulations.

The law took effect Oct, 17, 2005, just weeks after the beginning of the first quarter. As a result - and as widely predicted - there was a gush of filings to beat the clock on the new law.

Some then fully expected a second-quarter decline.

Now, though, third-quarter numbers raise at least some questions as to whether the second-quarter falloff truly was a fluke.

Congress spent years debating and remolding the legislation designed to deter unnecessary filings.

The law specifies that people who file under Chapter 7 can go that route only if they earn less than the median income in their state. That means test is likely to move people away from Chapter 7, which wipes out all debt, to the tougher Chapter 13, which specifies that those able to repay a portion of the debt over five years must work out the process with creditors.

And before even filing, debtors must see a credit-counseling agency months in advance.

There also are more-stringent ways to calculate assets, including home values.

There are no automatic stays for eviction or for child support and other payments.

Although bankruptcy lawyers can be subject to steep fines if information filed for a client proves inaccurate, Neil J. Fogarty of Northeast Jersey Legal Services in Jersey City said sanctions aren't being employed.

"Attorneys don't have to be afraid of the big bad bankruptcy law," he said.

He also praised bankruptcy judges in New Jersey for waiving the $299 filing fee under Chapter 7, as the new law permits.

Comments about this story may be sent to Harvey Fisher.

Richard E. Weltman and Michael L. Moskowitz are members of Weltman & Moskowitz, LLP, a business - oriented law firm having offices in New York and New Jersey. The firm handles cases involving bankruptcy and creditor's rights, bankruptcy and business litigation, technology law, real estate, dispute resolution and many types of buy-sell agreements, partner disputes, and transactional matters. They can be reached at 212.684.7800 or 201.794.7500 or by e-mail.