NEW YORK, Sept 1 (Reuters) - Americans on track to file soon for bankruptcy protection are getting two words of advice: Don't wait.

"Bankruptcy is going to become more difficult and expensive," says Henry Sommer, co-editor of Collier on Bankruptcy, a major treatise in the field.

The Bankruptcy Abuse Prevention and Consumer Protection Act, which takes effect Oct. 17, will make it harder for individuals and companies to seek protection from creditors.

Signed by President George W. Bush in April, the law was long championed by credit card issuers such as Citigroup Inc. <C.N>, JPMorgan Chase & Co. <JPM.N> and MBNA Corp. <KRB.N>. They say old laws encouraged abuse and made it easy for consumers to avoid paying off debt.

But opponents call the changes too harsh. They say most filers aren't trying to escape debt, but face problems such as the loss of jobs, family illness or divorce. They also blame lenders for charging punishing interest rates and late fees.

"The problem is, a lot of these folks are hourly, blue-collar workers," says Michael O'Connor, a partner at O'Connor, O'Connor, Bresee & First PC in Albany, New York, whose bankruptcy clients include many single mothers and older people with big medical bills. "This law creates obstacles."

There were 1.58 million personal U.S. bankruptcies in the year ended Sept. 30, 2004, up 29 percent over four years, according to the Administrative Office of the U.S. Courts.

Bankruptcies have been rising ahead of the new law. From April to June, there were 458,991 filings, up 12 percent from a year earlier, according to research company LexisNexis.

Citigroup, the world's largest bank, has acknowledged the faster pace hurt second-quarter credit card revenue. Filings were actually down 3 percent from January to March.

Hurricane Katrina, which devastated much of the Gulf Coast, will cause more strain, with many thousands of people without homes, businesses or paychecks.

"Bankruptcies tend to fall like dominoes -- if someone is in trouble, he won't pay someone else, and that someone else will then be in trouble," says Lynn LoPucki, a bankruptcy professor at the University of California at Los Angeles.

MEANS TEST

Many people who seek protection from creditors file for a Chapter 7 liquidation, which lets them forgive their debts and get a "fresh start."

But the new law requires judges to follow guidelines to determine whether people should instead file for reorganization under Chapter 13.

The big change is the creation of a "means test."

Debtors who earn more than the median income in their states and can repay at least $100 a month for five years -- perhaps 15 percent to 20 percent of individual filers -- won't be able to file under Chapter 7.

Instead, they must use Chapter 13, which mandates a debt repayment schedule. More debtors will thus have to pay at least some of their debts. Debtors in higher-income cities may find themselves flunking the means test more often.

The costs and complexity of bankruptcy will also rise. Legal fees, which can run $1,000 and more now, could rise hundreds of dollars, lawyers say.

"The forms have the look and feel of a tax return," says Howard Ehrenberg, a partner at SulmeyerKupetz PC in Los Angeles. "Lawyers must also certify they have reviewed the forms and believe them to be true."

Another change requires debtors to go through credit counseling before filing for bankruptcy, and financial education before they get out.

Ehrenberg expects many debtors to end up seeking out advisers who may offer lower-cost, lower quality advice. "In my experience as a trustee, debtors who try to do it themselves make more mistakes," he says.

CONCERNS OVERBLOWN?

But Wayne Abernathy, executive policy director at the American Bankers Association, says: "I wonder how seriously to take the concerns, especially when provisions such as counseling will help people better handle their finances."

He says at least 10 percent of personal bankruptcies involve fraud in assessing debtors' assets or income levels. "Virtually all costs of bankruptcies (are borne) by people who are paying their bills -- or shareholders," he says.

Critics say abuse costs a typical U.S. family $400 a year.

But O'Connor, also a Chapter 7 trustee, says allegations of "massive" abuse are misplaced. "In studies I've seen, that 'massive' number is about 2 or 3 percent," he says.

One other likely result of the new law: fewer lawyers willing to take on Chapter 7 cases.

"The bill seems to make us lawyers liable if our clients give us wrong information," says a partner at one of the largest U.S. law firms, who asked not to be named. "A lot of law firms, including ours, decided that because of the bill, they will not represent Chapter 7 debtors, period."